Dimitrios Papas v. Buchwald Capital Advisors, LLC , 728 F.3d 567 ( 2013 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 13a0252p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
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In re GREEKTOWN HOLDINGS, LLC,
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Debtor.
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No. 12-2434
,
>
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DIMITRIOS PAPAS, aka Jim Papas, VIOLA
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PAPAS, TED GATZAROS, and MARIA
Appellants, --
GATZAROS,
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v.
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BUCHWALD CAPITAL ADVISORS, LLC,
Litigation Trustee for the Greektown -
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Litigation Trust, SAULT STE MARIE TRIBE OF
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CHIPPEWA INDIANS, and KEWADIN CASINOS
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GAMING AUTHORITY,
Appellees. -
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Appeal from the United States District Court
for the Eastern District of Michigan at Detroit.
No. 12-cv-12340—Paul D. Borman, District Judge.
Argued: July 23, 2013
Decided and Filed: August 26, 2013
Before: BOGGS and McKEAGUE, Circuit Judges, and BECKWITH, Senior District
Judge.*
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COUNSEL
ARGUED: Lisa S. Gretchko, HOWARD & HOWARD ATTORNEYS PLLC, Royal
Oak, Michigan, for Appellants. Joel D. Applebaum, CLARK HILL PLC, Birmingham,
Michigan, for Buchwald Appellee. Grant S. Cowan, FROST BROWN TODD LLC,
Cincinnati, Ohio, for Chippewa and Kewadin Appellees. ON BRIEF: Nancy K. Stone,
Mary C. Dirkes, HOWARD & HOWARD ATTORNEYS PLLC, Royal Oak, Michigan,
for Appellants. Joel D. Applebaum, CLARK HILL PLC, Birmingham, Michigan, for
*
The Honorable Sandra Shank Beckwith, Senior United States District Judge for the Southern
District of Ohio, sitting by designation.
1
No. 12-2434 In re Greektown Holdings Page 2
Buchwald Appellee. Grant S. Cowan, FROST BROWN TODD LLC, Cincinnati, Ohio,
for Chippewa and Kewadin Appellees.
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OPINION
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McKEAGUE, Circuit Judge. At issue in this appeal is a claims bar order entered
in an adversary proceeding connected with the bankruptcy of Greektown Holdings, LLC.
The appellants, the Papases and Gatzaroses, and two of the appellees, the Sault Ste.
Marie Tribe of Chippewa Indians and the Kewadin Casinos Gaming Authority, are
defendants in a fraudulent transfer action that was brought in federal bankruptcy court
by Buchwald Capital Advisors, LLC. Buchwald Capital Advisors is the trustee of the
Greektown Litigation Trust and an appellee in this appeal. The Sault Ste. Marie Tribe
and the Kewadin Casinos Gaming Authority agreed to settle with Buchwald Capital
Advisors. However, they conditioned the settlement upon the entry of an order that
would bar any claims against them “arising out of or reasonably flowing from” either the
fraudulent transfer proceeding or the allegedly fraudulent transfers themselves. The
Papases and Gatzaroses objected to this requested order, but when they could not come
up with any viable claims that would be enjoined by the bar order, the district court
approved the settlement and entered the bar order. A short time later, the Papases and
Gatzaroses filed a motion for reconsideration in which they detailed additional claims
that they feared might be barred by the order. The district court denied their motion.
On appeal, the Papases and Gatzaroses argue that the bar order was improper and
also contend that the district court abused its discretion when it denied their motion for
reconsideration. The district court was clearly acting within its discretion when it denied
the motion for reconsideration, so we affirm its order denying reconsideration. But the
bar order itself raises several interesting questions of first impression in this Circuit.
These questions concern the district court’s jurisdiction and power to enter the bar order
and the proper scope of such an order. Unfortunately, these issues have not been
adequately briefed and argued by the parties and were not addressed below. We
No. 12-2434 In re Greektown Holdings Page 3
therefore remand this case to the district court and instruct the district court to reevaluate
the bar order under the guidance provided in this opinion.
