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No. 16-412
________________________________________________________________
In The
Supreme Court of the United States
___________________________________________________
IN RE PADCO, INC.,
Debtor,
MEGAN KUZNIEWSKI,
Petitioner,
v.
PADCO, INC.,
Respondent.
________________________________________________________
On Writ of Certiorari to the United States
Court of Appeals for the Thirteenth Circuit
_____________________________________________________________
BRIEF FOR PETITIONER
________________________________
ORAL ARGUMENT REQUESTED
Team P46
Counsel for Petitioner
TeamP46
QUESTIONS PRESENTED
1. Whether an appellate court has authority to decline to hear an appeal from a bankruptcy
court order confirming a chapter 11 plan on prudential grounds using equitable mootness
principles?
2. Whether a chapter 11 plan of reorganization can permanently enjoin non-derivative
claims held by non-consenting creditors against non-debtors when no provision is made
for full payment of the enjoined claims?
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TABLE OF CONTENTS
QUESTIONS PRESENTED............................................................................................................ i
TABLE OF CONTENTS................................................................................................................ ii
TABLE OF AUTHORITIES ......................................................................................................... iv
OPINIONS BELOW..................................................................................................................... vii
STATEMENT OF JURISDICTION............................................................................................. vii
STATUTORY PROVISIONS ...................................................................................................... vii
STATEMENT OF THE CASE....................................................................................................... 1
SUMMARY OF THE ARGUMENT ............................................................................................. 3
ARGUMENT .................................................................................................................................. 5
I. AN APPELLATE COURT DOES NOT HAVE AUTHORITY TO DECLINE TO HEAR
AN APPEAL FROM A BANKRUPTCY COURT ORDER CONFIRMING A CHAPTER 11
PLAN ON PRUDENTIAL GROUNDS USING EQUITABLE MOOTNESS PRINCIPLES 5
A.The Equitable Mootness Doctrine Is Not Supported By The Bankruptcy Code or
Abstention Doctrines .......................................................................................................... 5
1.The Equitable Mootness Doctrine Grossly Exceeds The Firm Boundaries Established
by Congress In The Bankruptcy Code To Protect The Finality Of Certain
Reorganization Plans
5
2.Abstention Doctrines Are Carefully Authorized by This Court And Do Not Include
The Equitable Mootness Doctrine
7
B.Fairness and Equity Are Not Sufficient To Uphold the Equitable Mootness Doctrine .... 10
C.The Equitable Mootness Doctrine Undermines An Appellate Court’s Obligation To Hear
Meritorious Cases Under Article III Of The Constitution ................................................ 13
II. A CHAPTER 11 PLAN OF REORGANIZATION CANNOT PERMANENTLY ENJOIN
NON-DERIVATIVE CLAIMS HELD BY NON-CONSENTING CREDITORS AGAINST
NON-DEBTORS WHEN NO PROVISION IS MADE FOR FULL PAYMENT OF THE
ENJOINED CLAIMS. ............................................................................................................ 15
A.The General Equitable Powers Provided by 11 U.S.C. § 105(a) Cannot Be Used To
Support Gadget’s Permanent Injunction Against Non-Consenting Creditors, Including
Kuzniewski. ...................................................................................................................... 16
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1. Gadget’s Permanent Injunction Against Victims of Padco’s Exploding Batteries
Functions As A Non-Debtor Discharge Under 11 U.S.C. § 524(a) And, Therefore, is
Prohibited By 11 U.S.C. § 524(e) ............................................................................... 17
2. The Provisions of 11 U.S.C. § 524(g) Demonstrate that 11 U.S.C. §524(e) Is Not a
Mere Savings Provision .............................................................................................. 20
B.11 U.S.C. § 1123(b)(6) Does Not Grant The Bankruptcy Court Power to Discharge Third
Parties From Non-Consenting Creditor’s Claims Against The Debtor. ........................... 21
CONCLUSION ............................................................................................................................. 22
APPENDIX A ............................................................................................................................... I
APPENDIX B ............................................................................................................................... II
APPENDIX C ............................................................................................................................... III
APPENDIX D
IV
APPENDIX E
VI
APPENDIX F
VII
APPENDIX G
VIII
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TABLE OF AUTHORITIES
FEDERAL STATUTES
11 U.S.C. § 363(m) .........................................................................................................................5
11 U.S.C. § 364(e) ..........................................................................................................................5
11 U.S.C. § 524(a) .................................................................................................................passim
11 U.S.C. § 1123(b)(6) ......................................................................................................... passim
UNITED STATES SUPREME COURT CASES
Baker v. Carr,
369 U.S. 186 (1962) ............................................................................................................7, 8
Cohens v. Virginia,
19 U.S. (6 Wheat.) 264 (1821) ............................................................................................7, 9
Colo. River Water Conservation Dist. v. United States,
424 U.S. 800 (1976) ............................................................................................................5–7
Commodity Futures Trading Comm’n v. Schor,
478 U.S. 833 (1986) ..............................................................................................................13
Lexmark Int’l, Inc. v. Static Control Components, Inc.,
134 S.Ct. 1377 (2014) .....................................................................................................10–11
Quackenbush v. Allstate Ins. Co.,
517 U.S. 706 (1996) ................................................................................................................7
R.R. Comm’n of Tex. v. Pullman Co.,
312 U.S. 496 (1941) ................................................................................................................7
Sprint Communications, Inc. v. Jacobs,
134 S.Ct. 584 (2013) ...........................................................................................................7–9
Wellness Int’l Network, Ltd. v. Sharif,
135 S.Ct. 1932 (2015) .....................................................................................................12–13
Younger v. Harris,
401 U.S. 37 (1971) ..............................................................................................................7–8
Zivotofsky ex rel. Zivotofsky v. Clinton,
132 S.Ct. 1421 (2012) .........................................................................................................7–9
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UNITED STATES COURT OF APPEALS CASES
Abel v. West,
932 F.2d 898 (10th Cir. 1991) ..............................................................................................16
American Hardwoods, Inc. v. Deutsche Credit Corp. (In re American Hardwoods, Inc.),
885 F.2d 621 (9th Cir. 1989). .............................................................................................17
Airadigm Communications, Inc. v. FCC (In re Airadigm Communications, Inc.),
519 F.3d 640 (7th Cir. 2008) ................................................................................................14
Chiasson v. J. Louis Matherne & Assocs. (In re Oxford Mgmt., Inc.),
4 F.3d 1329 (5th Cir. 1993) ..................................................................................................15
