Opinion ID: 3029501
Heading Depth: 3
Heading Rank: 1

Heading: The Settlement Agreement and Plan

Text: This dispute centers on the meaning of two sections of the Settlement Agreement. Its essential bargain is the unsecured creditors’ agreement not to seek the appointment of a trustee to administer the estate or to challenge the validity, perfection, or priority of the secured creditors’ claims in return for the secured creditors’ agreement to remit some of their recovery to the unsecured creditors and to waive any rights to pursue deficiency claims. The Term C Lenders did not participate in the Settlement Agreement as such (though their interests likely were represented by Insilco, as it was still controlled by the DLJ 7 We have jurisdiction to review the final order of the District Court under 28 U.S.C. §§ 158(d)(1) and 1291. We review the construction of consent orders de novo. Holland v. N.J. Dep’t of Corr., 246 F.3d 267, 277 (3d Cir. 2001). 8 Group at that time). In section 1 of the Settlement Agreement, the Debtors and unsecured creditors agreed that “[t]he Senior Lenders’ . . . claims against the Debtors . . . are fully and finally allowed in the amount of $254,933,571.49.” Footnote 1 of the Settlement Agreement stipulates that the Term C Lenders are included as “Senior Lenders” for purposes of section 1. Hence, it was agreed that the Term C Lenders could assert allowable claims against the estate. In the Bankruptcy Code, “claim” is a term of art. It is defined as a “right to payment” or “right to an equitable remedy.” 11 U.S.C. § 101(5). Similarly, “allowed” is a term of art, referring to the Bankruptcy Court’s determination that a claim is valid and in line for distribution. See 11 U.S.C. § 502. The concept of an “allowed claim” lies at the heart of the bankruptcy process, for only those who possess allowed claims are entitled to distribution from the bankruptcy estate. In re Johns, 37 F.3d 1021, 1023 n.1 (3d Cir. 1994) (“An ‘allowed claim’ is one that will serve as the basis for distribution.”). In section 4 of the Settlement Agreement, the Debtors and the Creditors’ Committee released the Senior Lenders8 and Term C Lenders from liability on a variety of actions. The releases are worded as follows: 8 In a rather confusing act of contract construction, the term “Senior Lenders” includes the Term C Lenders in section 1 of the Settlement Agreement only. Yet, in section 4 the two groups are treated separately. 9 A. Release by the Debtors and Creditors’ Committee—The Debtors and the Creditors’ Committee, on behalf of themselves and the estates of the Debtors . . . (the “Releasing Estate Parties”), hereby fully waive, release, and forever discharge the . . . Senior Lenders . . . (“Released Lender Parties”) from any and all manner of actions, causes of action, in law or in equity, suits, debts, liens, contracts, agreements, promises, liabilities, claims, damages, losses, controversies, trespasses, remedies, defenses, set-offs, surcharges, costs or expenses of any nature whatsoever, known or unknown, fixed or contingent, which the Releasing Estate Parties have had, now have, or may hereafter have against the Released Lender Parties, by reason of any matter, cause or thing whatsoever, from the beginning of time through and to the Settlement Effective Date; provided however, that nothing in this Paragraph 4A releases any Parties’ obligations or agreements pursuant to this Settlement Agreement, or bars claims directed solely at enforcing the provisions of this Settlement Agreement. .... C. Limitation on Release of Term C Lenders—The releases and waivers contained in 10 Paragraph 4A of this Settlement Agreement for the benefit of the Released Lender Parties shall also apply to the Term C Lenders . . . only in respect of the Term C Loans under the Credit Agreement (as defined therein) and notwithstanding anything herein to the contrary, the Term C Lenders . . . shall not otherwise be released or deemed released. Nothing contained herein shall be deemed to discharge, impair, or otherwise affect any claim, action, cause of action or right against the Term C Lenders . . . except as specifically set forth in the preceding sentence, provided however, that the reservation of non- released claims, causes of action or rights in this Paragraph shall not extend to the Released Lender Parties. Boiled down, the Debtors and Creditors’ Committee released the Senior Lenders from all manner of actions, while they released the Term C Lenders only from actions “in respect of the Term C Loans.” On the surface, the “in respect of” language in section 4C seems to preclude any objection to allowing and paying a claim based on the Term C Loans. It is puzzling, though, because the Plan expressly contemplates the Debtors or Creditors’ Committee filing an objection to that claim. Section 4.8 of the Plan, which defines a class of claims as the “Claims of the Term C Lenders under the Term C Loans” and provides for the 11 treatment of those claims, prefaces its treatment of the Term C Lenders’ claims under the Term C Loans with “[u]nless the Debtors (or the Creditors’ Committee on behalf of the Debtors) . . . have commenced an adversary proceeding or contested matter prior to the Confirmation Date seeking to subordinate or reclassify the [claims under the Term C Loans] . . . .” From this it appears that the Plan drafters (a group quite similar to the Settlement Agreement drafters) did not believe that objections to the Term C Claims were barred if filed by the Debtors or Creditors’ Committee. On the other hand, the Plan adopts and subordinates itself to the Settlement Agreement; anything in it that conflicts with the Settlement Agreement bows to the latter. The Bankruptcy Court’s order confirming the Plan reiterates this.