Reorg’s Court Opinion Review provides an update on recent noteworthy bankruptcy and creditors’ rights opinions, decisions and issues across courts. We use this space to comment on and discuss emerging trends in the bankruptcy world; our opinions are not necessarily those of Reorg as a whole. Today we consider an MDL judge slamming 3M’s Aearo bankruptcy maneuver, LTL Management’s campaign against the talc plaintiffs’ bar and Sears buyer Transform’s novel bankruptcy jurisdiction argument to the Supreme Court.
Happy New Year 2023! Restructuring
professionals and
investors seem to think this year is shaping up to be a big one for us restructuring professionals and investors, with a recession all but certain!
Good news, finally. We would love to cite similar predictions for 2022 here, but you all were
pretty convinced this past year would be slow on the big chapter 11 front. And it was - at least until December, usually the Festive Season of Year-End Fee Orders, turned into a running feast of crypto trash fires. Apologies, then, for the holiday silence of the Court Opinion Review. Onward and downward!
Stay tuned for Reorg First Day’s 2022 year in review for a full breakdown of the past year’s bankruptcy trends. And be sure to check out our
Primary View podcast for the latest from that side of the house.
Bankruptcy Blowback
Speaking of trash fires, how about the 3M/Aearo Technologies debacle? In September, an Indiana bankruptcy judge
denied the Aearo Technologies debtors’ motion for an injunction halting the Florida Combat Arms earplugs multidistrict litigation against parent 3M, depriving 3M of the key benefit of the whole file-a-zombie-affiliate chapter 11 strategy (pending
appeal). So the MDL rolls on against 3M, except the MDL judge is
a bit perturbed about the principal defendant trying to use the bankruptcy of a zombie affiliate to
collaterally attack her rulings and delay a wave of jury trials in district courts across the country.
Just how mad at 3M is U.S. District Judge M. Casey Rodgers of the Northern District of Florida? Her Dec. 22
opinion sanctioning 3M for trying to throw Aearo under the bus in future Combat Arms trials suggests she is very, very mad.
A little refresher for those of you who have been busy looking for real estate discounts in the Bahamas for the last two months: 3M
acquired Combat Arms earplugs, or CAEv2, developer and manufacturer Aearo in 2008. In 2010, a 3M division
absorbed Aearo’s earplugs business, and continued to sell CAEv2 (principally to the U.S. military) until 2015. According to 3M, all CAEv2 development and 80% of sales occurred
before the 2008 acquisition.
You can see where 3M is going with this: 3M intends to
Plan B Aearo with as much of the CAEv2 liability as possible by asking juries to tag the debtors with all pre-2008 damages rather than imposing joint and several liability (and thus responsibility for the entire amount of any award) on 3M and its affiliates. This has been the opioid defendants’ play from the start: The manufacturers blame the pharmacies, the pharmacies blame the doctors, the distributors blame the manufacturers. Hasn’t worked all
that well, but it’s worth a shot.
Except: This has decidedly
not been 3M’s strategy from the start of the CAEv2 litigation. In a motion for summary judgment
filed in the MDL on Oct. 4, the plaintiffs point out that for “more than three-and-a-half years of litigation,” including “19 bellwether verdicts” and “more than 400 fully-briefed summary judgment motions,” 3M
never argued “that it does not, in fact, bear full and independent liability for CAEv2-related injuries.”
In fact, 3M argued the opposite, at least when it suited 3M. To take advantage of statutory caps on damages against individual defendants in some states, 3M successfully argued in the MDL that “3M Company owns and controls 100% of the other five named defendants, rendering any suggestion that they are six separate parties for purposes of this litigation illusory.”
That is, until Aearo indemnified 3M for all CAEv2 liability, filed chapter 11 and asked the bankruptcy court to stop the MDL against 3M. Suddenly, 3M discovered that Aearo designed the CAEv2 and sold 80% of them before the acquisition, and decided to start arguing that it was not responsible for its newly awakened affiliate’s dastardly deeds.
In its
response to the motion for summary judgment, 3M did not bother denying the plaintiffs’ assertions about its strategy generally, though it picked at the edges a bit. Instead, 3M principally argued that the motion was procedurally improper and premature. According to 3M, the question of whether it is liable for Aearo’s pre-2008 misconduct cannot be decided by the MDL judge in advance of future trials but must be considered by the jury in each of those trials, which will proceed in the courts where they were filed rather than the MDL court.
