The third party release included in Article X.D.2 of the Plan (the “Release”) can be more particularly described as an “opt out third party release,” meaning that in order not to be bound by the Release under the terms of the Plan, a creditor or interest-holder of the Debtors must not vote to accept the Plan, and in either voting to reject the Plan or in not voting at all they must check a box on a form provided to them pursuant to which they “opt out” of the Release.3 Under the Plan, creditors and interest-holders that vote for the Plan, that vote to reject the Plan but do not check an “opt out” box on the ballot, or that do not submit a ballot or an “opt out” form are all deemed to have consented to the Release. This Memorandum Decision4 addresses only the propriety of the inclusion of the Release in the Plan on these terms.

* * *

Under these facts, the Plan and the solicitation procedures approved in connection with that Plan provided a simple and conspicuously disclosed mechanism for creditors to opt out of the third-party Release in this case. Over 400 creditors and interest-holders followed the simple procedures and opted out of the Release and will not be bound by it. For those that voted for the Plan, and for those who voted against the Plan or submitted a ballot abstaining from voting on the Plan (or a ballot that was not counted) and did not opt out, and for those who did not vote, object or otherwise respond to the solicitation, the Court finds they have consented to the Release by their vote in favor of the Plan or their failure to timely opt out and will be bound by it, subject to the individual ability of those that did not vote, object or otherwise respond to the solicitation to vote to establish that their failure to opt out should not under their individual circumstances be considered consent.

The proper method for debtors to seek and obtain a consensual release from their creditors, including a release of non-debtor parties in cases like this one where the non-debtor parties provide substantial consideration at least in part to resolve potential claims against them associated with their relationship with the debtor, will no doubt continue to challenge bankruptcy (and ultimately higher) courts.

Moparty Family Limited Partnership and KARE Family Limited Partnership LTD seeks dismissal of the instant Chapter 11 case and accompanying adversary proceeding on the basis that Emergency Hospital Systems LLC’s Operating Manager, Dr. Rafael Delaflor-Weiss, lacked the corporate authority to file the bankruptcy petition. Dr. Delaflor-Weiss takes the position that the company’s operating agreement empowered him with the authority to file a bankruptcy petition without the prior consent of Emergency Hospital Systems LLC’s board of managers.

On October 24, 2024, the Court conducted an evidentiary hearing and based on a reading of the operating agreement and a review of applicable law, the Court concludes that as the Operating Manager, Dr. Delaflor-Weiss had full authority to file the subject petition. The motion to dismiss is denied. Furthermore, because the only basis to dismiss the adversary case was also on the basis of an unauthorized bankruptcy, the motion to dismiss the related adversary case number 24-3206 is also denied.

* * *

Moparty asserts that bankruptcy is one of those decisions of such significance that it “must always be authorized” by the unanimous Board of Managers.54 Moparty’s position, however, requires this Court to read additional terms into EHS’s Operating Agreement. The Court need not do so when EHS’s Operating Agreement plainly provides sweeping authority to the Operating Manager to undertake actions necessary or advisable to effectuate the business and objectives of the company.

The Court holds that the Operating Manager here, in his sole discretion determined that the filing was necessary for the purposes of EHS’s operations, and accordingly the Operating Manager had the authority to file the petition for relief under Chapter 11. Accordingly, the Motion to Dismiss is denied. Furthermore, because the only basis to dismiss the adversary case was also on the basis of an unauthorized bankruptcy, the Motion to Dismiss as to the adversary case is also denied.

Appellee contends that Appellants’ underlying claims — for indemnification, advancement, and contribution against the Debtor — are claims under Section 510(b) of the Bankruptcy Code, which, pursuant to the plain terms of the Plan, are not entitled to any distributions.

