Opinion ID: 786599
Heading Depth: 3
Heading Rank: 2

Heading: The Post-Confirmation Context of the Related To Inquiry

Text: 36 As noted, Pacor and its progeny provide the analytical framework for determining related to jurisdiction. But most of the cases decided under Pacor do not arise post-confirmation or even after the creation of a litigation trust. Litigation trusts, which serve a valid purpose in the bankruptcy process, may continue long after a reorganization plan has been confirmed and the debtor has emerged from bankruptcy. And yet bankruptcy jurisdiction may still obtain if there is sufficient connection to the bankruptcy. 37 The post-confirmation context of this dispute affects our related to inquiry because bankruptcy court jurisdiction must be confined within appropriate limits and does not extend indefinitely, particularly after the confirmation of a plan and the closing of a case. Donaldson, 104 F.3d at 553. 7 After confirmation of a reorganization plan, retention of bankruptcy jurisdiction may be problematic. See Bank of La. v. Craig's Stores of Tex., Inc. (In re Craig's Stores of Tex., Inc.), 266 F.3d 388, 391 (5th Cir.2001); In re Fairfield Cmtys., Inc., 142 F.3d 1093, 1095-96 (8th Cir.1998). This is so because, under traditional Pacor analysis, bankruptcy jurisdiction will not extend to a dispute between non-debtors unless the dispute creates the logical possibility that the estate will be affected. In re Federal-Mogul Global, Inc., 300 F.3d 368, 380 (3d Cir.2002) (internal quotations omitted), cert. denied, 537 U.S. 1148, 123 S.Ct. 884, 154 L.Ed.2d 851 (2003). At the most literal level, it is impossible for the bankrupt debtor's estate to be affected by a post-confirmation dispute because the debtor's estate ceases to exist once confirmation has occurred. See In re Fairfield Cmtys., 142 F.3d at 1095 (holding that once a bankrupt debtor's plan has been confirmed the debtor's estate ceases to exist). Unless otherwise provided by the plan or order confirming the plan, the confirmation of a plan vests all of the property of the estate in the reorganized debtor. 11 U.S.C. § 1141(b). See also NVF Co. v. New Castle County, 276 B.R. 340, 348 (D.Del.2002) (holding that the confirmation of a plan revests the estate's property in the reorganized debtor, and accordingly, the bankruptcy estate no longer existed), aff'd 61 Fed.Appx. 778 (3d Cir.2003). 38 But courts do not usually apply Pacor' s effect on the bankruptcy estate test so literally as to entirely bar post-confirmation bankruptcy jurisdiction. As the District Court correctly noted, though the scope of bankruptcy court jurisdiction diminishes with plan confirmation, bankruptcy court jurisdiction does not disappear entirely. Binder, No. 02-1333, slip op. at 9. Post-confirmation jurisdiction is assumed by statute and rule: 11 U.S.C. § 1142(b) authorizes the bankruptcy court to direct the debtor and any other necessary party... to perform any other act ... that is necessary for the consummation of the plan, id., and Fed. R. Bankr.P. 3020(d) provides that [n]otwithstanding the entry of the order of confirmation, the court may issue any other order necessary to administer the estate. Id. Although § 1142(b) assumes that post-confirmation jurisdiction exists for disputes concerning the consummation of a confirmed plan, 28 U.S.C. § 1334 remains the source of this jurisdiction. In re United States Brass Corp., 301 F.3d at 306. 39 Moreover, several courts have preserved post-confirmation jurisdiction in the bankruptcy court. See Gryphon, 166 F.3d at 555-56 (holding that the bankruptcy court had post-confirmation jurisdiction because a trustee's action to enforce a fee provision was related to and arising in the bankruptcy); Donaldson, 104 F.3d at 552-54 (upholding post-confirmation bankruptcy court jurisdiction where the debtors failed to fund the reorganization plan and failed to pay unsecured creditors as required by the plan). And courts have upheld post-confirmation jurisdiction in situations involving trusts and similar entities. See Bergstrom v. Dalkon Shield Claimants Trust (In re A.H. Robins Co.), 86 F.3d 364, 372-73 (4th Cir.1996) (upholding bankruptcy jurisdiction over a professional fees dispute between a claimants' trust and attorneys representing claimants on the trust). 