Behrmann v. National Heritage Foundation, Inc.
463 B.R. 704
| 4th Cir. | 2011Background
- NHF, a non-profit charity, filed for Chapter 11 after a state court judgment against it; donors with Donor-Advised Funds are among its creditors.
- NHF proposed a reorganization plan with three unsecured-claim classes and asserted donors would be treated as Class III(C) unsecured creditors if their claims were allowed.
- The plan included broad Release Provisions shielding NHF, the Committee, and related parties from pre-petition claims; initial bankruptcy court denial prompted amended, narrowed provisions.
- The bankruptcy court found the Release Provisions essential and integral to NHF’s reorganization, adopting oral findings from confirmation hearings.
- Appellants challenged the plan and the Release Provisions before the district court; NHF substantially consummated the plan, distributing estate assets prior to appeal.
- The Fourth Circuit vacated and remanded, holding the release decisions lacked explicit, sufficient factual findings to support the equitable relief.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| whether the plan satisfies confirmation requirements | Behrmann argues good faith and §1129(a)(3) failings; 524(e) precludes nondebtor releases. | NHF contends the plan satisfies the Code and releases are permissible under equity. | Plan reviewed; remanded for explicit factual findings on release grounds. |
| whether nondebtor release/injunction is permissible | Behrmann asserts broad releases usurp statutory limits and lack narrow tailoring. | NHF asserts equitable powers support releases to enable reorganization; not necessary to fit one test. | Equitable relief may be permissible but requires specific factual findings; record insufficient. |
| applicability of Dow Corning/ Railworks criteria | Behrmann argues seven-factor Dow Corning test not satisfied. | NHF asserts a narrower, case-specific framework suffices. | Court adopts Dow Corning/Railworks as guidance but requires explicit factual findings; remand. |
| equitable mootness dismissal | Behrmann seeks relief despite consummation; mootness should not bar review. | NHF argues equitable mootness should bar relief given substantial consummation. | Appeal not dismissed as equitably moot; remand remains appropriate. |
Key Cases Cited
- In re A.H. Robins Co., 880 F.2d 701 (4th Cir. 1989) (section 105(a) equity powers permit nondebtor releases in reorganizations)
- Dow Corning Corp., 280 F.3d 648 (6th Cir. 2002) (seven-factor test for nondebtor releases; cautions use)
- In re Railworks Corp., 345 B.R. 529 (Bankr. D. Md. 2006) (narrow framework for nondebtor releases; essential to reorganization)
- Deutsche Bank AG v. Metromedia Fiber Network, Inc., 416 F.3d 136 (2d Cir. 2005) (nondebtor releases raise potential for abuse; unique circumstances required)
- In re U.S. Airways Group, Inc., 369 F.3d 799 (4th Cir. 2004) (equitable mootness doctrine overview)