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Summarizing by Amir Shachmurove


Eleventh Circuit holds that the lack of notice required by Bankruptcy Rule 2002(c)(3) did not result in the invalidity of non-debtor, third-party releases in a chapter 11 plan.

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Case Type:
Case Status:
20-12785 (11th Circuit, Nov 15,2021) Published
In affirming the ruling of the district court, the Eleventh Circuit held that personal injury claimant and his wife received sufficient notice of non-debtor releases included in chapter 11 debtor's confimed plan, even though the debtor did not serve them with the form of notice required by the Federal Rules of Bankruptcy Procedure, and, by virtue of the confirmation order, the claimant and his wife were barred from pursuing claims against non-debtor entities, even nominally to allow them to reach the entities' insurers.
Procedural context:
Appeal from the United States District Court for the Southern District of Florida affirmed.
Willie Jackson, while traveling in his wheelchair, was hit by a hotel valet driver. He sustained serious injuries, and he and his wife (the "Jacksons") sued the valet driver and the valet company in Kentucky state court. The Jacksons sought leave to amend their complaint to include the debtor, which was the owner of the hotel property, and other related parties, and the debtor sought relief under chapter 11 of the Bankruptcy Code. Mr. Jackson sought and obtained relief from the automatic stay for the limited purpose of pursuing any liability insurance of the debtor and agreed to waive any claim against the debtor's bankruptcy estate. Mrs. Jackson did not seek any relief from the bankruptcy court. The Jacksons amended their complaint to add the additional defendants and proceeded with the Kentucky lawsuit. The debtor ultimately proposed a chapter 11 plan, which included releases of non-debtor related parties, who were also defendants in the Jacksons' lawsuit. The disclosure statement accompanying the debtor's plan explained that the plan released the non-debtor parties and included a disclaimer in bold and capitalized letters directing creditors to read the disclosure statement and plan in their entirety before voting on the plan. The disclosure statement also included a section describing the releases and effect on non-debtor parties, although the disclosure statement did not specifically identify or define the released parties. The plan and disclosure statement were served on the Jacksons' attorney. The debtor did not serve the Jacksons with the form of notice required by Federal Rule of Bankruptcy Procedure 2002(c)(3). However, the Jacksons did not appear at confirmation or object to confirmation of the plan. The plan was confirmed, and after the effecitve date, the debtor and the released entities sought to dismiss the Kentucky lawsuit. The Jacksons sought relief from the bankruptcy court to allow them to proceed nominally against the debtor and the released parties to reach the entities' insurers, but the bankruptcy court denied the motion. The Jacksons appealed, and the district court affirmed the bankruptcy's court order. On appeal, the Jacksons argued that the debtor did not provide them sufficient notice of the non-debtor releases to satisfy due process and that the confirmation order did not prevent them from pursuing claims nominally against the debtor and released parties. In affirming, the Eleventh Circuit expanded on the Supreme Court's analysis in United Student Aid Funds, Inc. v. Espinosa, where the Supreme Court held that a creditor forfeited its arguments by failing to timely object to the debtor's chapter 13 plan, which provided for the discharge of his student loan interest in contravention of the Bankruptcy Rules. The Eleventh Circuit rejected the Jacksons' due process argument because the Jacksons had actual notice of the plan and disclosure statement, and the disclosure statement included the information required by Federal Rule of Bankruptcy Procedure 2002(c)(3), although in a different form than required by Rule 2002(c)(3). The Jacksons then argued the non-debtor release could be modified under section 524(e) to allow them to proceeding nominally against the released parties to reach their insurers. The Eleventh Circuit also rejected this argument, concluding that the bankruptcy court did not abuse its discretion in finding that the nominal claims could resulti in an economic burden to the debtor, based on the indemnification obligations between the debtor and certain of the released parties.
Jordan, Jill Pryor, and Tjoflat

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