Class Give Nev. Claimants v. Dow Corning Corp. (In re Dow Corning Corp.),
280 F.3d 648 (6th Cir. 2002) .........................................................................................15, 21
Deutsche Bank AG, London Branch v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber
Network, Inc.),
416 F.3d 136, 141 (2d Cir. 2005)....................................................................................14, 17
Feld v. Zale Corp (In re Zale Corp.),
62 F.3d 746 (5th Cir. 1995) ......................................................................................14, 16, 19
Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.),
10 F.3d 944 (2d Cir. 1993)......................................................................................................4
Gillman v. Continental Airlines (In re Continental Airlines),
203 F.3d 203 (3d Cir. 2000).......................................................................................... passim
In re Continental Airlines,
91 F.3d 553 (3d Cir. 1996)
In re One2One Communications, LLC,
805 F.3d 428 (3d Cir. 2015).......................................................................................... passim
In re Phila. Newspapers, LLC,
690 F.3d 161 (3d Cir. 2012)....................................................................................................9
In re Thorpe Insulation Co.,
677 F.3d 869 (9th Cir. 2012) ..................................................................................................6
Landsing Diversified Props. v. First Nat’l Bank & Trust Co. (In re Western Real Estate Fund,
Inc.),
922 F.2d 592, 601-02 (10th Cir. 1990). ................................................................................14
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MacArthur Co. v. Johns-Manville Corp. (In re Johns-Manville Corp.),
837 F.2d 89 (2d Cir. 1988)....................................................................................................19
Matter of Envirodyne Indus., Inc.,
29 F.3d 301 (7th Cir.1994) ...................................................................................................19
Menard-Sanford v. Mabey (In re A.H. Robins Co.),
880 F.2d 694 (4th Cir. 1988) ................................................................................................15
Nordhoff Investments, Inc. v. Zenith Electronics Corp.,
258 F.3d 180 (3d Cir. 2001)............................................................................................12, 13
Ochadleus v. City of Detroit (In re City of Detroit),
838 F.3d 792 (6th Cir. 2016) ............................................................................5, 7, 11, 12, 13
Resorts Int’l v. Lowenschuss (in re Lowenschuss),
67 F.3d 1394 (9th Cir. 1995) ................................................................................................14
Samson Energy Resources Co. v. Semcrude L.P. (In re Semcrude),
728 F.3d 314 (3d Cir. 2013)................................................................................................4, 9
Search Market Direct, Inc. v. Jubber (In re Paige),
584 F.3d 1327 (10th Cir. 2009) ..............................................................................................4
UNITED STATES BANKRUPTCY COURT CASES
In re Texaco, Inc., 84 B.R. 893 (Bankr. S.D.N.Y. 1988)...........................................................18
SECONDARY SOURCES
19 Charles Alan Wright, et al., Federal Practice and Procedure
§ 4516 (2d ed. 2016) ...............................................................................................................5
4-524 Collier on Bankruptcy P 524.07 (16th 2016) ...................................................................19
Gregory Bass & Jeffrey S. Gutman, Federal Practice Manual for Legal Aid Attorneys
§ 2.8 (2015) .............................................................................................................................6
Richard H. Fallon, Jr., Of Legislative Courts, Administrative Agencies, and Article III,
101 Harv. L. Rev. 915, 939 (1988) .......................................................................................13
Brief of Former Federal Judges as Amici Curiae Supporting Petitioner, Aurelius Capital
Management, LP v. Tribune Media Co. (In re Tribune Media Co.),
799 F.3d 272, cert. denied, 136 S.Ct. 1459 (2016) (No. 15-891) (mem.), 2016 WL 676008 6
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OPINIONS BELOW
Bankruptcy Court for the District of Moot entered an unpublished order confirming
Padco’s Plan of reorganization. (R. at 5). The Bankruptcy Court entered an unpublished order
denying petitioner’s request for stay. (R. at 5). Additionally, the District Court for the District
of Moot entered an unpublished order denying petitioner’s request for stay. (R. at 5). The
District Court then issued an unpublished order affirming the Padco’s motion to dismiss the
petitioner’s appeal as equitably moot. (R. at 5). The Court of Appeals for the Thirteenth Circuit
affirmed the holding of the District Court. (R. at 14). This appeal follows.
STATEMENT OF JURISDICTION
The formal statement of jurisdiction is waived pursuant to Competition Rule VIII.
STATUTORY PROVISIONS
The relevant statutory provisions in this case are listed below and reproduced in
Appendices A through G.
11 U.S.C. §§ 105, 363, 364, 524, 1123 (2012);
28 U.S.C. §§ 158, 1334 (2012).
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STATEMENT OF THE CASE
Petitioner Megan Kuzniewski (“Ms. Kuzniewski”) seeks to challenge the respondent
Padco, Inc.’s (“Padco”) confirmed bankruptcy plan for reorganization and injunction against
direct claims. Ms. Kuzniewski joined a group of creditors who voted to reject the plan and
timely sought two stays of the confirmation order, one in each of the Bankruptcy Court and
District Court. (R. at 5). Both stays were denied. (R. at 5). Following dismissal in the District
Court for the District of Moot, which was affirmed by the Court of Appeals for the Thirteenth
Circuit, Ms. Kuzniewski filed a petition for a writ of certiorari with the Court.
Due to defective batteries that caused many Padco products to explode, resulting in
serious damage to the company’s reputation, Padco filed for chapter 11 bankruptcy in an attempt
to reorganize and avoid liquidation. (R. at 2). Unfortunately, the damage to Padco’s reputation
and its lack of capital to continue operations severely hindered the chapter 11 reorganization
efforts. (R. at 2). Gadget, Inc. (“Gadget”), a publicly traded technology company, agreed to
finance the reorganization and acquire Padco. (R. at 2). Gadget invested more than $500 million
and secured approximately $2.6 billion in borrowing through a series of public bond offerings
after acquiring Padco and the reorganization was confirmed. (R. at 3). However, Gadget’s
involvement in the reorganization was contingent upon the injunction of all claims, such that
Gadget would be free of all liabilities related to Padco. (R. at 2–4). The most serious concern
for Gadget, according to its Chief Executive Officer, were the novel claims raised by Ms.
Kuzniewski against Gadget. (R. at 4). Essentially, these novel claims sought to hold Gadget (a
non-debtor) directly liable for the defective battery that was developed while Padco was a
subsidiary of Gadget. (R. at 4). Although this novel theory of liability had little chance of
success according to the Bankruptcy Court, Gadget was unwilling to assume the risk. (R. at
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4). In order to provide Gadget with immunity, and prevent creditors’ access to justice, the Padco
plan included a permanent injunction that enjoined the victims of Padco’s exploding batteries
from bringing any claims against Gadget that were related to the battery defect. (R. at
4). Creditor’s subject to the injunction, including Ms. Kuzniewski, were placed in a separate
class of unsecured creditors and provided with compensation for their enjoined direct claims
against Gadget. (R. at 4).
Ms. Kuzniewski, along with approximately 20 percent of the other
creditors, voted to reject the plan, but were still subject to the injunction. (R. at 4).
The reorganization plan was confirmed in January of 2015 and affirmed by the District Court
over a year and a half later, in mid-2016. (R. at 3). While Gadget has reaped the benefits of the
reorganization plan, Ms. Kuzniewski and other creditors have been denied their right to have
their claims heard on appeal and seek fair and equitable reparations for the damage suffered from
Padco’s dangerous products. (R. at 3, 5).
