Opinion ID: 71311
Heading Depth: 2
Heading Rank: 2

Heading: Settlement Bar Orders

Text: Next, we address whether the bankruptcy court has legal authority to enter the order barring the nonsettling defendants from asserting claims of contribution and indemnity against VRC. In entering the bar order, the bankruptcy court concluded that 11 U.S.C. § 105(a) along with Federal Rules of Civil Procedure 16 granted it authority to enter the bar order in aid of settlement. The nonsettling defendants contend that the bankruptcy court misapplied rule 16 arguing that rule 16 does not grant courts the right to enter bar orders.2 Section 105(a) of the Bankruptcy Code provides that [t]he court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. 11 U.S.C. §§ 105(a) (1994) (emphasis added). Rule 16 which is incorporated in adversary proceedings under Rules of Bankruptcy 7016, states in pertinent part: At any [settlement] conference under this rule consideration may be given, and the court may take appropriate action, with respect to .... (9) settlement and the use of special procedures to assist in resolving the dispute when authorized by statute or local rule. Fed.R.Civ.P. 16(c)(9). We conclude that section 105(a) and rule 16 taken together provide ample authority for the bankruptcy's court action. Section 105(a) clearly provides that the bankruptcy court can enter any order necessary or appropriate to carry out the provisions of the Bankruptcy Code, while rule 16 authorizes the use of special procedures to assist the parties in reaching a settlement. Several justifications for entering bar orders in bankruptcy cases exist. First, public policy strongly favors pretrial settlement in all types of litigation because such cases, depending on their complexity, can occupy a court's docket for 2 The nonsettling defendants also contend that O.C.G.A. § 5112-32 which provides that a settling tortfeasor retains its right to contribution against a nonsettling tortfeasor prohibits the bankruptcy court from entering its bar order. This argument lacks merit and does not warrant further discussion. years on end, depleting the resources of parties and the taxpayers while rendering meaningful relief increasingly elusive. U.S. Oil & Gas v. Wolfson, 967 F.2d 489, 493 (11th Cir.1992). Second, litigation costs are particularly burdensome on a bankrupt estate given the financial instability of the estate. Third, bar orders play an integral role in facilitating settlement. U.S. Oil & Gas, 967 F.2d at 494. This is because [d]efendants buy little peace through settlement unless they are assured that they will be protected against codefendants' efforts to shift their losses through cross-claims for indemnity, contribution, and other causes related to the underlying litigation. U.S. Oil & Gas Litigation, 967 F.2d at 494. But for the bankruptcy court's bar order in this case, for example, VRC would not have entered into the settlement agreement with Munford, Inc. For these reasons, we hold that section 105(a) and rule 16 authorize bankruptcy courts to enter bar orders where such orders are integral to settlement in an adversary proceeding.