533 B.R. 714
Bankr. N.D. Ill.2015Background
- CEOC (debtor) and many subsidiaries filed Chapter 11; CEC is the non-debtor parent that guaranteed billions in CEOC notes.
- In 2014 CEC participated in transactions (the “B-7 Refinancing” and the “Senior Unsecured Notes Transaction”) that CEC says released its guaranties; noteholders sued CEC (and initially CEOC) in Delaware Chancery and SDNY for breach, declaratory relief, TIA claims, and related theories.
- Debtors filed an adversary proceeding seeking a Section 105(a) injunction to halt the four actions against CEC, arguing continued prosecution would (a) jeopardize CEC’s promised contribution to a restructuring (RSA) and (b) deplete shared D&O/organization insurance coverage.
- Seventh Circuit law (Fisher; Teknek) limits Section 105(a) injunctions: such injunctions may issue only when the third-party claims are sufficiently “related to” the bankruptcy — chiefly, when both estate claims and third-party claims arise from the same acts and compete for the same assets.
- The court found the debtors failed to show the estates have claims arising out of the same acts as the guaranty claims (breach of indentures/releases), and held insurance proceeds are not estate property in a way that would let the debtors enjoin defendants’ actions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court can enjoin third-party suits against non-debtor CEC under 11 U.S.C. §105(a) | Debtors: injunction needed to protect reorganization and preserve CEC’s promised contribution; adversary claims and third-party suits concern same transfers | Defs: bankruptcy court lacks power to enjoin independent suits against a non-debtor where estate claims do not arise from same acts | Denied — under Fisher/Teknek, §105 injunction unavailable because estate claims were not shown to arise from the same acts as guaranty claims |
| Whether prosecution of the suits would defeat or impair the bankruptcy court’s jurisdiction / likelihood of successful reorganization | Debtors: adverse judgments would take assets or eliminate CEC’s ability to contribute, defeating reorg | Defs: suits are ordinary contract/TIA claims against CEC; not the same acts; bankruptcy lacks basis to freeze those claims | Denied — loss of CEC contribution alone insufficient absent same-acts nexus |
| Whether shared insurance proceeds (D&O/organization coverage) are estate property subject to protection via §105 injunction | Debtors: policy and proceeds are estate property; suits risk depleting coverage and harming estates | Defs: CEC is an insured with independent organization coverage; proceeds belong to CEC for its covered losses | Denied — policy is broad and gives CEC independent rights; proceeds are not estate property such that injunction is warranted |
| Whether Seventh Circuit precedent allows broad ‘‘protective’’ injunctions to preserve reorganization leverage | Debtors: this is a ‘‘classic scenario’’ justifying an injunction to protect restructuring | Defs: Seventh Circuit limits remedy; Fisher/Teknek require same-acts nexus | Court: follows Seventh Circuit; limits apply and preclude relief here |
Key Cases Cited
- Fisher v. Apostolou, 155 F.3d 876 (7th Cir. 1998) (Section 105(a) injunction proper only when third-party claims are sufficiently related — emphasis on arising from the same acts)
- In re Teknek, LLC, 563 F.3d 639 (7th Cir. 2009) (reaffirming Fisher and holding claims must arise from same acts to enjoin third-party litigation)
- Celotex Corp. v. Edwards, 514 U.S. 300 (U.S. 1995) (bankruptcy courts may enjoin proceedings in other courts to protect bankruptcy process)
- Manville v. Equity Sec. Holders Comm. (In re Johns-Manville Corp.), 801 F.2d 60 (2d Cir. 1986) (recognizing core bankruptcy proceedings and final adjudication in bankruptcy)
- In re Kmart Corp., 359 F.3d 866 (7th Cir. 2004) (Section 105(a) may be used to implement Bankruptcy Code provisions and protect jurisdiction)