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SUMMARY OF THE ARGUMENT
Petitioner in this case argues that (1) an appellate court lacks the authority to decline
to hear an appeal from a bankruptcy court order confirming a chapter 11 plan on prudential
grounds using equitable mootness principles; and (2) provisions of the Bankruptcy Code prohibit
a chapter 11 plan of reorganization from permanently enjoining non-derivative claims held by
non-consenting creditors against non-debtors when no provision is made for full payment of the
claims.
In the Bankruptcy Code, Congress established firm boundaries to protect the finality of
plans of reorganization. However, the equitable mootness doctrine grossly exceeds Congress’
limitations. While this Court has cautiously authorized abstention doctrines, it has not allowed
courts to use the equitable mootness doctrine. Furthermore, Prudential considerations of fairness
and equity are not sufficient to uphold the equitable mootness doctrine. The equitable mootness
doctrine violates Article III of the Constitution and undermines an appellate court’s obligation to
hear meritorious cases.
The Code also contains provisions that courts must adhere by. Generally, 11 U.S.C. §
105(a) and 11 U.S.C. § 1123(b) act as equitable powers, permitting courts to carry out provisions
of the Code. However, those sections cannot be used to overcome already-existing provisions in
the Code. Specifically, those sections must not be applied support plan provisions allowing nondebtors to maintain permanent injunctions against third party, non-consenting creditors. Nondebtors’ permanent injunctions effectively function as a discharge under 11 U.S.C. § 524(a), and
they violate 11 U.S.C. § 524(e). Allowing non-debtors to receive injunctive relief in asbestosrelated cases under 11 US.C. § 524(g) demonstrates that Congress did not intend for 11 U.S.C.
§524(e) to allow non-debtor releases otherwise.
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For the foregoing reasons, this Court should reverse the decision of the Thirteenth Circuit
Court of appeals and (1) strike the equitable mootness doctrine in its entirety; and (2) hold that
chapter 11 plans of reorganization cannot contain provisions that permanently enjoin nonconsenting creditors’ claims against non-debtors.
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ARGUMENT
I.
AN APPELLATE COURT DOES NOT HAVE AUTHORITY TO DECLINE TO
HEAR AN APPEAL FROM A BANKRUPTCY COURT ORDER CONFIRMING
A CHAPTER 11 PLAN ON PRUDENTIAL GROUNDS USING EQUITABLE
MOOTNESS PRINCIPLES
The equitable mootness doctrine is the aggravating egg shell in the bowl of egg yolk, and
to make an omelet, it must be picked out and tossed aside. All circuit courts of appeals have
adopted the equitable mootness doctrine in some form and each circuit is replete with cases
haphazardly applying the judge-made doctrine.1 The doctrine, intended for complex bankruptcy
reorganizations and to be “cautiously applied,” 2 has mutated into a tool that unreasonably
obstructs appellants from having their case heard on appeal. Beyond its unrestricted application
and varying forms, there simply is no congressional authority to support the doctrine and it
cannot align with accepted abstention doctrines. Additionally, the equitable mootness doctrine
raises serious constitutional concerns under Article III, such that the only prudent course is to
strike it in its entirety.
A. The Equitable Mootness Doctrine Is Not Supported By The Bankruptcy Code or
Abstention Doctrines
1. The Equitable Mootness Doctrine Grossly Exceeds The Firm Boundaries
Established by Congress In The Bankruptcy Code To Protect The
Finality Of Certain Reorganization Plans
The court of appeals shall have jurisdiction of appeals from all final decisions,
judgments, orders, and decrees. 28 U.S.C. § 158(d)(1) (emphasis added). In the federal court
system, that jurisdiction is an “unflagging obligation” to hear bankruptcy appeals.
1See,
In re
e.g. Frito-Lay, Inc. v. LTV Steel Co. (In re Chateaugay Corp.), 10 F.3d 944 (2d Cir. 1993) (adopting a 5factor analysis); In re Continental Airlines, 91 F.3d 553 (3d Cir. 1996) (adopting a 5-factor analysis); Samson
Energy Resources Co. v. Semcrude L.P. (In re Semcrude), 728 F.3d 314, 320–21 (3d Cir. 2013) (modifying the
Continental Airlines 5-factor analysis by turning it into two analytical steps) (internal quotations omitted); In re
Thorpe Insulation Co., 677 F.3d 869, 877 (9th Cir. 2012) (adopting a 4-factor analysis); and Search Market Direct,
Inc. v. Jubber (In re Paige), 584 F.3d 1327, 1339 (10th Cir. 2009) (adopting a 6-factor analysis).
2
In re Continental Airlines, 91 F.3d 553, 559 (3d Cir. 1996).
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One2One Communications, LLC, 805 F.3d 428, 439–40 (3d Cir. 2015) (Krause, J., concurring)
(quoting Colo. River Water Conservation Dist. v. United States, 424 U.S. 800, 817 (1976)).
Transactions protected on appeal are limited to the sale or lease of property and the authorization
to obtain credit or incur debt. 11 U.S.C. §§ 363(m) & 364(e); see also In re Continental Airlines,
91 F.3d at 570 (Alito, J., dissenting) (“I do not see how any broader rule could reasonably be
extracted . . . from . . . 11 U.S.C. §§363(m) and 364(e).”). Finally, Congress has not implied that
it intended for the Bankruptcy Code’s limited protection of certain transactions on appeal to be
supplemented or expanded by a judge-made doctrine. Ochadleus v. City of Detroit (In re City of
Detroit), 838 F.3d 792, 809–810 (6th Cir. 2016) (Moore, J., dissenting) (quoting 19 Charles Alan
Wright, et al., Federal Practice and Procedure § 4516 (2d ed. 2016)) (“[The equitable mootness
doctrine] is far from the usual situation in which a federal court is permitted to exercise its
common-law-making authority ‘to fill the interstices of a pervasively federal framework’ as a
result of an implied delegation by Congress.”).
The plain language of 28 U.S.C. § 158(d)(1), 11 U.S.C. §§ 363(m) & 364(e), as noted by
Circuit Judge Manley in the lower court, do not provide a foundation on which to rest this
doctrine, at least not in its current ‘total denial’ state. See Appeal Op. 16–17. Sections 363(m) &
364(e) are, by the black-letter of the language, limited to narrow transaction within a bankruptcy
reorganization and do not protect the entire plan from appeal. This cogent reading of the statutes
is also acknowledged by many current and former judges, many of whom were compelled to file
an amicus brief in a recent petition to the Court to hear issues surrounding the equitable
mootness doctrine. See In re One2One, 805 F.3d at 444 (Krause, J., concurring) (“[T]hese
provisions weigh against the doctrine. . . . [B]asic cannons of statutory construction compel us to
presume that Congress did not intend for other orders to be immune from appeal.”) (emphasis
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original); see also Brief of Former Federal Judges as Amici Curiae Supporting Petitioner,
Aurelius Capital Management, LP v. Tribune Media Co. (In re Tribune Media Co.), 799 F.3d
272, cert. denied, 136 S.Ct. 1459 (2016) (No. 15-891) (mem.), 2016 WL 676008. In the
aforementioned amicus brief, eighteen former federal judges noted the doctrine’s use to
“eliminate [an] appellant’s right to appeal” before even evaluating its validity.