I. BACKGROUND
The Greektown Bankruptcy and the Fraudulent Transfer Action
On May 29, 2008, Greektown Holdings, LLC, and several affiliates filed for
Chapter 11 bankruptcy in the United States Bankruptcy Court for the Eastern District of
Michigan. Greektown Holdings owned Greektown Casino, LLC, the company that
owned and operated the Greektown Casino in downtown Detroit. The bankruptcy court
confirmed a plan of reorganization on January 22, 2010, and the plan became effective
on June 30, 2010. The plan provided for the establishment of the Greektown Litigation
Trust, for which Buchwald Capital Advisors, LLC, was named trustee. We will refer to
Buchwald Capital Advisors, which is one of the appellees in this appeal, as the
“Trustee.”
Before the plan became effective, the bankruptcy court authorized a committee
of unsecured creditors to file a fraudulent transfer action. The committee filed its
complaint on May 28, 2010. The Trustee was later substituted as the plaintiff in the
action. The defendants named in the complaint included the Papases and the Gatzaroses,
the appellants in this appeal, as well as the Sault Ste. Marie Tribe of Chippewa Indians
and the Kewadin Casinos Gaming Authority, both appellees in this appeal.1 We will
refer to the Papases and the Gatzaroses together as the “Appellants” and refer to the
Sault Ste. Marie Tribe and the Kewadin Casinos Gaming Authority together as the
“Tribe.”2
The fraudulent transfer complaint alleged that in December 2005, Greektown
Holdings incurred $185 million dollars of debt and simultaneously transferred
approximately $177 million to several transferees, including the Appellants and the
1
Ted Gatzaros passed away during the course of this litigation.
2
The fraudulent transfer complaint describes the Kewadin Casinos Gaming Authority as a
political subdivision of the Sault Ste. Marie Tribe.
No. 12-2434 In re Greektown Holdings Page 4
Tribe. The complaint alleged that the Appellants directly received about $145 million
and that the Tribe directly received $6 million. However, the complaint also alleged that
the $145 million transferred to the Appellants indirectly benefitted the Tribe because the
Michigan Gaming Control Board had required the Tribe to pay this amount to the
Appellants if Greektown Holdings failed to do so, and thus the transfer discharged
obligations that the Tribe owed to the Appellants. The Trustee therefore claimed that
the Tribe was liable both for the $6 million it directly received and the $145 million that
indirectly benefitted it. The Trustee sought to recover the transfers under 11 U.S.C.
§§ 544 and 550 and the Michigan Uniform Fraudulent Transfer Act.
The Settlement Agreement
Two years after the fraudulent transfer complaint was filed, the Trustee decided
that the indirect benefit theory for recovering the $145 million from the Tribe was
unlikely to succeed. The Trustee and the Tribe agreed to a settlement, under which the
Tribe would pay $2.75 million and relinquish approximately $2.58 million in claims it
had filed against the estate of Greektown Casino, LLC. The settlement was expressly
conditioned upon the bankruptcy court’s entering a bar order to read as follows:
IT IS FURTHER ORDERED that all persons and entities are hereby
permanently BARRED, ENJOINED and RESTRAINED from
commencing, prosecuting, or asserting any claim against the Tribe
Defendants, including claims for indemnity or contribution, arising out
of or reasonably flowing from the facts or allegations or claims in this
MUFTA Adversary Proceeding, whether arising under state, federal or
foreign law as claims, cross-claims, counterclaims, or third-party claims,
in this MUFTA Adversary Proceeding Action, in any federal or state
court, or in any other court, arbitration proceeding, administrative
agency, or other forum in the United States or elsewhere (collectively,
the “Barred Claims”). These Barred Claims include, but are not limited
to, any and all claims arising out of or reasonably flowing from the
transfers which are the subject of this MUFTA Adversary Proceeding.
R. 1-1, Settlement Agreement, PageID # 44. Pursuant to Federal Rule of Bankruptcy
Procedure 9019(a), the Trustee filed a motion for approval of the settlement in the
Bankruptcy Court.
No. 12-2434 In re Greektown Holdings Page 5
The Appellants filed an objection. They also filed a motion to withdraw the
reference in the United States District Court for the Eastern District of Michigan.3 The
district court withdrew the reference and instructed the parties to file briefs. It also held
a hearing at which the parties were permitted to introduce evidence and argue their
positions on the bar order.
