Litigation, insurance assets and injunctions received a mixed review in three recent opinions involving the liquidation of a debtor. The focus of today’s column is an opinion from the U.S. District Court for the Western District of Washington that involved the rejection of a commutation of insurance policies styled as a §363 sale of such policies to repurchasing insurers free and clear of claims, coupled with an injunction barring suit against such repurchasing insurers. On appeal to the district court, the bankruptcy court’s order was resoundingly reversed both as to the approval of the §363 sale and as to the injunction, relying upon long-standing Ninth Circuit precedent disallowing all third-party releases in bankruptcy as part of a confirmed plan. The district court also determined that the bankruptcy court was not empowered to issue a final judgement against the non-settling insurers. See In re Fraser’s Boiler Serv., No. 18-05637 (RBL) (W.D. Wash. March 8, 2019), ECF No. 44.
Another judgment was handed down by the U.S. Bankruptcy Court for the District of Delaware, which refused to confirm a plan providing for a liquidation fund for creditors and a litigation trust to pursue a claim against the project manager, coupled with an injunction against third parties, including creditors, suing the project manager. See In re Mammoet-Starneth LLC, No. 17-12925 (LSS) (Bankr. D. Del. April 17, 2019), ECF No. 675. Roughly concurrently, the U.S. Bankruptcy Court for the Southern District of New York denied confirmation of a plan that provided for third-party releases and an injunction barring suit against the purchaser of the debtor’s assets under the plan. That decision carefully reviewed prior cases on injunctions and releases, and concluded that on the facts presented the relatively high threshold for releases and injunctions was not met. See In re Aegean Marine Petroleum Network, No. 18-13374 (MEW) (Bankr. S.D.N.Y. April 8, 2019), ECF No. 520.
Factual Background
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