Id. at *6.
Furthermore, the amici discussed the jurisdiction delegated by Congress under § 158 as
“mandatory—not discretionary—jurisdiction.” Id. Even supporters of the doctrine, across the
circuit courts, fail to identify—or even attempt to identify—explicit statutory support for the
doctrine. Some proponents have tried to find statutory support in 28 U.S.C. § 1334(c)(1), under
the guise of ‘finality’ in bankruptcy cases, but that support is misplaced. § 1334(c)(1) refers to a
district court’s original jurisdiction, not appellate, and appellate jurisdiction is clearly addressed
in § 158. Brief of Former Fed. Judges as Amici Curiae Supporting Petitioner at *6; In re
One2One, 805 F.3d at 442.
Because the applicable statutes cannot reasonably be interpreted to support the equitable
mootness doctrine, and because Congress has not left an interstice for the courts to fill, the
equitable mootness doctrine must find support elsewhere, namely as an abstention doctrine—
which it fails to do.
2. Abstention Doctrines Are Carefully Authorized by This Court And Do
Not Include The Equitable Mootness Doctrine
Federal courts may only decline to exercise the jurisdiction vested in them by Congress in
limited circumstances recognized by this Court. See Colo. River Water Conservation Dist., 424
U.S. at 813–817 (1976); see also Gregory Bass & Jeffrey S. Gutman, Federal Practice Manual
for Legal Aid Attorneys § 2.8 (2015) (listing federal abstention doctrines). Furthermore, the
current abstention doctrines allow federal courts to abandon their jurisdiction “in favor of
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another forum” but not abdicate. In re One2One, 805 F.3d at 440 (Krause, J. concurring)
(quoting Quackenbush v. Allstate Ins. Co., 517 U.S. 706, 722 (1996). Finally, this Court has
been reluctant to expand the scope of abstention doctrines.
In re One2One, 805 F.3d at
441(Krause, J., concurring); see Sprint Communications, Inc. v. Jacobs, 134 S.Ct. 584, 588
(2013) (declining to extend the Younger abstention); see also Zivotofsky ex rel. Zivotofsky v.
Clinton, 132 S.Ct. 1421, 1427 (2012) (declining to extend the Baker political question
abstention).
As stated earlier, and echoed by opponents to the equitable mootness doctrine, federal
courts have an almost absolute obligation to exercise the jurisdiction bestowed to them by
Congress. See, e.g. Colo. River Water Conservation Dist., 424 U.S. at 813—817; In re City of
Detroit, 838 F.3d at 810 (Moore, J., dissenting); In re One2One, 805 F.3d at 439 (Krause, J.
Concurring). This core principle, one that Chief Justice Marshall claimed would be “treason to
the [C]onstitution” if declined, has been disrupted by the persistent use of the equitable mootness
doctrine. See Cohens v. Virginia, 19 U.S. (6 Wheat.) 264, 404 (1821).
Of course, this Court has over the years narrowly defined certain circumstances in which
the federal courts can abstain from exercising their jurisdiction. 3 However, the equitable
mootness doctrine is not aligned with any of the current abstention doctrines. The doctrine
shares no similarities with those that allow abstention when the issues presented to the federal
court are pending in state court (either as criminal matters or matters of first impression in the
state). In those abstention doctrines (namely, Younger and Pullman), the appellants do not need
to bring their case before the federal appellate courts because they have an opportunity to be
heard by state appellate courts. The equitable mootness doctrine, on the other hand, does not
3
See, e.g. Younger v. Harris, 401 U.S. 37, 49–54 (1971) (allowing abstention if parallel state criminal proceeding);
Baker v. Carr, 369 U.S. 186, 217 (1962) (permitting abstention for political questions); R.R. Comm’n of Tex. v.
Pullman Co., 312 U.S. 496, 501 (1941) (allowing abstention for state courts to determine ambiguous state law).
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allow the appellants an opportunity to bring their appeal in a state court; instead, bankruptcy
appellants have the door closed entirely—which is abdication, not abstention. In re One2One,
805 F.3d at 440 (Krause, J., concurring) (“But where there is no other forum and no later
exercise of jurisdiction, as in the case of equitable mootness, relinquishing jurisdiction is not
abstention; it’s abdication. In short, there is no analogue for equitable mootness among the
abstention doctrines.”).
In addition to the equitable mootness doctrine not sharing any characteristics with present
abstention doctrines, this Court has repeatedly declined to expand current abstention doctrines.
See Sprint Commc’ns, 134 S.Ct. at 590; Zivotofsky ex rel., 132 S.Ct. at 1427. In Sprint
Communications, this Court was asked whether the Younger abstention doctrine is applicable
when matters appearing before the federal courts are also pending in state-court proceedings.
Spring Commc’ns, 134 S.Ct. at 588. In Sprint, the matters were not bankruptcy related, but
rather an Iowa Utilities Board order regarding charges levied against Sprint Communications,
Inc. Id. The Court of Appeals for the Eight Circuit had affirmed the District Court’s decision to
rely on the Younger abstention doctrine to avoid reviewing the case. Id. Without narrowing its
holding, this Court reversed the Court of Appeals judgment and explained that “federal courts
are obliged to decide cases within the scope of federal jurisdiction.” Id. Similarly, in Zivotofsky
ex rel., this Court was asked to consider the limits of the Baker political question abstention
doctrine. Zivotofsky ex rel., 132 S.Ct. at 1425–26. There, the State Department refused to list
“Jerusalem, Israel” on a passport for a child born in Jerusalem (in contradiction to Section 214(d)
of the Foreign Relations Authorization Act). Id. at 1425. The District Court, upon remand from
a prior D.C. Circuit Court of Appeals ruling, dismissed the case brought against the Secretary of
State under the political question abstention. Id. at 1426. The D.C. Circuit affirmed. Id.. This
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Court disagreed, explaining that the “Judiciary has a responsibility to decide cases properly
before it, even those it ‘would gladly avoid.’” Zivotofsky ex rel., 132 S.Ct. at 1427 (quoting
Cohens, 6 Wheat. at 404). The Court, in Zivotofsky and Sprint, unambiguously reaffirmed the
federal courts onus to hear cases that fall within its jurisdiction. If the equitable mootness
doctrine shares no resemblance to current abstention doctrines, and the Court has wisely
refrained from broadening the scope of abstention doctrines, then there is no conceivable logic to
deem the equitable mootness doctrine valid or proper.
Congress delegated mandatory jurisdiction to the federal court of appeals in the
Bankruptcy Code and only protects specific transactions from being unraveled on appeal. This
obligation for courts to exercise their jurisdiction is a firmly rooted principle of our judicial
system and can only be sidestepped by narrow abstention doctrines. The equitable mootness
doctrine is not supported by the Code and cannot be considered an abstention doctrine.
