The last installment of this column covered two recent opinions from Delaware and Colorado Bankruptcy Courts addressing whether a bankruptcy court has subject matter jurisdiction and constitutional authority to approve non-consensual third-party releases as part of a plan confirmation process. See Corinne Ball, “Decisions Consider Bankruptcy Court’s Authority to Approve Third-Party Releases,” NYLJ (Oct. 26, 2017). Those two opinions—In re Millennium Lab Holdings II, Case No. 15-12284 (LSS), 2017 WL 4417562 (Bankr. D. Del. Oct. 3, 2017) and In re Midway Gold US, Case No. 15-16835 (MER), 2017 WL 4480818 (Bankr. D. Colo. Oct. 6, 2017)—suggested different approaches to determining whether the bankruptcy court has jurisdictional or constitutional authority to approve the releases. The Delaware Bankruptcy Court, on remand from the District Court to determine whether it had constitutional authority, once again confronted the continuing objection from claimholders who did not want to release non-debtors and concluded that dealing with claims purportedly released by a plan brings the matter within the subject matter jurisdiction and constitutional authority of the bankruptcy court, because the inquiry is made in the context of confirming a plan, which is a core proceeding. The Delaware Bankruptcy Court was addressing claims for which the debtor had exposure through indemnity obligations, thus giving rise to some “conceivable effect” on the estate. The Colorado Bankruptcy Court, on the other hand, held that while the releases were included within a proposed Chapter 11 plan, and “confirmation of plans” are expressly made a core proceedings, the court could not “permit third-party non-debtors to bootstrap their disputes into bankruptcy case in this fashion.” In this case, the potentially released claims did not arise under the Bankruptcy Code, and were not otherwise connected to the debtors, the property of the debtors’ estates or the administration of the Chapter 11 cases. The court further reasoned that the fact that the non-debtor released parties “may have contributed financially” to the proposed Chapter 11 plan was “insufficient alone for the Court to find it [could] exercise ‘related to’ jurisdiction” over the potentially released claims.
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