Sarnosky v. Chesapeake

Case Type:
Case Status:
Reversed and Remanded
No. 21-20323 (5th Circuit, Jun 08,2023) Published
The 5th Circuit vacated and remanded the bankruptcy and district court judgments with instructions to dismiss. It held that the bankruptcy court lacked jurisdiction to approve post-confirmation settlements of discharged claims which conflicted with the confirmed chapter 11 plan and disclosure statement and for which no proofs of claim had been filed.
Procedural context:
The debtors sought bankruptcy court approval of two class-action settlements involving pre-petition claims for which no proofs of claim were filed. Similarly situated creditors who filed proofs of claim opposed. The bankruptcy court ultimately concluded that it had “core” jurisdiction over the settlements and that the settlements were in the best interests of the Debtors’ estates, their creditors, and other parties in interest. Consequently, the court overruled objections, preliminarily approved the settlements, preliminarily certified the settlement classes, and approved the form and manner of class notices. The bankruptcy court also concluded that an Article III court should make the final determinations regarding class certification and settlement approval. The District Court affirmed, although it concluded that the bankruptcy had "related to" jurisdiction and not "core" jurisdiction.
Prior to filing for bankruptcy, certain Pennsylvania oil and gas lessors, as well as the Pennsylvania attorney general, sued the debtors for underpaying royalties. After the debtors filed for bankruptcy, some of the lessors filed proofs of claim and some did not. Those that did file proofs of claim stood to receive around 0.01% of their claims under the confirmed Chapter 11 Plan. Those claims for which no proof of claim was filed were discharged. The Plan also assumed that the oil and gas leases would pass through bankruptcy unaffected. Under the settlements, the lessors could receive well over 20% of their claims. The settlements also required material alterations in the terms of the leases.
Jones, Ho, and Wilson, Circuit Judges.

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