At the hearing, a financial advisor employed by the Trustee testified about the
settlement negotiations between the Trustee and the Tribe, offered his conclusion that
the indirect benefit theory was unlikely to succeed, and gave his opinion that the
settlement amount was reasonable. The financial advisor stated that the bar order was
a “critical aspect of the settlement” because the Tribe needed to eliminate the risk of
litigation in order to obtain necessary financing. He did not think that the settlement
would have been possible without the inclusion of the bar order.
The Tribe submitted an affidavit from its CFO who averred that, due to the
pending fraudulent transfer claims, the Tribe was experiencing difficulty in refinancing
its existing debt and obtaining additional financing. Lending institutions told him that
the Tribe was not an attractive lending prospect while the fraudulent transfer action
remained pending against it. The Tribe contended that unless all claims against it arising
out of the fraudulent transfer proceeding were barred, it would not be able to obtain the
financing it needed.
Although they presented no evidence at the hearing, the Appellants raised
numerous arguments against entry of the bar order. They asserted that bar orders are
only allowed in unusual circumstances and that the bar order was not essential to the
bankruptcy reorganization. They claimed that since the fraudulent transfer proceedings
were in the early stages of discovery, they were unable to identify all the potentially
barred claims that they might bring against the Tribe. However, they suggested four
possibilities: common law indemnity, fraud, contribution, and deepening insolvency.
3
A district court can refer any or all bankruptcy cases or proceedings to the bankruptcy judges
in its district and can withdraw the reference for a case or proceeding “for cause shown.” 28 U.S.C.
§ 157(a) & (d).
No. 12-2434 In re Greektown Holdings Page 6
They further contended that under Sixth Circuit precedent, the district court was required
to hold an evidentiary fairness hearing to evaluate the fairness of the bar order.
Additionally, they argued that the bar order should be mutual, barring claims by the
Tribe as well as claims against the Tribe.
The Tribe and the Trustee argued that the four claims the Appellants had
identified were not viable and that any such claims would be barred by sovereign
immunity, by statutes of limitation, and by releases that the Appellants signed in
connection with the allegedly fraudulent transfers. The Trustee further disputed the
Appellants’ contention that an evidentiary fairness hearing was required.
The district court granted the motion to approve the settlement and entered the
bar order. The district court stated that although the Appellants lacked standing to
challenge the fairness of the settlement because they were not creditors, it needed to
consider the interests of third parties whose legal rights would be affected by the
settlement. Preliminarily, the district court found it significant that the Appellants had
never filed a cross-claim in the fraudulent transfer proceeding and that their summary
judgment motion in that proceeding did not even hint at the possibility of asserting
claims against the other defendants.
Additionally, the district court found that the four claims the Appellants had
suggested that they might bring against the Tribe were not viable. Their suggested
indemnity claim was not viable because they had directly received the $145 million
transfer and there was no indication of vicarious liability. Their suggested contribution
claim was not viable because claims for contribution arise only in cases that involve a
common injury that results in common liability. The district court explained that “[t]he
allegedly fraudulent transfers . . . are directly traceable to the individuals who received
them. There is no ‘common injury’ in which the Papas and the Gatzaros Defendants
share.” R. 10, Opinion and Order, PageID # 315. The district court found the fraud and
deepening insolvency claims to be equally meritless. It further concluded that even if
the four proposed claims were viable, they would be barred by the Tribe’s sovereign
immunity.
No. 12-2434 In re Greektown Holdings Page 7
Because the district court found that the bar order did not affect any viable claims
possessed by the Appellants, it determined that an evidentiary fairness hearing was not
required. Finally, the district court concluded that based on the evidence submitted by
the Trustee and the Tribe, the terms of the settlement were fair and reasonable.
The district court entered its initial opinion and order approving the settlement
agreement and the bar order on July 13, 2012. The Trustee and the Tribe filed a
proposed order on July 19.4 On July 26, the Appellants filed what they referred to as
their “sole objection” to the proposed order (this objection related to discovery
cooperation) and submitted a revised proposed order. The Trustee and the Tribe replied
that they had no objection to the Appellants’ revision, and the district court entered that
order on August 9.