“Without assessing each jurisdiction’s law and explaining how they can prevail thereunder, Plaintiffs provide the Court with no grounds to enter summary judgment in their favor,” 3M asserted.
In other words, 3M desperately (and understandably) wanted the issue decided by someone, anyone other than Judge Rodgers. The original idea was to get Judge Jeffrey Graham to decide the matter in the Aearo chapter 11 estimation process instead of juries, but now that seems unlikely without the litigation injunction. So 3M got religion on the jury system, which it basically called a mass tort lottery just a few months ago.
To the extent Judge Rodgers considered the motion, 3M alternatively argued that its failure to raise Aearo’s independent liability in 19 prior bellwether trials (including 16 that featured either exclusively pre-2008 conduct or both pre- and post-2008 conduct) in no way prevented it from doing so in future trials. “[L]ack of successor liability is not a defense that must be pleaded or else waived,” 3M said.
Unfortunately for 3M, Judge Rodgers did not view the implications of 3M’s strategy as a matter of state law or even waiver, but as an attempted affront to the entire Article III federal judicial system. In doing so, Judge Rodgers, like Judge Graham in his Aearo bankruptcy injunction
decision, takes a swipe at the concept of Article I bankruptcy courts taking mass-tort cases away from Article III courts - a constitutional retort to Judge Michael Kaplan’s “let them file bankruptcy”
opinion in the LTL Management/Johnson & Johnson two-step case.
Aearo’s bankruptcy itself is “a scheme to oust the Congressionally-established system for resolving mass tort disputes in Article III courts and install its new favored forum (for the moment, anyway), an Article I court, at the helm,” the MDL judge says. We couldn’t have
said it better ourselves. 3M’s goal, the judge continues, was to “reap all the benefits of bankruptcy with none of the attendant burdens” - and despite resistance from the bankruptcy court that should have ended the “sophistry,” that goal has been achieved, to some extent.
The “MDL is at a standstill,” Judge Rodgers notes, and “3M’s machinations have frustrated, manipulated, and delayed the fair, efficient, and effective resolution of hundreds of thousands” of CAEv2 claims. “No Wave trials, no remands, no nothing can go forward until 3M’s ruse is run up the flagpole,” the judge says, and 3M “freely admits” this “was by design.”
The judge holds that to mitigate 3M’s “bad faith reversal” of its prior one-defendant litigation strategy “solely to serve its strategic objectives in [Aearo’s] bankruptcy,” 3M will be barred from trying to allocate any liability onto Aearo in any future CAEv2 trial.
Five days later, Aearo did what any smart debtor does when backed into a corner: It
waved the mediation flag in bankruptcy court. Maybe
newly appointed mediator Judge Christopher Sontchi and the New York/Houston/Delaware
compromise-at-all-costs playbook can spur a breakthrough, but it doesn’t take Steve Kornacki tallying the same House Speaker vote over and over again to know that when one side has all the leverage and nothing to lose, compromise is unlikely.
The Takeaway: Next step for the plaintiffs: Now that 3M cannot push any of its liability off on Aearo, the CAEv2 plaintiffs are free to pull the InfoW maneuver:
Voluntarily dismiss all of their MDL claims against the Aearo debtors. This would further attenuate the links between the chapter 11 and the MDL, and put counsel for the Aearo debtors in a real bind considering their, shall we say,
informal duties to 3M (see below). In InfoW, the debtors quickly agreed to dismiss their bankruptcy case after being dismissed from the litigation - it’s pretty hard to say no to “we won’t try and hold you liable” - and affiliates Free Speech Systems and Alex Jones (the nondebtors seeking to use the InfoW case to “reap all the benefits of bankruptcy with none of the attendant burdens”) ended up filing. Somehow we doubt 3M would follow the same path.
The Fine Print: The split between judges on how much of the bankruptcy toolkit is available to help “third parties” remains stark. While both the bankruptcy and MDL courts handling CAEv2 matters are lockstep in making 3M’s life miserable, judges elsewhere continue on a more lenient path: In an
oral ruling delivered on Nov. 14, Judge James Garrity Jr. granted the Endo debtors’
motion for a preliminary injunction halting governmental opioid claims against the company, including actions that colorably implicated governmental police powers (which are exempted from the chapter 11 automatic stay). Unsurprisingly, Judge Garrity’s decision incorporates many of the same section 105 equitable findings relied on by Judge Robert Drain and Judge Michael Kaplan when granting similar relief in
Purdue and
LTL Management, respectively. States’ rights must still yield to the equitable fiat of unelected judges in pseudo-administrative tribunals, at least according to some unelected judges in pseudo-administrative tribunals.
