Bankruptcy

To Voya, that point is irrelevant. Voya contends that Stern demands an Article III adjudicator decide its RICO/fraud claims because those claims do not stem from the bankruptcy itself and would not be resolved in the claims-allowance process. It asserts that the limiting phrase from Stern, i.e., "necessarily be resolved in the claims allowance process[,]" cannot be stretched to cover all matters integral to the restructuring. (Opening Br. at 31.) In that regard, Voya argues that an assertion that something is "integral to the restructuring" is really "nothing more than a description of the claims allowance process." (Reply Br. at 13.)

That argument fails primarily because it is not faithful to what Stern actually says. Had the Stern Court meant its "integral to the restructuring" language to be limited to the claims-allowance process, it would not have said that a bankruptcy court may decide a matter when a "creditor has filed a claim, because then" ? adding its own emphasis to that word ? "the ensuing preference action by the trustee become[s] integral to the restructuring of the debtor-creditor relationship." 564 U.S. at 497 (alteration in original). That phrasing makes clear that the reason bankruptcy courts may adjudicate matters arising in the claims-allowance process is because those matters are integral to the restructuring of debtor-creditor relations, not the other way around. And, as the Appellees correctly observe, Stern is not the first time that the Supreme Court has so indicated. In Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 109 S. Ct. 2782,106 L. Ed. 2d 26 (1989) ? a case that the Stern Court viewed as informing its Article III jurisprudence, 564 U.S. at 499 ? the Court answered first whether an action arose in the claims-allowance process and only then whether it was otherwise integral to the restructuring of debtor-creditor relations. See Granfinanciera, 492 U.S. at 58 ("Because petitioners here ... have not filed claims against the estate, respondent's fraudulent conveyance action does not arise 'as part of the process of allowance and disallowance of claims.' Nor is that action integral to the restructuring of debtor-creditor relations."). If the first step in that analysis were all that was relevant, the second step would not have been taken.

Equitable Mootness Wraps Up the Case

The Third Circuit made clear that it was not endorsing broad third party releases. However, it did not reach the issue of whether such releases were permissible under bankruptcy law due to equitable mootness. Basically, equitable mootness says that if a plan is confirmed and has been substantially consummated, it cannot be set aside where parties have acted in reliance upon it. Equitable mootness will not apply to a discrete part of a controversy which can be set aside and the parties placed back in their status quo position. However, if you can't unscramble the confirmed plan, you can't set it aside. What equitable mootness does is requires a party complaining about a plan to obtain a stay pending appeal or risk losing its appeal. Voya did not do so here and as a result, the court did not reach the merits. The key here is that the third party releases were essential to the plan. Without the third party releases, the insiders would not have funded the plan. Without the insiders funding the plan, there would be no plan.

What It Means

Basically what this case means is take your best shot in the bankruptcy court because you may not have another shot on appeal. Stern v. Marshall is not a talisman which will fend off bankruptcy while equitable mootness makes it really hard to challenge a plan which, as here, was negotiated between multiple parties and involved a lot of moving pieces.

What does this case say about nonconsensual third party releases in general? As a matter of law, it does not say much. However, what it says as a practical matter, is that it will be hard for one obstructive creditor to impede a deal that almost everyone else wants. I will talk about the status of third party releases in general in a subsequent post.

Hat tip to Britt Suttell who pointed me to the opinion.