8 40 Courts have applied varying standards to determine whether related to jurisdiction should be upheld post-confirmation. We noted in Donaldson, 104 F.3d 547, that some courts have held that the act of plan confirmation changes the Pacor test from whether the outcome of the proceeding could conceivably have any effect on the estate being administered to whether the outcome could `significantly affect[] consummation of the plan as confirmed.' Id. at 553 (quoting Grimes v. Graue (In re Haws), 158 B.R. 965, 970 (Bankr.S.D.Tex.1993)). 9 In Donaldson, we declined to determine the precise standard to apply post-confirmation. First W. SBLC, Inc. v. Mac-Tav, Inc., 231 B.R. 878, 882 (D.N.J.1999). Subsequently, in Gryphon, 166 F.3d 552, we applied the Pacor test to resolve a claim for post-confirmation fees brought by a United States Trustee, querying whether the dispute could conceivably have any effect on the estate being administered in bankruptcy and holding that the matter satisfies the Pacor test because it directly relates to the debtor's liabilities-in fact it creates a liability-and could impact the handling and administration of the estate. Id. at 556. And in Gryphon, we held that though 11 U.S.C. § 1142 10 provides that the bankruptcy court may take action to ensure the consummation of a confirmed plan, the bankruptcy court may entertain other post-confirmation actions as well. 166 F.3d at 556. 41 Though courts have varied the standard they apply post-confirmation, the essential inquiry appears to be whether there is a close nexus to the bankruptcy plan or proceeding sufficient to uphold bankruptcy court jurisdiction over the matter. For example, in Donaldson, 104 F.3d 547, we upheld bankruptcy court jurisdiction because the trustee through the lawsuit was basically ... seeking to carry out the intent of the reorganization plan. Id. at 553. We distinguished the matter from other cases denying jurisdiction because it had a much closer nexus to the bankruptcy case. Id. In upholding jurisdiction, we found significant the fact that the case did not involve a dispute essentially collateral to the bankruptcy case. Id. Rather, the action implicat[ed] the integrity of the bankruptcy process because one party's actions impaired the other party's ability to act in accordance with the plan. Id. The post-confirmation fee dispute in Gryphon, 166 F.3d 552, also had a close nexus to the bankruptcy proceeding because it involved a U.S. Trustee's action to enforce a post-confirmation fee provision and created a liability for the debtor. Id. at 555. At the post-confirmation stage, the claim must affect an integral aspect of the bankruptcy process-there must be a close nexus to the bankruptcy plan or proceeding. 42 Whether a matter has a close nexus to a bankruptcy plan or proceeding is particularly relevant to situations involving continuing trusts, like litigation trusts, where the plan has been confirmed, but former creditors are relegated to the trust res for payment on account of their claims. To a certain extent, litigation trusts by their nature maintain a connection to the bankruptcy even after the plan has been confirmed. The question is how close a connection warrants post-confirmation bankruptcy jurisdiction. Matters that affect the interpretation, implementation, consummation, execution, or administration of the confirmed plan will typically have the requisite close nexus. Under those circumstances, bankruptcy court jurisdiction would not raise the specter of unending jurisdiction over continuing trusts. 43 An example of a dispute in which there was a sufficiently close nexus to the plan or proceeding to uphold bankruptcy court jurisdiction post-confirmation was an earlier proceeding involving the Resorts International, Inc. bankruptcy. See In re Resorts Int'l, 199 B.R. 113 (Bankr.D.N.J.1996). There, unlike here, the Bankruptcy Court was required to construe and enforce provisions of the Plan to resolve a post-confirmation dispute over whether the Litigation Trust or the debtor was entitled to accrued interest. Id. at 120-25. The court correctly held that it retained jurisdiction to enter appropriate orders to enforce the intent and specific provisions of the Plan. Id. at 118-19. 