Blowback, Part II
Speaking of LTL, we have to say we’ve never seen this before: On Dec. 16, LTL Management filed a
suit in bankruptcy court seeking damages against Dr. Jacqueline Miriam Moline for “knowing and repeated disparagement” of Johnson & Johnson’s talc products. The complaint, and a litigation funding disclosure motion filed by LTL shortly thereafter, kick off what could be a very nasty fight over the motives of attorneys for both sides in the chapter 11 proceeding.
According to LTL, in 2019 Moline published an article falsely claiming 33 individuals who used talc powder and developed asbestos-related cancer had no other potential exposures to asbestos besides the talc powder. Moline also made “false claims to the media, in scientific literature, at public conferences, and to Congress, judges and juries,” the debtor says, citing a recent decision from a North Carolina district court.
The debtor asserts that Moline’s false claims have caused LTL “significant and ongoing commercial, reputational, and financial harm,” and Moline must be “held accountable for the egregious harm she has caused” the debtor. The “cycle” of doctors fabricating “false narratives” and advancing “junk science” to support “the mass tort plaintiffs’ bar’s claims” must end, the debtor concludes.
We assure you that we absolutely, positively are
not going to touch the whole “mass tort plaintiffs’ bar” lightning rod here. What interests us is the fact that this suit was filed in
bankruptcy court by LTL, an entity
created in a law firm laboratory in 2021
solely to take a chapter 11 two-step dive for Johnson & Johnson. LTL never made or sold any talc; it never made or sold
anything. But LTL specifically seeks damages for
lost profits from talc-based products.
Ah, but LTL’s “predecessor” did sell talc products, the complaint explains, though a bit obliquely. “[W]hen LTL’s predecessor announced that it would stop selling talc-based Johnson’s Baby Powder in North America,” LTL says, the predecessor cited “declining” demand “due in large part to changes in consumer habits” that were “fueled by misinformation around the safety of the product and a constant barrage of litigation advertising.” “The Moline Article is a central element of that misinformation,” LTL alleges.
New JJCI received virtually all of the assets of Old JJCI, while LTL received all the talc liability and, apparently, some litigation assets, including claims for business disparagement against one of the talc plaintiffs’ expert witnesses and, indirectly, the plaintiffs’ firms representing the alleged baby powder victims.
In fact, we suspect LTL would have just sued the plaintiffs’ firms on the official tort claimants committee - the debtor’s
principal adversary in the chapter 11 case - but for the general immunity from defamation afforded to statements made in litigation. LTL hints that the plaintiffs’ firms - again, the members of the
official committee representing talc claimants appointed by the U.S. Trustee - effectively conspired with Moline to gin up the whole “talc causes cancer” business.
Moline’s “disparaging statements provided a foundation for the mass tort asbestos plaintiffs’ bar’s baseless claims against LTL, and they richly compensated her with millions of dollars of fees to act as their ‘expert’ and mouthpiece,” LTL alleges. According to LTL, “[T]he deliberate nature of Dr. Moline’s conduct demands a stringent award designed to deter such conduct, which has become a hallmark of the mass tort plaintiffs’ bar’s business model.”
Then, on Dec. 28, LTL filed a
motion seeking disclosure of the talc plaintiffs’ firms’ litigation funding, which brought more bombast in support of bankruptcy court tort reform. “Upon information and belief, some or all of the Plaintiff Law Firms have entered into financing arrangements with third parties to provide financial support to the firms to fund talc litigation against the Debtor and its affiliates,” LTL says.
Sure, okay - we
know Johnson & Johnson is effectively paying Jones Day to represent LTL under a prepetition funding agreement, in the same way 3M is
paying Kirkland & Ellis to represent Aearo - so we should also know who holds the plaintiffs’ purse strings.
LTL goes a bit further than disclosure, though, and uses the motion to launch more attacks on the official committee of talc claimants, or TCC, members and other plaintiffs’ firms. Specifically, LTL suggests that the plaintiffs’ lawyers are allowing the litigation funding providers to control the litigation at the expense of their clients, the plaintiffs themselves.
