New Falls v. LaHaye, et al

Case Type:
Case Status:
19-30795 (5th Circuit, Nov 12,2021) Published
Although a confirmed plan can discharge the liability of a nondebtor guarantor, it can limit a creditor’s claim against a nondebtor guarantor by determining the source and value of payments to be made under the plan in whole or partial satisfaction of the guaranteed debt.
Procedural context:
A creditor (New Falls) asserted a claim against the guarantors (the LaHayes), to which the guarantor objected on the ground that their liability had been reduced by the plan confirmed in the earlier chapter 11 case of the primary obligor. The Bankruptcy Court sustained the objection and the district court affirmed. The creditor appealed.
In the chapter 11 case of its guarantor (LaHaye), New Falls asserted a claim for the entire original balance of the debt owed despite the confirmation of a plan in the prior case of the primary obligor that awarded certain collateral to the creditor in partial satisfaction of its debt and reduced the guarantor’s remaining liability. In affirming the lower court, the Fifth Circuit focused on the plain language of the earlier confirmed plan, which granted the LaHayes a partial release of their guaranty became effective “upon confirmation” of the plan rather than upon conveyance of the collateral or consummation of some other key transaction. Accordingly, “the release was not predicated on New Falls’ first obtaining the surrendered property.” The Fifth Circuit rejected the creditor’s argument that the ruling had the effect of partially discharging the guaranty in violation of § 524(e), observing there is a difference between discharging a third party guaranty and “reducing a guarantor’s liability by ordering a debtor to surrender assets in satisfaction of the debt.”
Elrod, Southwick, and Costa

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