In re JAB Energy Sols. II, LLC
- Summarized by David Treacy , U.S. Bankruptcy Court, Eastern District of Kentucky
- 7 months 2 days ago
- Case Type:
- Business
- Case Status:
- Affirmed in part and Reversed in part
- Citation:
- Nos. 24-3044, 24-3045 (3rd Circuit, Jul 15,2025) Not Published
- Tag(s):
-
- Ruling:
- The U.S. Court of Appeals for the Third Circuit overturned a district court and reinstated a bankruptcy court's ruling that a liquidating trustee under a chapter 11 plan of liquidation could not sue the debtor's former sole member and manager. Under the liquidating plan's terms, the liquidating trustee was assigned claims and causes of action belonging to the debtor or the estate against a "person qualifying as an 'Insured Person'" under an insurance policy. The bankruptcy court correctly held the member/manager did not fit within the policy's definition of an "Insured Person."
- Procedural context:
- In the initial appeal, the district court agreed with the bankruptcy court that it could interpret the debtor's liquidating plan and insurance policy via a motion in the main case and an adversary proceeding was not required. The district court also agreed that the bankruptcy court did not need to defer on the policy interpretation question to a contemporaneous proceeding in a Texas federal court. On further appeal, the Third Circuit saw "no reason to disturb the Bankruptcy Court's ruling on procedural grounds." As to the standard of review, the circuit court reviewed the bankruptcy court’s legal determinations de novo, but reviewed the bankruptcy court’s interpretation of the plan it confirmed for an abuse of discretion,
- Facts:
- JAB Energy Solutions II was a chapter 11 debtor in the U.S. Bankruptcy Court for the District of Delaware. Debtor's sole member and manager was Allison Marine Holdings LLC ("AMH"). Debtor confirmed a plan of liquidation that assigned claims to a Liquidating Trust managed by a Liquidating Trustee, H. Kenneth Lefoldt, Jr. The claims included "any and all claims and causes of action belonging to the Debtor or the Estate, only to the extent such claims and causes of action are covered under any applicable policy of insurance belonging to the Debtor or the Estate, against . . . any other person qualifying as an 'Insured Person'" under an insurance policy issued to AMH. The policy defined an "'Insured Person' to include 'all Executives' and 'all Employees.' [ ] 'Executives' was defined as 'all persons who were, now are, or shall be directors, officers, management committee members, advisory committee members, members of the Board of Managers or natural person general partners of the Company.'" Post-confirmation, the Liquidating Trustee (1) moved the bankruptcy court to confirm AMH was an "Insured Person" subject to suit, and (2) filed a lawsuit against, inter alia, AMH in a Texas federal court for breach of fiduciary duties. In the bankruptcy court, AMH contended (a) the Liquidating Trustee could not file a motion in the main case for an interpretation of the policy and proceed via an adversary proceeding under Fed. R. Bankr. P. 7001(b), (b) the bankruptcy court should defer on the policy interpretation issue to the Texas court, and (c) on the merits, AMH was not an "Insured Person" under the pertinent policy definitions. The bankruptcy court concluded it could rule on policy interpretation in the main case and held AMH did not fall within the definition of an "Insured Person" as it was neither a natural person (as seemingly contemplated by the definitions) nor a member of a "Board of Managers." The Liquidating Trustee appealed to the U.S. District Court for the District of Delaware, which reversed on the merits issue. AMH then appealed to the Third Circuit.
- Judge(s):
- SHWARTZ, FREEMAN, and RENDELL
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