“As courts and commentators have recognized, third-party litigation funding may impact a law firm’s decisions about litigation,” LTL says. “Disclosure of the terms of the funding agreements and the outstanding amounts of any loans will show the extent that the Funders (i) are the real parties in interest with actual control over decisions made in this case, (ii) have the right to be consulted about or influence such decisions, or (iii) have extended financing on terms that
create an impediment to a resolution of this bankruptcy case that is in the best interests of the claimants“ (emphasis added).
“Indeed, this disclosure is necessary to afford claimants the assurance that the mediation prioritizes their interests, and any agreement takes account of those interests, notwithstanding the presence of this financing,” LTL continues. “Funders do not have the same ethical and fiduciary obligations to talc claimants as the Plaintiff Law Firms,” LTL maintains, and thus “transparency about who is making or influencing decisions is necessary to determine if the Plaintiff Law Firms or their Funders are the real parties in interest and whether the Plaintiff Law Firms are able to make decisions solely based on the claimants’ best interests or if those decisions are influenced by the Plaintiff Law Firms’ own interests or those of their Funders.”
To which we say: Absolutely! But LTL, and its counsel Jones Day, are playing with fire here. “As courts and commentators have recognized, third-party litigation funding may impact a law firm’s decisions about litigation,” LTL says, and we presume they have the receipts. This sure sounds a lot like the plaintiffs’ firms on the official committee that
unsuccessfully objected to Kirkland & Ellis’ retention as chapter 11 counsel for Aearo at least in part because of that firm’s receipt of hundreds of millions in fees as litigation defense counsel for 3M.
Heck, even the LTL plaintiffs might agree - after all, they
unsuccessfully objected to the debtor’s retention of Jones Day because of its prepetition connections with Johnson & Johnson. Though the objection focused on Jones Day’s role in designing the two-step rather than Johnson & Johnson’s role as the ultimate financier of the firm’s chapter 11 efforts (perhaps because Johnson & Johnson is also indirectly paying the committee’s attorneys’ fees!), the plaintiffs’ rhetoric regarding third-party purse-string influence bears a striking resemblance to LTL’s arguments regarding the potentially pernicious influence of the litigation funders.
“It is simply not credible to assert” that on the petition date, Jones Day “suddenly took off its ‘J&J hat’ and now solely represents the interests of the estate,” one of the LTL plaintiffs’ firms argued.
Jones Day and LTL are walking a tightrope. Evaluating counsel by who is “pulling the purse strings” and not their fiduciary duties to their client opens up a whole can of worms. Your imagination need not wander far to come up with a scenario whereby Jones Day’s loyalty to LTL, like the plaintiffs’ firms’ loyalty to their clients, might be compromised by the lawyers’ ties to their financial benefactors. Suppose the plaintiffs’ firms approach LTL’s attorneys with a proposal: The plaintiffs will drop all of their claims against LTL (InfoW-style) if LTL asks Judge Kaplan to vacate the preliminary injunction protecting Johnson & Johnson and dismiss the chapter 11.
Wouldn’t a truly independent debtor be hard-pressed to reject that deal? Sure, Johnson & Johnson could seek indemnification under the funding agreement, but so what? There’s no funding for that. Let Johnson & Johnson sue in state court. But in the real world, we all know LTL would likely reject such an offer; the only hard part is figuring out how to say “no” without saying the quiet part out loud - that Johnson & Johnson’s interests would not be served by such a deal.
Applying LTL’s contentions regarding the litigation funders to its relationship with Johnson & Johnson, it would be
ludicrous to pretend that Johnson & Johnson is not the “real party in interest” and does not have “actual control over decisions made in this case” and “the right to be consulted about or influence such decisions.”
We said so much ourselves in
defending the retention of Kirkland & Ellis in the Aearo case. “The idea that the interests of 3M and Aearo are not aligned here in the real world is
ludicrous,” we said. The same reasoning applies to LTL and Johnson & Johnson.
If taken in isolation, the disclosure motion seems innocuous. Why not pull back the curtain on who is really in charge here, and bring them into the discussion openly, without playing make-believe? The complaint against Moline, however, tells us the disclosure motion is not really about transparency; it is about attacking the plaintiffs’ firms as acting against the interests of their clients. That is a very, very dangerous game to play: Fiduciary duties to clients impose a
lot of obligations, but aren’t they supposed to protect us from exactly this type of speculation?
The Takeaway: If you’re going to go after plaintiffs’ lawyers as puppets controlled by their
nefarious funding sources to the detriment of their clients, be prepared for the same attacks to be turned on you.
