In a recent decision in the case of SC SJ Holdings v. Pillsbury Winthrop Shaw Pittman (In re SC SJ Holdings), Civil Action No., 22-00689 (MN), the U.S. District Court for the District of Delaware (the court) affirmed a May 12, 2012, decision of the U.S. Bankruptcy Court for the District of Delaware (the Bankruptcy Court) denying the debtors’ motion for relief from certain releases contained in their confirmed plan (the plan). In particular, the debtors sought relief from the releases contained in their plan so that they could assert a malpractice claim against their former counsel. The Bankruptcy Court denied the debtors’ motion on the basis that such relief violated Sections 1127 and 1144 of the Bankruptcy Code.

As noted by the court, the debtors, prior to the commencement of their bankruptcy cases, operated a Fairmount Hotel in San Jose, California. Due to the COVID-19 pandemic, the debtors were experiencing financial difficulties and sought relief from Fairmount (the hotel operator), pursuant to a certain hotel management agreement, to pursue financing from other hotel operators. Fairmount refused and the debtors retained the law firm of Pillsbury Winthrop Shaw Pittman (Pillsbury). As set forth in the opinion, the debtors sought to retain Pillsbury to “provide advice on ‘considering and developing Chapter 11 options.’”