Dimitrios Papas v. Buchwald Capital Advisors, LLC
728 F.3d 567
6th Cir.2013Background
- Greektown Holdings filed Chapter 11; plan confirmed and Greektown Litigation Trust created with Buchwald Capital Advisors as Trustee.
- Trustee pursued fraudulent-transfer adversary action naming the Papases and Gatzaroses (Appellants) and the Sault Ste. Marie Tribe / Kewadin (Tribe) as defendants.
- Trustee and Tribe negotiated a settlement: Tribe would pay and release claims in exchange for a broad bar order barring all claims “arising out of or reasonably flowing from” the adversary or transfers.
- Appellants objected; district court held a hearing, found the Appellants had no viable claims that would be barred (no contribution/indemnity), approved the settlement, and entered the bar order.
- Appellants moved for reconsideration after identifying a Guaranty Agreement they said could create viable claims; the district court denied the motion as forfeited and not showing a ‘‘palpable defect.’’
- Sixth Circuit affirmed denial of reconsideration but vacated the bar order and remanded for the district court to (1) determine whether it has jurisdiction over the claims proposed to be enjoined, (2) determine whether it has statutory power to enter a permanent bar, and (3) reexamine and, if necessary, narrow the bar order’s scope.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Denial of motion for reconsideration | Appellants: newly-discovered Guaranty Agreement creates viable claims; district court was misled and should reconsider | Tribe/Trustee: Appellants had the Guaranty long before, failed to raise it earlier, and offered no excuse for delay | Affirmed — district court did not abuse discretion; arguments forfeited for failure to timely present under local rule |
| Jurisdiction to enter bar order | Appellants: bar order exceeded court’s jurisdiction because some barred claims may not be related to bankruptcy | Tribe/Trustee: bar order relates to the adversary and therefore is within bankruptcy-related jurisdiction | Vacated — district court must determine, using the related-to test (could outcome affect estate?), which claims fall within §1334(b) jurisdiction |
| Statutory power to enter permanent bar against non-debtor | Appellants: court lacks power to permanently enjoin third-party claims beyond narrow circumstances | Tribe/Trustee: §105(a) and court procedures authorize such relief in settlement context | Remanded — district court should analyze authority (e.g., interplay of §105, §524, and precedent) before imposing a permanent injunction |
| Scope of bar order | Appellants: order is overbroad and could extinguish independent claims (e.g., guaranty-based claims) | Tribe/Trustee: language limits coverage to claims arising from the adversary; scope is appropriate to secure settlement | Vacated — district court must scrutinize and narrowly tailor scope; bar orders should typically be limited to claims whose injury is measured by the nonsettling defendant’s liability to the plaintiff (contribution/indemnity), not independent damages |
Key Cases Cited
- Celotex Corp. v. Edwards, 514 U.S. 300 (U.S. 1995) (scope of “related to” bankruptcy jurisdiction is broad but not unlimited)
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (test for related-to jurisdiction: outcome could conceivably affect the estate)
- Lindsey v. O’Brien, Tanski, Tanzer & Young Health Care Providers of Conn., 86 F.3d 482 (6th Cir. 1996) (related-to standard applied in Sixth Circuit)
- Matter of Zale Corp. (Feld v. Zale Corp.), 62 F.3d 746 (5th Cir. 1995) (bankruptcy court jurisdiction and limits on enjoining non-debtor claims)
- Matter of Munford, Inc., 97 F.3d 449 (11th Cir. 1996) (conditioning settlement on bar order and jurisdictional approach rejected here)
- Class Five Nevada Claimants v. Dow Corning Corp., 280 F.3d 648 (6th Cir. 2002) (injunctions enjoining non-consenting creditors’ claims permissible only in unusual circumstances)
- Gerber v. MTC Elec. Techs. Co., Ltd., 329 F.3d 297 (2d Cir. 2003) (limit bar orders to claims where injury is liability to plaintiffs; avoid barring independent damages)
- In re HealthSouth Corp. Secs. Litig., 572 F.3d 854 (11th Cir. 2009) (bar orders should generally be confined to claims grounded in contribution/indemnity)
- TBG, Inc. v. Bendis, 36 F.3d 916 (10th Cir. 1994) (courts have barred only claims measured by defendant’s liability to the plaintiff)
- Denney v. Deutsche Bank AG, 443 F.3d 253 (2d Cir. 2006) (mitigating harshness of bar orders via judgment-credit provisions)