B. Fairness and Equity Are Not Sufficient To Uphold the Equitable Mootness
Doctrine
Many cases support the equitable mootness doctrine by pointing to the pragmatic or
“prudential” considerations that it is composed of—specifically, the protection of third party
interests who rely on the finality of confirmed plans. See, e.g. In re One2One, 805 F.3d at 434
(quoting In re Phila. Newspapers, LLC, 690 F.3d 161, 168 (3d Cir. 2012)) (“Before there is a
basis to avoid deciding the merits of an appeal, we must first determine that granting the
requested relief is almost certain to produce a ‘perverse’ outcome—significant ‘injury to third
parties’ and/or ‘chaos in the bankruptcy court’ from a plan in tatters.”); see also Samson Energy
Resources Co. v. Semcrude L.P. (In re Semcrude), 728 F.3d 314, 320–21 (3d Cir. 2013). While
there is merit in considering the outcome and fairness of revisiting a confirmed plan, such
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considerations are more appropriately considered after the merits when determining the
appropriate relief. In fact, the prudential considerations relied on by the courts to justify the
unconstitutional doctrine somehow are not applied to all creditors—only those that are seeking to
apply the doctrine to keep the plan (not those opposing it). In re One2One, 805 F.3d at 448
(Krause, J., concurring) (“[E]quitable mootness merely serves as part of a blueprint for
implementing a questionable plan that favors certain creditors over others without oversight by
Article III judges.”). In essence, the equitable mootness doctrine is only fair and equitable for
the creditors who wield it as a weapon—creditors who are typically large institutions that reap
the benefits of the judicial system, leaving smaller creditors without a voice and without an
avenue to appeal. Finally, this Court recently denounced “prudential” doctrines that, similar to
abstention doctrines, are used by the courts to forego the exercise of jurisdiction on “prudential
rather than statutory or constitutional grounds.”
Lexmark Int’l, Inc. v. Static Control
Components, Inc., 134 S.Ct. 1377 (2014) (condemning doctrines allowing courts to use
‘prudential’ considerations to dismiss valid cases).
One need to only look at one of the earliest adopters of the doctrine (and heavily cited
case) to see the flaw in declining an appeal for some, but not all, third party interests. In re
Continental Airlines involved a group of trustees seeking approximately $117 million from
Continental Airlines post-reorganization. In re Continental Airlines, 91 F.3d at 555. After two
motions to stay the confirmation order, as here, were denied, the trustees then sought an appeal—
first by a third circuit panel, then en banc. Id. at 557. Relying primarily on the “strong public
policy . . . reflected in the Code itself . . . in favor of encouraging [reliance on reorganizations]”
and the second circuit’s decision in In re Chateaugay Corp., the court adopted the equitable
mootness doctrine and held the trustees claims to be equitably moot. Id. at 565–55. According to
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the majority, “[T]he allowance of such appellate review would likely undermine public
confidence in the finality of bankruptcy confirmation orders and make successful completion of
large reorganization like this more difficult.” Id. (emphasis added).
The court, by its own
words, admitted that the spirit of the equitable mootness doctrine is to avoid difficulties that may
arise without the doctrine. Rather than rise to the challenges that may come from allowing
appellants their day in the appellate courts, the circuits have taken the easy road—the road
without foundation—and that does more to undermine the public confidence.
In cases dismissed as equitably moot, courts frequently claim the transaction/plan in
question is overwhelmingly complex to be unwound such that there is no relief available for the
appellants. See, e.g. In re City of Detroit, 838 F.3d at 796; see, e.g. In re Continental Airlines, 91
F.3d at 560–61. This, however, puts the cart before the horse. It allows courts to make a
determination of the remedies before addressing the merits. In the case at bar, Kuzniewski is
simply asking for the opportunity for her and other creditors novel claims against Gadget to be
heard in court, as is their right. The chance that the claims succeed, and the confirmed plan be
adjusted (if Gadget follows-through with pulling out), does not negate the court’s duty to
exercise their jurisdiction to hear the case on its merit and then decide the proper remedy.
Finally, in similar vein to the abstention doctrines, this Court has derided the use of
“prudential” doctrines as reason to abstain from hearing a case in which relief is possible. In re
City of Detroit, 838 F.3d at 811 (quoting Lexmark, 134 S.Ct. at 1388) (“Just as a court cannot
apply its independent policy judgment to recognize a cause of action that Congress has denied, it
cannot limit a cause of action that Congress has created merely because ‘prudence’ dictates.”). If
there is any relief available to an appellant, the courts have a duty to adjudicate the merits,
regardless if certain creditors fear of the potential impact on the plan. In re One2One, 805 F.3d
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at 450 (Krause, J., concurring) (quoting Matter of Envirodyne Indus., Inc., 29 F.3d 301, 304 (7th
Cir.1994) (Posner, J.) (“The availability of only limited relief, however, should not prevent
adjudication on the merits. ‘[T]otal relief . . . is not essential to jurisdiction,’ as ‘relatively few
plaintiffs get all they are seeking in their lawsuit.’”).
C. The Equitable Mootness Doctrine Undermines An Appellate Court’s Obligation
To Hear Meritorious Cases Under Article III Of The Constitution
Most troubling of all, the equitable mootness doctrine violates Article III of the
Constitution. Appellants have a confirmed right to have their claims brought before an Article
III tribunal that may only be waived by the litigants themselves. Wellness Int’l Network, Ltd. v.
Sharif, 135 S.Ct. 1932, 1943–1944 (2015); In re City of Detroit, 838 F.3d at 811–812 (Moore, J.,
dissenting); In re One2One, 805 F.3d at 445 (Krause, J., concurring).
Bankruptcy courts, as Article I tribunals, do not have authority to shield their judgments
from appellate review. In re One2One, 805 F.3d at 445 (Krause, J., concurring) (“The [equitable
mootness] doctrine not only prevents appellate review of a non-Article III judge's decision; it
effectively delegates the power to prevent that review to the very non-Article III tribunal whose
decision is at issue.”). This serious violation of an appellant’s right, and disturbing assumption
of power by non-Article III judges, has consistently denied numerous appellants their right to
final review of their cases in Chapter 11 and Chapter 9 bankruptcy cases. Furthermore, the
equitable mootness doctrine has been used as a “weapon” of crafty creditors to push a confirmed
plan past any hope of appellate review. Nordhoff Investments, Inc. v. Zenith Electronics Corp.,
258 F.3d 180, 192 (3d Cir. 2001) (Alito, J., concurring) (“[The] equitable mootness doctrine can
easily be used as a weapon to prevent any appellate review of bankruptcy court orders
confirming reorganization plans. It thus places far too much power in the hands of bankruptcy
judges.”).
In Nordhoff Investments, a case similar to the one at bar, a failing electronic
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company’s plan for reorganization (spurred by new investment) was quickly implemented and
upheld by the Bankruptcy and District Courts. Nordhoff Investments, 258 F.3d at 184. The
District Court then rejected Nordhoff’s appeal as equitably moot. Id. The Third Circuit Court of
Appeals confirmed the District Court, much to the reluctance of then-Judge Alito. Id. at 185,
192. As Nordhoff and similar cases reveal, the equitable mootness doctrine is wielded to by
creditors against others and by the courts to abscond their jurisdiction in violation of the
Constitution.