The Fine Print: Speaking of dangerous games, Kenneth Feinberg’s independent assessment of talc liability
seems likely to come out in March if the parties (and their attorneys, and their benefactors) cannot reach a deal by then. Perhaps the Moline suit is aimed less at the plaintiffs’ bar and more at preventing Feinberg from citing Moline’s research? And what happens if Feinberg finds liability without relying on Moline
and the plaintiffs end up with valid claims
and the debtors prevail in the suit? Wouldn’t the plaintiffs then end up being the beneficiaries of any disparagement damages recovered from
their own expert witness?
Sears at SCOTUS
On Dec. 5, the U.S. Supreme Court heard
oral argument in the
dispute over Sears’ assignment of a lease at the Mall of the Americas to Transform Holdco. Specifically, the court considered whether the mall can appeal an order approving the assignment despite section 363(m) of the Bankruptcy Code, which generally prevents appellate courts from reviewing orders approving the bankruptcy sale of assets to a good-faith purchaser absent a stay pending appeal.
But very little of the oral argument was focused on the actual issue certified by the court. Instead, the judges seemed alternately captivated and astounded by a novel jurisdictional argument made by Transform.
Quick refresher: In February 2019, Transform
completed its purchase of Sears’ assets. Like many other retail asset sales lately, the assets sold included “designation rights” - the debtors’ right to subsequently designate leases for assumption and assignment.
However, the sale order specifically preserved landlords’ right to object to assumption and assignment on any grounds after designation. The sale order also provided that “conveyance of the Designation Rights shall not effectuate a sale, transfer, assignment or conveyance of any Designatable Lease to Buyer or any other Assignee,” and made clear closing was not contingent on the effective assignment of any specific lease that Transform might designate. Finally, the sale order provided that the purchase price was not subject to adjustment based on the unsuccessful assignment of any specific lease.
After the MOAC Mall Holdings lease was designated for assignment, the mall objected on adequate assurance grounds, and that objection was
overruled by Judge Drain in August 2019. The mall asked the judge to stay his order pending appeal to prevent the possible application of section 363(m), but Judge Drain denied that motion after Transform’s lawyers specifically waived the right to invoke the provision. Judge Drain even remarked that he did not think section 363(m) applied, since the order at issue approved an assumption and assignment under section 365 rather than a sale under section 363.
On appeal, U.S. District Judge Colleen McMahon
reversed Judge Drain’s decision on the merits. After the decision, Transform
sought reconsideration, arguing for the first time that section 363(m) applied and prevented Judge McMahon from even considering the appeal. Judge McMahon, following Second Circuit precedent, reluctantly agreed, and
dismissed the appeal after scolding Transform’s lawyers.
The Second Circuit
affirmed, concluding that section 363(m) is jurisdictional and thus its protections could not be waived by Transform. The Second Circuit also disagreed with Judge Drain’s intuition and held that the assignment order was covered by section 363(m), even though it was entered under section 365, because it was “integral” to the earlier sale under section 363.
In June 2022, the Supreme Court
agreed to consider the narrow issue of whether section 363(m) is a jurisdictional bar or can be waived. But rather than focusing on the narrow issue that, you know, the Supreme Court instructed the parties to focus on, counsel for Transform advanced a new theory: that section 363(m) is
irrelevant because the assignment issue is
constitutionally moot.
According to Transform, there is no federal jurisdiction over the dispute
at all - even in the Supreme Court! - because no federal court can now grant the remedy sought by the mall (the undoing of the assignment). When the sale closed, Transform asserts, the lease ceased to be property of the estate - even though it was not designated for assignment until months later - and all federal
in rem bankruptcy jurisdiction over the lease disappeared. Because no federal court has jurisdiction to grant any remedy to the mall for the allegedly improper assignment, the appeals are constitutionally moot, and the Supreme Court basically has to sit on it and spin.
Your second-year associate might respond that if the assignment was not properly authorized under the Bankruptcy Code, then why can’t the bankruptcy court void it as an unauthorized transfer under section 549? Transform has an answer for that: Avoidance is not available as a remedy, it asserts, “because Sears waived all avoidance claims in the Sale Order.” Under the Bankruptcy Code, third parties like MOAC cannot bring avoidance claims, Transform argues, so Sears’ waiver is all she wrote for MOAC. Even if Sears’ waiver does not moot the dispute, Transform adds, the two-year period for bringing avoidance actions has run.
Most of the Dec. 5 oral argument was dedicated to this extraordinary argument, even though, again, this
was not the issue up for review. The justices seemed both fascinated and flabbergasted by the boldness of this gambit, and counsel for Transform played it to the hilt.