The Motion for Reconsideration
Two weeks later, the Appellants filed a motion asking the district court to
reconsider its August 9 order. They explained that they had discovered potential claims
against the Tribe under a Guaranty Agreement that had been executed twelve years
earlier in the summer of 2000. This motion appears to be the first time in the adversary
proceeding that there had been any mention of this Guaranty Agreement. The briefs
filed with the district court and the statements at the evidentiary hearing indicated that
certain guaranty obligations formed the basis of the Trustee’s indirect benefit theory of
recovery against the Tribe, but the document that established these guaranty rights had
not been specifically referenced or filed as an exhibit.
In their motion for reconsideration, the Appellants argued that this Guaranty
Agreement gave them viable claims (they identified two claims in particular) against the
Tribe that were at risk of being enjoined by the bar order. They argued that the district
4
The Eastern District of Michigan’s Local Rule 58.1(c) provides that “[w]ithin seven days after
granting the judgment or order . . . a person seeking entry of a judgment or order may serve a copy of the
proposed judgment or order on the other parties . . . with notice that it will be submitted to the court for
signing if no written objections are filed within seven days after service of the notice. . . . If objections are
filed, within seven days after receiving notice of the objections, the person who proposed the judgment
or order must notice it for settlement before the court.”
No. 12-2434 In re Greektown Holdings Page 8
court “was misled which resulted in a palpable error warranting reconsideration”
because the Guaranty Agreement included a waiver of the Tribe’s sovereign immunity
and provided that the Appellants’ claims were not barred by the statute of limitations.
R. 17, Motion, PageID # 434, 450-51. The Appellants suggested a revision to the bar
order that would explicitly exclude from its scope any claims brought pursuant to the
Guaranty Agreement and related documents.
The district court denied the Appellants’ motion for reconsideration. It noted
that the Appellants had most likely possessed the Guaranty Agreement since 2000.
Additionally, the Trustee had provided it to them during discovery in March 2011. But
in their briefs and during the evidentiary hearing the Appellants had never “even hint[ed]
that they may have [had] a claim or legal theory of recovery based on the Guaranty
Agreement.” R. 31, Order, PageID # 682. Nor did they mention the Guaranty
Agreement when they filed their objection to the proposed order. The district court
therefore ruled that “[t]he Papas and Gatzaros Defendants have offered no excuse for
their failure to previously present this evidence and argument, and the Court declines to
consider it now.” Id. at PageID # 683.
The Appellants now appeal all three orders entered by the district court.
II. ANALYSIS
A. Motion for Reconsideration
We review a district court’s denial of a motion for reconsideration for abuse of
discretion (unless the movant asked the court to reconsider a grant of summary
judgment). Indah v.U.S. Secs. and Exch. Comm’n, 661 F.3d 914, 924 (6th Cir. 2011).
The Federal Rules of Civil Procedure do not provide for a “motion for reconsideration,”
but the local rules in the Eastern District of Michigan do. See E.D. Mich. Local Rule
7.1(h). The local rule explains that the decision to grant the motion is within the court’s
discretion. To establish grounds for reconsideration, “[t]he movant must not only
demonstrate a palpable defect by which the court and the parties . . . have been misled
No. 12-2434 In re Greektown Holdings Page 9
but also show that correcting the defect will result in a different disposition of the case.”
E.D. Mich. Local Rule 7.1(h)(3).
The district court’s order and the briefs from the Tribe and the Trustee all say
that motions for reconsideration are treated as motions to alter or amend the judgment
under Federal Rule of Civil Procedure 59(e). R. 31, Order, PageID # 681; Tribe Br. at
31; Trustee Br. at 37. Opinions from our court sometimes intone that mantra. See, e.g.,
Moody v. Pepsi-Cola Metro. Bottling Co., Inc., 915 F.2d 201, 206 (6th Cir. 1990)
(“Motions for reconsideration of a judgment are construed as motions to alter or amend
the judgment . . . .”). But context matters here. Treating a motion for reconsideration
as a motion to alter or amend the judgment makes sense when a party files a document
titled “Motion for Reconsideration” in a district that does not have a local rule providing
for such a motion. Since in those districts there is no such thing as a “Motion for
Reconsideration,” a motion with that title that is filed within 28 days can be construed
as a motion to alter or amend the judgment under Rule 59(e), and one that is filed after
28 days can be construed as a motion for relief from judgment under Rule 60(b).