As this Court so astutely framed it, the separation-of-powers allows non-Article III
judges to hear claims, but the issue arises when the door is closed on those claims to be brought
on appeal before an Article III tribunal. Wellness Int’l Network, 135 S.Ct. at 1944 (“[A]llowing
Article I adjudicators to decide claims submitted to them by consent does not offend the
separation of powers so long as Article III courts retain supervisory authority over the process.”);
see In re City of Detroit, 838 F.3d at 811 (quoting Richard H. Fallon, Jr., Of Legislative Courts,
Administrative Agencies, and Article III, 101 Harv. L. Rev. 915, 939 (1988)); see also In re
One2One, 805 F.3d at 445 (quoting Commodity Futures Trading Comm’n v. Schor, 478 U.S.
833, 851–52 (1986)) (“Equitable mootness drastically weakens that supervisory authority, and
therefore threatens a far greater ‘impermissibl[e] intru[sion] on the province of the judiciary.’”).
The equitable mootness doctrine is a stark contradiction to the judicial principles
established by Article III of the Constitution. This Court has repeatedly affirmed the supervisory
relationship between Article I and Article III tribunals—a relationship disrupted by the
doctrine—and it has kept otherwise meritorious, valid claims out of the appellate courts without
the litigants’ consent. Thus, in order to preserve the U.S. Constitution, the Court must strike the
doctrine in its entirety, or in the alternative, severely limit its application.
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A CHAPTER 11 PLAN OF REORGANIZATION CANNOT PERMANENTLY
ENJOIN NON-DERIVATIVE CLAIMS HELD BY NON-CONSENTING
CREDITORS AGAINST NON-DEBTORS WHEN NO PROVISION IS MADE
FOR FULL PAYMENT OF THE ENJOINED CLAIMS.
The Bankruptcy Code does not contain an express provision allowing a bankruptcy court
to release non-debtors from their liabilities against non-consenting creditors. As a result of
varied interpretations of 11 U.S.C. §§105(a), 524(a), 524(e), and 1123(b), a circuit split has
developed among appeals courts regarding whether a Chapter 11 plan of reorganization can
permanently enjoin non-creditor claims against non-debtors.
The Fifth, Ninth, and Tenth Circuits do not allow non-debtor releases in Chapter 11
plans. Feld v. Zale Corp (In re Zale Corp.), 62 F.3d 746, 760 (5th Cir. 1995) (held that the court
must overturn an injunction if it “effectively discharges a non-debtor”); Resorts Int’l v.
Lowenschuss (in re Lowenschuss), 67 F.3d 1394, 1402 (9th Cir. 1995) (held that “the general
equitable powers bestowed upon the bankruptcy court do not permit . . . .the discharge [of]
liabilities of non-debtors); Landsing Diversified Props. v. First Nat’l Bank & Trust Co. (In re
Western Real Estate Fund, Inc.), 922 F.2d 592, 601-02 (10th Cir. 1990).
Meanwhile, the Second, Third, Fourth, and Sixth Circuits have allowed courts to permit
the inclusion of non-debtor releases in Chapter 11 plans. The Second Circuit held that a court
may enjoin a creditor from suing a non-debtor in “rare cases” if “the release is ‘important’ to a
debtor’s plan.” Deutsche Bank AG, London Branch v. Metromedia Fiber Network, Inc. (In re
Metromedia Fiber Network, Inc.), 416 F.3d 136, 141 (2d Cir. 2005); see also Compare Accord
Airadigm Communications, Inc. v. FCC (In re Airadigm Communications, Inc.), 519 F.3d 640,
657 (7th Cir. 2008) (held that a non-debtor release in a plan of reorganization may be approved
under “truly unusual circumstances” only if proven that the release terms are important to the
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plan’s success.) Similarly, the Fourth Circuit allows a Plan to include non-debtor injunctions if
they are “essential to a workable reorganization.” Menard-Sanford v. Mabey (In re A.H. Robins
Co.), 880 F.2d 694, 702 (4th Cir. 1988). The Sixth Circuit employs a seven-factor balancing test
to determine if “unusual circumstances” exist that warrant enjoining a non-consenting creditor’s
claim against a non-debtor. Class Give Nev. Claimants v. Dow Corning Corp. (In re Dow
Corning Corp.), 280 F.3d 648, 658 (6th Cir. 2002).
A. The General Equitable Powers Provided by 11 U.S.C. § 105(a) Cannot Be Used
To Support Gadget’s Permanent Injunction Against Non-Consenting Creditors,
Including Kuzniewski.
The text of 11 U.S.C.§105(a) of the Bankruptcy Code states “the court may issue any
order, process, or judgment that is necessary or appropriate to carry out the provisions of [the
Code].”
Generally, §105(a) provides bankruptcy courts with general equitable power to carry
out provisions of the Code. However, the “powers granted by [§105(a)] must be exercised in a
manner that is consistent with the [Code].” Chiasson v. J. Louis Matherne & Assocs. (In re
Oxford Mgmt., Inc.), 4 F.3d 1329, 1334 (5th Cir. 1993). Accordingly, courts must not exercise
their powers under §105(a) in a manner that is incompatible with other, more specific Code
provisions. In re Western Real Estate Fund, Inc. 922 F.2d at 601.
In the present matter, the Thirteenth Circuit applied §105(a) broadly, supporting Gadget’s
injunction against non-consenting creditors like Kuzniewski for the following reasons: (i) Gadget
would not have acquired Padco and invested in its new product line unless it was certain that it
would be free of all Padco-related liabilities; and (ii) the provision was narrowly tailored and
fair, protecting Gadget from both the victims of Padco’s exploding batteries and all other
creditors of Padco. (R. at 3-4; 12). The Thirteenth Circuit opined that this case was an “example
of a situation where a permanent injunction of creditor claims against a third party [was] both
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necessary and appropriate.” (R. at 12). However, the Thirteenth Circuit declined to offer a
particular test or standard for determining the appropriate circumstances in which an injunction
provision protecting non-debtors from non-consenting creditors must be included in a Chapter 11
plan. (R. at 12).
The Thirteenth Circuit’s application of 11 U.S.C. § 105(a) is overbroad. Regardless of
whether a permanent injunction is “necessary and appropriate [for reorganization], courts cannot
overstep the bounds of the Code. First, § 105(a) does not provide courts with “substantive rights
that would otherwise be unavailable under the Bankruptcy Code.”
Gillman v. Continental
Airlines (In re Continental Airlines), 203 F.3d 203, 211 (3rd Cir. 2000). Second, the use of an
injunction under § 105(a) “cannot alter another provision of the Code.” In re Zale Corp, 62 F.3d
at 760. Courts must assert their general equitable powers within the bounds of the Bankruptcy
Code. Id. Accordingly, Section 105(a) does not provide a court with carte blanche authority to
ignore its duty to apply the Code regulations provided in 11 U.S.C. §§ 524(a), (e), (g) and
1123(b).
