575 B.R. 252
Bankr. D. Del.2017Background
- Millennium Lab and affiliates filed prepackaged Chapter 11 plans that included nonconsensual third‑party releases in exchange for $325 million contributed by non‑debtor equity holders.
- Voya (the Opt‑Out Lenders) objected to the releases, filed a separate RICO and fraud complaint in district court, and argued bankruptcy court lacked jurisdiction/authority to approve nonconsensual releases.
- At confirmation the bankruptcy court overruled Voya’s objections, found the releases met the Third Circuit (Continental) standard, and entered a final confirmation order; Voya appealed.
- The district court remanded, directing the bankruptcy court to address whether it had constitutional (Article III) adjudicatory authority post‑Stern to enter a final order approving nonconsensual releases of Voya’s non‑bankruptcy claims.
- On remand the bankruptcy court (Judge Silverstein) held it did have constitutional authority, rejected Voya’s expansive reading of Stern, and alternatively found Voya forfeited/waived any Article III objection and also waived any right to a merits hearing on its RICO claims at confirmation.
Issues
| Issue | Plaintiff's Argument (Voya) | Defendant's Argument (Debtors) | Held |
|---|---|---|---|
| Whether bankruptcy court had constitutional authority under Stern to enter final confirmation order approving nonconsensual third‑party releases of Voya’s RICO/fraud claims | Stern requires Article III adjudication of claims that do not "stem from the bankruptcy" or are not resolved in the claims allowance process; because Voya filed its RICO suit in district court, the bankruptcy court cannot enter a final order affecting those claims | Confirmation is a core, federally governed proceeding; releases "stem from" and are integral to restructuring and are evaluated under federal standards (Continental/Master Mortgage), so Stern does not bar final confirmation orders with releases | Court held it had constitutional authority; Stern’s narrow test does not preclude final confirmation orders approving nonconsensual releases where releases arise from and are necessary to the bankruptcy reorganization |
| Whether the releases here were permissible as a matter of bankruptcy law and met the Continental/Master Mortgage factors | Releases are impermissible absent Article III adjudication and Voya did not consent; even if permissible, standard not met | Releases satisfied Continental hallmarks and Master Mortgage factors (fairness, necessity, contribution, creditor support, payment provision) | Court previously found—and reiterates—that the releases met the Continental standard; on remand it did not disturb that factual finding |
| Whether the confirmation order’s effect on the RICO lawsuit means a district court must enter the final order (i.e., confirmation constitutes an impermissible adjudication of the RICO suit) | The confirmation order is equivalent to a final judgment extinguishing Voya’s claims; only an Article III court may enter such an adjudication | A confirmation order approves a federal restructuring remedy; collateral preclusive effects do not turn a core federal act into an Article III‑exclusive adjudication | Court held that collateral impact on a pending non‑bankruptcy suit does not, by itself, make Stern applicable; bankruptcy court may enter final orders in core matters that affect nonbankruptcy litigation |
| Whether Voya preserved the Article III objection and/or the right to a merits hearing on its RICO claims at confirmation | Voya asserts it preserved rights via a reservation in filings and never consented to releases; it insists on an Article III merits adjudication | Debtors argue Voya never timely raised a Stern Article III objection at hearing, omitted required Local Rule statement, and affirmatively declined to litigate merits at confirmation | Court concluded Voya forfeited/waived any Article III objection by not making it at confirmation and by conduct amounting to implied consent; Voya also waived any right to a merits hearing on its RICO claims in the confirmation context |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (2011) (Article III limits on bankruptcy courts: trustee/debtor counterclaims that do not stem from bankruptcy or resolve in the claims process cannot be finally adjudicated by non‑Article III judges)
- N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) (plurality) (bankruptcy courts’ adjudicatory power constrained by Article III)
- Wellness Int’l Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015) (parties may consent to adjudication by bankruptcy courts; waiver of Article III right through consent)
- Gillman v. Continental Airlines (In re Continental Airlines), 203 F.3d 203 (3d Cir. 2000) (requirements for third‑party releases; Continental standard)
- AOV Indus., Inc. v. FTC (In re AOV Indus., Inc.), 792 F.2d 1140 (D.C. Cir. 1986) (bankruptcy court may confirm plans containing releases; confirmation is core)
- CoreStates Bank, N.A. v. Huls Am., Inc., 176 F.3d 187 (3d Cir. 1999) (confirmation orders can have preclusive effect on related non‑core proceedings if res judicata elements met)
- In re Linear Elec. Co., Inc., 852 F.3d 313 (3d Cir. 2017) (bankruptcy court constitutionally may enter final orders on federal bankruptcy claims that affect state‑law rights; such claims constitute public rights)
- Katchen v. Landy, 382 U.S. 323 (1966) (claims integral to allowance/disallowance may be adjudicated in bankruptcy)
- Langenkamp v. Culp, 498 U.S. 42 (1990) (preference actions integral to claims allowance and may be resolved in bankruptcy)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (1989) (distinction between private rights and public rights; jury trial implications and bankruptcy jurisdiction)