In re: SC SJ HOLDINGS, LLC; FMT SJ, LLC
- Summarized by Michael Myers , Ballard Spahr LLP
- 9 months 2 weeks ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- 23-1731 (3rd Circuit, Mar 28,2024) Not Published
- Tag(s):
-
- Ruling:
- The Third Circuit Court of Appeals affirmed the District Court and Bankruptcy Court holdings that the chapter 11 debtors' motion to bring malpractice claims against their bankruptcy counsel was time-barred under Sections 1127 and 1144 of the Bankruptcy Code.
- Procedural context:
- More than six months after the debtors had confirmed a chapter 11 plan of reorganization, the debtors file a motion with the bankruptcy court seeking an order to relieve them of the releases and exculpation clauses contained in the confirmed plan. The Bankruptcy Court denied the motion and the District Court affirmed. Debtors then appealed to the Third Circuit Court of Appeals.
- Facts:
- On August 18, 2021, the Bankruptcy Court confirmed debtors’ chapter 11 bankruptcy plan. The plan contained provisions “for mutual releases among numerous parties as to any claims arising out of or related to the bankruptcy proceedings or to Debtors. Those release provisions cover Debtors’ ‘Related Persons,’ defined to include their ‘attorneys . . . and other professionals.’” The provisions “also expressly exculpate Debtors and their ‘Professionals’ from claims and causes of action arising out of postpetition conduct, with the exception of claims of intentional fraud and willful misconduct.” On November 8, 2021, the plan became effective and was substantially consummated.
On February 28, 2022, more than six months after the Bankruptcy Court confirmed the plan and more than three months after the plan had been substantially consummated, Debtors filed a motion in the Bankruptcy Court seeking an order to “reliev[e] [them] from certain aspects of the . . . Plan of Reorganization[.]” Debtors requested that the Court “modify[]” the release provisions of the plan to permit them to sue their bankruptcy counsel for malpractice.
- Judge(s):
- SHWARTZ, RENDELL, and AMBRO
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