1. Gadget’s Permanent Injunction Against Victims of Padco’s Exploding
Batteries Functions As A Non-Debtor Discharge Under 11 U.S.C. § 524(a)
And, Therefore, is Prohibited By 11 U.S.C. § 524(e).
While a bankruptcy reorganization plan is being developed, it may be appropriate for
courts to grant non-debtors temporary injunctions against creditors. Abel v. West, 932 F.2d 898,
899 (10th Cir. 1991). However, permanent injunctions are not appropriate post-confirmation.
Id. at 899. Furthermore, discharges in bankruptcy are available only to the debtor who has
invoked the bankruptcy process. In re W. Real Estate Fund, 922 F.2d at 600 (emphasis added).
Congress did not intend “to extend such benefits to third-party bystanders.” Id at 600; see also In
re Zale Corp., 62 F.3d at 760.
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The language of 11 U.S.C. § 524(a) narrows the impact of discharge to “personal
[liabilities] of the debtor.”4 Effectively, a discharge in bankruptcy functions as an injunction
because it does not “extinguish the debt itself but merely releases the debtor from personal
liability.” In re W. Real Estate Fund, 922 F.2d at 600. The debt still exists, and it can be
collected from any other liable entity. Id. Therefore, a court cannot bypass restrictions described
in § 524(a) through the use of “semantic distinctions” that label a non-debtor’s discharge a
“permanent injunction” or a “release.” American Hardwoods, Inc. v. Deutsche Credit Corp. (In
re American Hardwoods, Inc.), 885 F.2d 621, 626 (9th Cir. 1989).
Even the Second Circuit, which contains a body of case law that condones non-debtor
releases, has acknowledged that non-debtor releases operate “in effect . . .as a bankruptcy
discharge.” In re Metromedia Fiber Network, Inc., 416 F.3d at 142. Furthermore, Second
Circuit dictum has mused that “a non-debtor release is a device that lends itself to abuse . . .
[and] in effect, may operate as a bankruptcy discharge arranged without a filing and without the
safeguards of the Code.” Id. at 142. Because § 524(a) serves as a discharge injunction for
debtors, § 524(e) may not be applied to “improperly insulate non-debtors” from potential and
existing claims. In re W. Real Estate Fund, 922 F.2d at 602.
Turning to the present matter, Padco’s plan that contains a provision that permanently
enjoins victims of Padco’s exploding batteries, including Kuzniewski, from bringing any claims
against Gadget. To justify the allowance of this permanent injunction, the Thirteenth Circuit’s
majority opinion asserts that “the Padco discharge [does not have] any effect on Kuzniewski’s
direct claim against Gadget.”
(R. at 14).
However, the Thirteenth Circuit neglects to
acknowledge that Gadget’s permanent injunction against the Victims meets the Bankruptcy
4
“A discharge in a cause under this title . . .voids any judgment at any time obtained, to the extent that such a
judgment is a determination of the personal liability of the debtor . . .[and] operates as an injunction against the
commencement or continuation of an action.” 11 U.S.C. §524(a)(1-2).
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Code’s description of a discharge. See 11 U.S.C. § 524(a)(2) (defining a discharge as “an
injunction against the commencement or continuation of an action”).
Additionally, the
Thirteenth Circuit made a point to continually refer to Gadget’s permanent injunction against as
a “release.” (R. at 12).
When confirming a Chapter 11 Plan of confirmation, courts “should not release the
obligations of non-party entities to creditors of a debtor.” In re Texaco, Inc., 84 B.R. 893, 900
(Bankr. S.D.N.Y. 1988).
Gadget, a non-debtor, received a permanent injunction against
Kuzniewski’s action and all other potential related actions—this injunction functions as a release
of its obligations to defend and/or settle claims with victims of Padco’s exploding tablet
batteries. By avoiding liability for any actions filed against it by victims of Padco’s exploding
batteries, Gadget effectively received a discharge of those liabilities.
Injunctions in a Chapter 11 plan cannot “relieve the non-debtor from its own liability to
the creditor.” In re W. Real Estate Fund, 922 F.2d at 601-02.
Courts’ use of § 524(e) to
discharge non-debtors from potential or outstanding claims lacks “any countervailing
justification of debtor protection.” Id. at 602.
Here, Gadget’s permanent injunction falls within
the definition of a discharge under section 524(a)(2), a Code provision that should afford
protection only to debtors who file for bankruptcy. While Padco’s plan provides for discharge of
its own debt, it also allows for discharge of Gadget’s liabilities—this outcome is prohibited by
the language of § 524(e). Accordingly, this Court should rule, as a matter of law, that the
provision of Padco’s plan allowing Gadget to permanently enjoin claims is restricted by
§ 524(e).
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2. The Provisions of 11 U.S.C. § 524(g) Demonstrate that 11 U.S.C. §524(e)
Is Not a Mere Savings Provision
The only express provision in the Bankruptcy Code that allows Chapter 11 Plans to
provide non-debtors with injunctive relief is 11 U.S.C. § 524(g), which permits bankruptcy
courts to enter a broad injunction against any entity taking legal action in an asbestos claim. See
4-524 Collier on Bankruptcy P 524.07 (16th 2016). Injunctive relief provided by § 524(g) has
been extended beyond the realm of asbestos cases, including mass torts cases. Id. A court may
issue an injunction under § 524(g) if a number of specific conditions are met, including
channeling. Id.
In mass torts cases and asbestos-related cases, courts have approved non-debtor releases
against non-consenting creditors when enjoined claims are “channeled” to a settlement fund.
E.g., MacArthur Co. v. Johns-Manville Corp. (In re Johns-Manville Corp.), 837 F.2d 89, 93-94
(2d Cir. 1988); Menard-Sanford v. Mobey (In re A.H. Robins Co.), 880 F.3d 694, 701 (4th Cir.
1989). Channeling refers to the method of separating claims from the bankruptcy estate to allow
recovery from separate assets. In re Continental Airlines, 203 F.3d at 213; see also 11 U.S.C. §
524(g)(2)(B)(i). The Code allows claims of creditors against non-debtors to be enjoined if
channeling is enacted, because channeling avoids the outcome of discharging the debtor. Id. at
213; see also Feld v. Zale Corp., 62 F.3d at 760.
In the present case, Gadget’s permanent injunction found in Padco’s plan has deprived
Kuzniewski and other non-consenting creditors of the possibility of collecting the entire of sum
of their tort claims against Gadget. Kuzniewski had “substantial” claims against Gadget. (R. at
4). The Thirteenth Circuit acknowledged that Padco’s plan “effectively released Gadget from
any liability for the direct claims . . .despite the fact that Kuzniewski did not consent.” (R. at
12). Arguably, Kuzniewski’s claim, which had the potential to be one of many claims against
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Gadget for tort liability, could be considered a mass tort claim. Therefore, channeling provisions
may have been applicable.