* * *

Appellants do not appear to dispute that their appeal would be moot if indeed their underlying claims qualify as Section 510(b) claims. . . . Their second argument — that this Court should not decide the mootness question in the first instance because it raises a number of unresolved ancillary questions, including whether their underlying claims are Section 510(b) claims, see Appellants’ Letter 2 — has more force. For one thing, Appellants contend that “the effectiveness of the Chapter 11 Plan . . . has been contested in the Bankruptcy Court” and, “[a]s [they] understand it, the objection process with respect to the Plan’s effectiveness is ongoing.” Id. at 1. But even if the Plan is and will remain effective, Appellants are correct that “[w]hether the late-filed claims would fall under 510(b) is a legal and factual issue that is not dependent on the effectiveness of the Plan” and would benefit from “full briefing before the Bankruptcy Court.”

* * *

Accordingly, the Court agrees that a limited “remand to the Bankruptcy Court for a ruling on [the Section 510(b)] issue,” Appellee’s Letter 2 — and, by extension, the ultimate question of mootness — is appropriate. Put simply, given “the Bankruptcy Court’s specialized knowledge,” it is better positioned to consider the mootness issue, and any ancillary questions, in the first instance.

This case requires the court to determine the scope of 11 U.S.C. § 362(b)(24), an exception to the automatic stay intended to shield postpetition purchasers of property of the estate without knowledge of the filing of a bankruptcy case. Specifically, the court must determine whether the exception validates the purchase of a debtor's residence at a postpetition foreclosure sale.

* * *

If the exception to the automatic stay were held to extend to postpetition foreclosure sales, the efficacy of the automatic stay would be greatly diminished. Third party purchasers at a foreclosure sale like Catamount who are not prepetition creditors of debtors are never given notice of the bankruptcy because debtors have no reason to include potential purchasers on the list of the debtor's creditors to receive notice of the commencement of bankruptcy. In fact, assuming U.S. Bank received no notice of the debtor's bankruptcy prior to the foreclosure sale and assuming it, rather than Catamount, purchased the debtor's home at the foreclosure sale, U.S. Bank arguably would qualify as a good faith purchaser triggering the section 362(b)(24) exception to the automatic stay. Under Catamount and U.S. Bank's expansive interpretation of section 362(b)(24), the automatic stay would no longer be “automatic,” thereby depriving debtors of the breathing spell necessary to rehabilitate and endangering the orderly administration of property of the estate for the benefit of creditors.

The Moras and the Vigils contend that the Court has the power to deny Debtors’ motions to avoid their judgment liens under § 522(f) because the liens secure claims that arose from Debtors’ fraud. They do not cite any statutory or case law support for such a fraud exception.

* * *

The Court lacks the legal and equitable power to deny the Debtors’ § 522(f) lien avoidance motions based on Debtors’ alleged fraud in creating the underlying claims.

Hours after Black Diamond Energy of Delaware, Inc. (“Debtor”) commenced this case, the Wyoming Oil and Gas Conservation Commission (the “Commission”) sealed its oil and gas wells due to the Debtor’s noncompliance with the Commission’s prepetition orders. A year later, the Debtor moved to enforce the automatic stay and recover damages (“Motion”) after the Commission re-sealed wells that the Debtor continued to operate with impunity. The Commission objected, asserting that its actions were excepted from the stay under section 362(b)(4) of the Bankruptcy Code2 as an exercise of its police and regulatory powers.3 Layers of complexity aside, the dispute boils down to this: the Debtor argues that the Commission seeks to extract monetary penalties arising from a tax dispute; the Commission contends that it is enforcing coercive measures, including the provision of a bond, to ensure the Debtor’s future compliance with its rules and orders. For the reasons below, the Court will deny the Motion.

* * *

[T]he compliance bond is not a debt, but a prerequisite to the Debtor operating oil and gas wells in Wyoming. It does not matter that it was seemingly imposed here as a sanction rather than mandated from the start. The fundamental purpose of the compliance bond is to ensure the Debtor follows all the Commission’s rules and orders going forward, not just the tax rules. There is no question these rules effectuate important public policy interests by ensuring oil and gas operators produce these resources safely and equitably, and without waste or environmental damage. And the compliance bond’s future focus distinguishes it from a money judgment.154 In essence, it is the cost of admission and the inability to operate wells is the natural consequence of choosing not to provide the surety. From this perspective, the Debtor’s attempt to use the stay to avoid supplying a compliance bond seems more a sword than a shield.