Papas v. Buchwald Cappital Advisors, et al. (In re Greektown Holdings, LLC)

Papas v. Buchwald Cappital Advisors, et al. (In re Greektown Holdings, LLC.), Case No. 12-2434 (6th Cir. Aug. 26, 2013)
The Court must consider three issues when determining whether to enter a bar order. First, the court must determine it has jurisdiction to enter such an order; second, the court must determine whether it has the power to enter the order; and third, the court must determine the appropriate scope of the order.
Procedural context:
Appeal from the United States District Court for the Eastern District of Michigan. See below for additional procedural context.
This case arises from adversary litigation to recover fraudulent transfers made to Appellants (Papas and Garzaros, hereinafter referred to as “P&G”) and Appellees (Sault Ste. Marie Tribe of Chippewa Indians and Kewadin Casinos Gaming Authority, hereinafter referred to as “Tribe”) by Greektown Holdings (Greektown); said litigation being pursued by the trustee of the Greektown Litigation Trust (Trustee), which was established pursuant to the Chapter 11 plan. Background: At some point prior to Greektown’s filing, Tribe was required by the Michigan Gaming Control Board to pay P&G $145M if Greektown did not. In December 2005, prior to filing, Greektown transferred $145M to P&G and $6M to Tribe. Greektown’s transfer of the $145M to P&G satisfied the obligation and Tribe was not required to make any additional payment to P&G. Greektown filed for Chapter 11 protection in May 2008. The bankruptcy court authorized the filing of a fraudulent transfer action, which was filed after confirmation but prior to the effective date of the Chapter 11 plan. The complaint alleged that both P&G and Tribe received direct benefits from the transfers in the respective amounts they each received and further alleged that Tribe received an indirect benefit in the amount of the transfer made to P&G as its obligation to P&G was satisfied by Greektown’s transfer to P&G. Recovery against P&G and Tribe was sought pursuant to Michigan Uniform Fraudulent Transfer Act, Sec. 544 and 550. The Trustee determined the indirect benefit allegation was not likely to succeed and entered into a settlement agreement with Tribe in the total amount of $5.33M, in the form of payments and abandonment of claims by Tribe. The settlement agreement was conditioned on the inclusion of a bar order with broad language; the full language of said order is included in the opinion and appears to prevent P&G from seeking contribution or recovery from Tribe for any sums P&G is required to return to Greektown, which would result in a loss by P&G. The Trustee filed a motion to approve the settlement, which was objected to by P&G. P&G also filed a motion to withdraw the reference with the district court. The reference was withdrawn, a hearing was held at the district court, and the settlement was approved. P&G filed a motion for reconsideration and the motion was denied. P&G appealed the district court’s decisions. The issue: While P&G’s appeal included an appeal of the court’s denial of the motion for reconsideration, the Sixth Circuit finds the district court did not abuse its discretion and affirms on that issue. The remaining issue is whether the bar order entered by the district court is appropriate. The Sixth Circuit finds the bar order issue to be one of first impression in this circuit, finding that Bard v. Sicherman (In re Bard), 49 F. App’x 528, 530 (6th Cir. 2002), McDannold v. Star Bank, N.A., 261 F.3d 478, 484 (6th Cir. 2001), and Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning Corp.), 280 F.3d 648, 656 (6th Cir. 2002) do not provide the framework for evaluating the appropriateness of the bar order. The Court also declined to follow the district court’s method of determining “whether the order would bar any viable claims and [entering] the order when it found that it would not.” Opinion, page 13. The Court instead directs the district court to evaluate the appropriateness of the order using the following criteria: 1) Determine whether the court has jurisdiction to enjoin the claims covered by the bar order, using the approach adopted by the Fifth Circuit in Feld v. Zale Corporation (Matter of Zale Corporation), 62 F.3d 746 (5th Cir. 1995), 2) Determine whether the court has the power to enter the order, while considering the Sixth Circuit’s holding that 11 USC 524 “does not prohibit a court from releasing a non-debtor from liability.” Class Five Nev. Claimants, 208 F.3d at 657, and 3) Examine the scope of the proposed order as “a bar order that enjoins independent claims and provides no compensation is problematic to say the least.” Opinion, page 17. The Court declined to narrow the scope of the bar order itself and remanded to the district court for reevaluation in light of the Court’s discussion in the opinion.
Boggs and McKeague, Circuit Judges, and Beckwith, Senior District Judge sitting by designation.

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