Furthermore, the detailed nature of the procedures related to channeling provisions as
described in § 524(g), which includes enhanced voting majorities and limitations regarding
classes of creditors, shows that third party injunctions cannot be granted in other cases. Section
524(g)(4)(A)(ii) enhances this argument because it states that, generally, § 524(g) can include an
injunction barring any action against a third party “notwithstanding the provisions of section
524(e).” In other words, the standard against allowing non-debtor releases found in § 524(e) is
stringent, and ultimately, can only be trumped by the asbestos exception found in § 524(g).
Here, the rule of statutory interpretation “expressio unius est exclusio alterius” applies as the
listing of an application for § 524(g) (in asbestos claims) implies the exclusion of other
applications.
B. 11 U.S.C. § 1123(b)(6) Does Not Grant The Bankruptcy Court Power to
Discharge Third Parties From Non-Consenting Creditor’s Claims Against The
Debtor.
Section 1123(b) of the Bankruptcy Code lists the five specific functions or outcomes that
a Chapter 11 plan may include. 11 U.S.C. § 1123(b)(1-5). For example, the plan may impair or
any class of claims, provide for the assumption or rejection of executory contracts, provide for
settlement of a claim belonging to the estate, and sell property of the estate. See 11 U.S.C. §
1123(b)(1-5). After subsections one through five of § 1123(b) provide permission for a Plan to
perform certain functions, § 1123(b)(6) is then included as a catch-all, permitting a debtor to
include in its plan any matter “not inconsistent” with other provisions of § 1123. (Emphasis
added).
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In § 1123(b)(3), the Code indicates that a plan may “provide for the settlement or
adjustment of any claim or interest belonging to the debtor.” Therefore, because § 1123(b)(3)
informs the debtor of its options regarding settlements of a claim in a plan, the catch-all
provision of § 1123(b)(6) cannot override that rule.
The Sixth Circuit has applied § 1123(b)(6) to provide bankruptcy court with “substantial
power to reorder creditor-debtor relations” because such power is “needed to achieve a
successful reorganization.” In re Dow Corning Corp., 280 F.3d at 656. The Sixth Circuit has
held that non-debtor injunction against a non-consenting creditor’s claim is only appropriate in
“unusual circumstances.” Id. Therefore, this Court should hold as a matter of public policy that
the broad provision of § 1123(b)(6) should not be improperly stretched and molded into a
loophole for allowing non-debtors to receive discharges of claims from non-consenting creditors.
CONCLUSION
For the foregoing reasons, Ms. Kuzniewski respectfully requests that this Court reverse
the judgment of the Court of Appeals for the Thirteenth Circuit.
Respectfully submitted,
Team 46
Counsel for Petitioner
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APPENDIX A
11 U.S.C. § 105. Power of court.
(a) The court may issue any order, process, or judgment that is necessary or appropriate to carry
out the provisions of this title.
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APPENDIX B
11 U.S.C. § 363. Use, sale, or lease of property.
....
(m) The reversal or modification on appeal of an authorization under subsection (b) or (c) of this
section of a sale or lease of property does not affect the validity of a sale or lease under such
authorization to an entity that purchased or leased such property in good faith, whether or not
such entity knew of the pendency of the appeal, unless such authorization and such sale or lease
were stayed pending appeal.
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APPENDIX C
11 U.S.C. § 364. Obtaining credit.
....
(e) The reversal or modification on appeal of an authorization under this section to obtain credit
or incur debt, or of a grant under this section of a priority or a lien, does not affect the validity of
any debt so incurred, or any priority or lien so granted, to an entity that extended such credit in
good faith, whether or not such entity knew of the pendency of the appeal, unless such
authorization and the incurring of such debt, or the granting of such priority or lien, were stayed
pending appeal.
III
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APPENDIX D
11 U.S.C. § 524. Effect of discharge.
(a) discharge in a case under this title—
....
(2) operates as an injunction against the commencement or continuation of an
action, the employment of process, or an act, to collect, recover or offset any such
debt as a personal liability of the debtor, whether or not discharge of such debt is
waived; and
....
(e) Except as provided in subsection (a)(3) of this section, discharge of a debt of the debtor does
not affect the liability of any other entity on, or the property of any other entity for, such debt.
-...
(g)
(1)(A) After notice and hearing, a court that enters an order confirming a plan of
reorganization under chapter 11 may issue, in connection with such order, an
injunction in accordance with this subsection to supplement the injunctive
effect of a discharge under this section.
(B) An injunction may be issued under subparagraph (A) to enjoin entities
from taking legal action for the purpose of directly or indirectly collecting,
recovering, or receiving payment or recovery with respect to any claim or
demand that, under a plan of reorganization, is to be paid in whole or in part
by a trust described in paragraph (2)(B)(i) . . .
....
(2)
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(B)The requirements of this subparagraph are that—
(i) the injunction is to be implemented in connection with a trust that,
pursuant to the plan of reorganization—
(I)
(II)
is to assume the liabilities of a debtor which at the time
of entry of the order for relief has been named as a
defendant in personal injury, wrongful death, or
property-damage actions seeking recovery for damages
allegedly caused by the presence of, or exposure to,
asbestos or asbestos-containing products;
is to be funded in whole or in part by the securities of 1
or more debtors involved in such plan and by the
obligation of such debtor or debtors to make future
payments, including dividends
(III)
....
(4)
(A)
(ii) Notwithstanding the provisions of section 524(e), such an injunction
may bar any action directed against a third party who is identifiable from
the terms of such injunction (by name or as part of an identifiable group)
and is alleged to be directly or indirectly liable for the conduct of, claims
against, or demands on the debtor
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APPENDIX E
11 U.S.C. § 1123. Contents of plan.
....
(b)Subject to subsection (a) of this section, a plan may—
(1)
impair or leave unimpaired any class of claims, secured or unsecured, or of interests;
(2)
subject to section 365 of this title, provide for the assumption, rejection, or
assignment of any executory contract or unexpired lease of the debtor not previously
rejected under such section;
(3)
provide for—
(A)
the settlement or adjustment of any claim or interest belonging to the
debtor or to the estate; or
(B)
the retention and enforcement by the debtor, by the trustee, or by a
representative of the estate appointed for such purpose, of any such claim
or interest;
(4)
provide for the sale of all or substantially all of the property of the estate, and the
distribution of the proceeds of such sale among holders of claims or interests;
(5)
modify the rights of holders of secured claims, other than a claim secured only by a
security interest in real property that is the debtor’s principal residence, or of holders
of unsecured claims, or leave unaffected the rights of holders of any class of claims;
and
(6) include any other appropriate provision not inconsistent with the applicable
provisions of this title.
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APPENDIX F
28 U.S.C. § 158. Appeals.
....
(d)
(1) The courts of appeals shall have jurisdiction of appeals from all final decisions,
judgments, orders, and decrees entered under subsections (a) and (b) of this section.
VII
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APPENDIX G
28 U.S.C. § 1334. Bankruptcy cases and proceedings.
....
(c)
(1) Except with respect to a case under chapter 15 of title 11, nothing in this section
prevents a district court in the interest of justice, or in the interest of comity with
State courts or respect for State law, from abstaining from hearing a particular
proceeding arising under title 11 or arising in or related to a case under title 11.
VIII