Justice Sonia Sotomayor was the most skeptical, pointing to the sale order’s specific reservation of jurisdiction over post-closing assignment disputes. “That’s what you bought,” Sotomayor told counsel, and under these circumstances, “I don’t understand how the court has lost jurisdiction.” Counsel replied that the reservation of jurisdiction in the sale order was effectively surplusage. The bankruptcy court’s jurisdiction to approve asset sales is purely
in rem, counsel argued, and that jurisdiction ceased once and for all when the sale closed and the avoidance period expired.
Justice Amy Coney Barrett, however, seemed eager to leave the constitutional issue to the lower courts should the Supreme Court reverse the section 363(m) ruling by the Second Circuit. If counsel is so “confident” his argument on
in rem jurisdiction is correct - and man, was he ever confident - “you’ll win below.”
“The ship has sailed,” counsel replied, and “you cannot possibly get it back into port.” Justice Barrett retorted that “if that’s true, why did you waive” the section 363(m) issue “so many times in this case?” “The only reason we’re here is because you brought it up late,” Barrett added, after the district court “had already ruled against you” on the merits.
If that little bench-slap deterred Transform counsel, it didn’t show. At all. One of the justices asked counsel if he had “anything to say about the question presented” - the section 363(m) issue - and counsel argued that in enacting section 363(m), Congress intended to codify “200 years” of commercial law to the effect that appellate courts lack authority to even
consider invalidating asset sales or recovering property from good-faith purchasers. Such purchasers, counsel argued, need not be “concerned with any errors” the court approving the sale might have made.
You heard that right: Counsel was lecturing the six Federalist Society historians on the Supreme Court on “centuries” of common law authority. The
chutzpah is
delightful.
In contrast, counsel for MOAC had to resort to the rather more dull argument that section 363(m) does not say a single word about appellate courts’ jurisdiction over sale disputes. Justice Neil Gorsuch told counsel for Transform that he is “deeply confused by this case” because normally the Supreme Court requires “magic words” in a statute to deprive appellate courts of jurisdiction. Counsel for Transform replied that section 363(m) is exactly what such “magic words” look like in the
in rem jurisdiction context. Again, those magic words do not include the word “jurisdiction.”
Even if section 363(m) is jurisdictional and its protections therefore cannot be waived, MOAC counsel said, section 363(m) does not apply to assignment orders under section 365. This is also not an issue certified for review by the court!
The Takeaway: Sure
seems like the logical move is for the court to either affirm on the section 363(m) issue - effectively codifying the designation-rights sale as an appellate get-out-of-jail-free card for subsequent erroneous assignment orders - or reverse and let the district court deal with Transform’s absolutist position on
in rem jurisdiction. But imagine the chaos if SCOTUS throws a spanner into the works by agreeing with Transform’s “bigger” take. Bankruptcy courts would effectively have
carte blanche to approve sales and related lease/contract assignments so long as the purchaser acts in good faith.
The Fine Print: If the Supreme Court rejects Transform’s
in rem jurisdiction argument and finds that section 363(m) is not jurisdictional, the effect should be fairly minimal. How many times has an asset purchaser actually agreed not to assert section 365(m) mootness on appeal? All that will be lost is what may have been a brilliant tactical move by Transform counsel, assuming - and we have our doubts - that the initial “waiver” was always taken as a Hail Mary on a free play.
Other Matters:
- Releases on the Ropes?: On Dec. 14, Judge Karen Owens rejected the proposed nondebtor releases in the GT Real Estate middle-market case, which involves the Carolina Panthers’ abandoned South Carolina headquarters project. Judge Owens found “nothing sufficiently extraordinary” about the case to justify nonconsensual releases for Panthers owner David Tepper, the project’s construction manager, lenders and other parties. The judge added that she did not believe the debtors had shown the releases were “necessary” under the plan as required by the Third Circuit, despite the debtors’ boilerplate assurances that the releasees would not make their “substantial contributions” to the restructuring. Unfortunately, the debtors were not bluffing, and immediately after the decision they converted their case to chapter 7, leading to potentially years of acrimonious and expensive litigation and the inevitable loss of value for stakeholders.
Just kidding! The very next day, Dec. 15, the debtors filed an
amended plan that limited the nondebtor releases to creditors that affirmatively consented in writing. Later that day, Judge Owens
confirmed the plan as amended.
--Kevin Eckhardt