New Cases For the Week of August 8, 2011 - August 12, 2011

 

August 12, 2011
In re Matter Of Placid Oil Company
(DBN)
5th Cir.

The current owner of property leased from 1942-1956 by a now-reorganized debtor sued the reorganized debtor on account of environmental damage allegedly occurring during the lease period. The reorganized debtor asserted that the putative debt had been discharged in the bankruptcy, although no actual notice had been sent to the owner's predecessor in interest. The owner asserted that there was no discharge because its predecessor in interest was a "known creditor," entitled to "actual notice" as a precondition to discharge.

The court affirms the finding that the owner's predecessor in interest was not a "known creditor." At the time of the bankruptcy, there was "no specific information" that reasonably suggests that the debtor knew of any claims related to property it leased from the owner's predecessor. Moreover, since the reorganized debtor, an oil and gas company, held tens of thousands of leaseholds, it would have been unreasonable to require actual notice to all owners in the absence of articulable knowledge of contamination.

     
August 11, 2011
In re Matter Of Lothian Oil, Incorporated
(DBN)
5th Cir. Recharacterization (of debt to equity) extends beyond insiders and is part of the bankruptcy courts' authority to allow and disallow claims under 11 U.S.C. § 502. On the facts of this case, recharacterization was appropriate.
     
August 9, 2011
In re Healthtrio, Inc.
(DBN)
10th Cir. Where a bankruptcy judge in Delaware entered an order in a case after the case had been fully transferred to another bankruptcy court in Colorado, the BAP correctly concluded that it had no jurisdiction to review the Delaware judge's action. The second sentence of 28 U.S.C. § 158(a) provides that an appeal of a decision by a bankruptcy judge "shall be taken only to the district court for the judicial district in which the bankruptcy judge is serving.
In re AC and S, Inc.
(DBN)
Bankr. DE

Where an Delaware asbestos trust formed under a confirmed plan was served with discovery subpoenas from: (i) another bankruptcy court and (ii) a state court, seeking information about asbestos claimants' submissions to and payments from the asbestos trust, the court lacked subject matter jurisdiction to adjudicate the propriety of such subpoenas. The court did not have "arising in" jurisdiction over the subpoena disputes. "Arising in" jurisdiction only exists where the proceeding, by its nature, and not its particular factual circumstance, could only arise in the context of a bankruptcy case. This proceeding is a discovery dispute, arising in the course of insurance coverage litigation, whereby insurers have sought information from the trusts and the trusts are essentially objecting to the scope of the subpoenas. Although the trust's challenge to the subpoenas was based upon a forum selection/confidentiality provision of the plan confirmed by the Delaware court, the discovery dispute at the core of the pending matter is one that occurs commonly in litigation outside of bankruptcy, as confidentiality concerns and questions regarding scope are often raised in response to discovery requests. Moreover, the discovery dispute, is, by its nature, not one that could arise only in the context of a bankruptcy case, but in fact, the trust has already intervened in the state court action seeking to quash the subpoena, and the state court judge has referred the matter to a special discovery master.

The fact that a potential discovery forum selection provision in the confirmed plan was implicated was insufficient to create "related to" jurisdiction as well. Although the court finds that the law regarding post-conformation bankruptcy jurisdiction is "quite murky," it finds that the essential inquiry is whether there is a "close nexus" between the (i) instant (discovery) dispute and (ii) the bankruptcy plan or proceeding. One significant factor regarding whether the "close nexus" standard is satisfied is whether the dispute is one that is "essentially collateral to the bankruptcy case," or whether it implicates the integrity of the bankruptcy process. In other words, at the post-confirmation stage, the claim must affect an integral aspect of the bankruptcy process. Here, although the instant dispute would require the court to interpret the plan it confirmed, nearly every other factor weighs against finding "related to" subject matter jurisdiction. Specifically, the instant dispute will not have any effect whatsoever on the debtor, which is now reorganized. Nor will the dispute affect the debtor's estate, which no longer exists. Furthermore, the resolution of the discovery dispute will not have any effect on the implementation, execution, or administration of the confirmed plan. The dispute is thus entirely collateral to the underlying bankruptcy case, which concluded years ago. The mere fact that trust will incur some expense in litigating the dispute is insufficient to support "related to" jurisdiction, since if such sufficed, any lawsuit involving a continuing trust would fall under the "related to" grant.

     
 
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