44 Bergstrom, 86 F.3d 364, and Falise v. Am. Tobacco Co., 241 B.R. 48 (E.D.N.Y.1999), are useful for illustrating when there is a sufficiently close nexus to the bankruptcy plan or proceeding to uphold bankruptcy jurisdiction in post-confirmation situations involving continuing trusts. In Bergstrom, 86 F.3d 364, the dispute implicated an integral aspect of the bankruptcy process. The plan-created trust intended to distribute surplus funds to tort claimants on a pro rata basis. Id. at 367. But certain attorneys claimed entitlement to contingent fees. Id. The district court, sitting in bankruptcy, limited attorneys' fees to ten percent of the amounts distributed. Id. To resolve the dispute, it was necessary to interpret the plan's accompanying documents to determine whether it was unreasonable to charge standard attorneys' fees out of the pro rata distribution. See id. at 368-71. In upholding related to jurisdiction, the court explained why the dispute was central to the bankruptcy proceeding: The Trust was created to protect and pay those persons who had been damaged by use of the Dalkon Shield. The efforts of the Trust to settle the remaining claims could easily be affected if the remaining claimants are aware that any attorneys' fees out of the pro rata distribution will be limited to ten percent. Id. at 372. Accordingly, the dispute integrally affected the bankruptcy plan and proceeding, and it was appropriate for the district court, sitting in bankruptcy, to exercise jurisdiction over that proceeding. 45 In contrast, this kind of close nexus to the bankruptcy plan or proceeding was absent in Falise, 241 B.R. 48. Falise involved a dispute between tobacco manufacturers and a trust created as a result of the bankruptcy of an asbestos products producer. Id. at 51. The trust sought to recover from the tobacco companies for their role in contributing to asbestos-related illnesses. Id. Noting that the resolution of the dispute would require more than merely interpreting the plan's terms, the court held that bankruptcy court jurisdiction does not extend to a major suit brought by the trust against non-parties to the bankruptcy or to any closely related proceeding. Id. at 52, 55. In Falise, the resolution of the dispute would have had no impact on any integral aspect of the bankruptcy plan or proceeding. Accordingly, it was appropriate to find no bankruptcy jurisdiction over that collateral matter. 46 In re Haws, 158 B.R. 965, similarly illustrates when a proceeding lacks a sufficiently close nexus to the bankruptcy plan or proceeding to uphold post-confirmation jurisdiction. There, the action was brought by a trustee for a liquidating trust against a partner of the debtor for breach of fiduciary duty. Id. at 967-68. In holding the matter to be outside bankruptcy court jurisdiction, the court noted the plaintiff had failed to demonstrate how any damages recovered from the defendant were necessary to effectuate the terms of the plan. Id. at 971. The court recognized that [n]owhere in the lawsuit is the bankruptcy court being asked to construe or interpret the confirmed plan or to see that federal bankruptcy laws are complied with in the face of violations. Id. It concluded: The only nexus to this bankruptcy case is that the plaintiff in this matter is a liquidating trustee representing a group of creditors appointed pursuant to the confirmed plan of reorganization. Id. 47 Montana v. Goldin (In re Pegasus Gold Corp.), 296 B.R. 227 (D.Nev.2003), is also instructive. A reclamation services corporation (RSC) was created under a reorganization plan for the purpose of performing short-term reclamation work in order to benefit the overall Plan goal of preserving the jobs of Debtors' employees to thereby maximize the possibility of creditor recovery. Id. at 231. The Trustee and RSC contended the state of Montana had represented that RSC would be given preference in the bidding for long-term reclamation work. Id. at 232. They brought suit, alleging Montana breached the agreement by hiring a competitor to perform the reclamation work. Id. The court upheld bankruptcy court jurisdiction because RSC's failure, and its inability to retain the debtors' employees on account of Montana's breach, undermine[d] the Plan's objectives for reorganization and the payment of creditors. Id. at 233-35. The court held that the facts demonstrate the necessary close nexus between appellees' tort and contract claims and the bankruptcy proceeding. Id. at 235. 48 As stated, the jurisdiction of the non-Article III bankruptcy courts is limited after confirmation of a plan. But where there is a close nexus to the bankruptcy plan or proceeding, as when a matter affects the interpretation, implementation, consummation, execution, or administration of a confirmed plan or incorporated litigation trust agreement, retention of post-confirmation bankruptcy court jurisdiction is normally appropriate.