478 B.R. 403
D. Nev.2012Background
- Appellants Meritage Homes of Nevada, Inc. and Meritage Homes Corporation appeal the bankruptcy court's Confirmation Order approving exculpation and post-confirmation injunction provisions.
- The Plan, supported by JPMorgan Chase Bank, N.A. and Settling Builders, provides nearly $330 million to creditors and releases Settling Builders from certain claims in exchange for consideration.
- Meritage's Repayment Guaranty is not released or satisfied by the Plan, though the Plan contemplates escrow and potential litigation funding related to that guaranty.
- Section 8.3 of the Plan imposes a post-confirmation injunction limited to estate administration, while Section 8.10 exculpates certain non-debtors from liability in connection with the bankruptcy case.
- The district court evaluates the appeal for de novo questions of law and for abuse of discretion on factual findings, while mootness arguments are addressed given substantial consummation.
- The Plan has largely consummated; funds have been distributed to creditors, assets transferred to an Acquirer, and many related litigation settlements relied on the Confirmation Order.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the exculpation clause improperly releases nondebtors | Meritage: §8.10 releases third parties nonconsensually. | JPMorgan/Settling Builders: exculpation sets a standard of care and is preempted by federal bankruptcy law. | Exculpation properly construed; not an improper third-party release. |
| Whether the factual findings support the exculpation | Meritage: findings are inadequate to justify release. | JPMorgan/Settling Builders: findings support integration and consideration. | Findings sufficient to support §8.10 exculpation. |
| Whether the post-confirmation injunction in §8.3 is a discharge or valid injunction | Meritage: §8.3 acts as a discharge and improperly bars defenses. | JPMorgan/Settling Builders: injunction limited, not a discharge, preserves plan rights. | Section 8.3 is a limited injunction, not a discharge. |
| Whether confirmation affects Meritage's Repayment Guaranty | Meritage contends decision affects merits of its state-law guaranty. | JPMorgan/Settling Builders: bankruptcy law governs effect; discharge does not release guarantors. | Plan confirmation does not affect or satisfy Meritage's Repayment Guaranty under bankruptcy law. |
| Whether the appeal is moot or equitably moot | Meritage seeks selective relief; relief can be fashioned without undoing plan. | Plan substantially consummated; equities weigh toward mootness. | The appeal is not constitutionally moot; likely equitably moot, but the court may modify the plan. |
Key Cases Cited
- Stratosphere Litig. L.L.C. v. Grand Casinos, Inc., 298 F.3d 1137 (9th Cir. 2002) (bankruptcy courts cannot discharge third-party liabilities)
- In re Lowenschuss, 67 F.3d 1394 (9th Cir. 1995) (§ 524(e) precludes nondebtor discharge)
- MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir. 1996) (preemption and remedies for bankruptcyPetition actions)
- In re Miles, 430 F.3d 1083 (9th Cir. 2005) (preemption of state-law tort claims in bankruptcy)
- In re PWS Holding Corp., 228 F.3d 224 (3d Cir. 2000) (exculpation and standard-of-care interpretation)
- In re American Hardwoods, Inc., 885 F.2d 621 (9th Cir. 1989) (discharge; nondebtors not discharged)
- Hillis Motors, Inc. v. Hawaii Auto. Dealers’ Ass’n, 997 F.2d 581 (9th Cir. 1993) (treatment of contingent claims post-confirmation)