But this approach makes little sense in the Eastern District of Michigan, which
has a local rule specifically providing for a motion for reconsideration. When a party
files a motion for reconsideration pursuant to the Eastern District’s local rule, we review
the district court’s ruling on the motion using the standard set forth in the local rule. See
Indah, 661 F.3d at 924 (“A motion for reconsideration is governed by the local rules in
the Eastern District of Michigan, which provide that the movant must show both that
there is a palpable defect in the opinion and that correcting the defect will result in a
different disposition of the case.”).
In this case, there is no need to construe the motion for reconsideration as a
motion to alter or amend the judgment because it was filed pursuant to the Eastern
District’s local rule. Therefore, the question we must answer is whether the district court
abused its discretion when it determined that the motion for reconsideration failed to
demonstrate an outcome-determinative “palpable defect” that misled the court and the
parties.
No. 12-2434 In re Greektown Holdings Page 10
The question is not a hard one. The Appellants provide no reason to hold that
the district court abused its discretion. Tellingly, they do not even invoke the standard
from Local Rule 7.1(h) in their briefs (nor do they, as do the Tribe and the Trustee,
invoke the Rule 59(e) standard). Unguided by the applicable standard, their numerous
arguments all miss their mark.
First, the Appellants complain that the Guaranty Agreement was not mentioned
in or attached to the complaint filed by the Trustee in the fraudulent transfer proceeding.
But they do not deny that they possessed the Guaranty Agreement. Nor do they attempt
to explain why the absence of the Guaranty Agreement from the complaint even matters.
Second, the Appellants insinuate that the Tribe behaved improperly by keeping
them “in the dark” about the settlement negotiations for a long time. But they are
sophisticated business people, represented by a large law firm, and their objection to
what they apparently consider hardball litigation seems unreasonable. The settlement
motion was filed on April 13, and the hearing was held on June 27. If the Appellants
needed more time to prepare their arguments, they should have requested it.
Third, the Appellants contend that their potential claims under the Guaranty
Agreement are not yet ripe and argue that the district court should not have forced them
to raise unripe claims. But the district court did not require them to file a complaint
alleging unripe claims. It just required them to identify what potential claims might be
barred by the claims bar order. Whether these claims were ripe or unripe is irrelevant.
Fourth, the Appellants tout the merits of their claims under the Guaranty
Agreement. The Tribe and the Trustee dispute that these claims have any merit. This
disagreement is one we need not resolve. The issue before us is not the merits of these
claims but rather whether the district court abused its discretion when it refused to reach
the merits.5
5
The Gatzaroses have filed a lawsuit based on one of these claims, and the Tribe has asked us to
take judicial notice of some of the filings in that lawsuit. Since we do not reach the merits of the Guaranty
Agreement claims, we deny as moot the Tribe’s motions to take judicial notice.
No. 12-2434 In re Greektown Holdings Page 11
Although the district court did not use the term, the import of its order—and what
this issue really boils down to—is forfeiture. By waiting until a motion for
reconsideration to raise their argument and not providing a good excuse for the delay,
the Appellants forfeited it. “[A]bsent a legitimate excuse, an argument raised for the
first time in a motion for reconsideration at the district court generally will be forfeited.”
United States v. Huntington Nat’l Bank, 574 F.3d 329, 331-32 (6th Cir. 2009).
Therefore, we hold that the district court acted well within its discretion when it denied
the Appellants’ motion for reconsideration.
B. Propriety of the Bar Order
The propriety of the bar order presents a more difficult question. To begin, what
standards or principles guide a court in determining whether a bar order is proper in a
case like this? The parties have cited three previous decisions from our court, but upon
close inspection none of these decisions helps us here.
The first decision provides guidance for determining whether a settlement in a
bankruptcy case is fair. The Federal Rules of Bankruptcy Procedure allow a bankruptcy
court to approve a settlement upon the trustee’s motion and after notice and a hearing.
Fed. R. Bankr. P. 9019(a). Before approving the settlement, the court must “apprise
itself of all facts necessary to evaluate the settlement and make an informed and
independent judgment as to whether the compromise is fair and equitable.” Bard v.
Sicherman (In re Bard), 49 F. App’x 528, 530 (6th Cir. 2002) (per curiam) (quotation
omitted). Bard sets out four factors that a bankruptcy court should consider when
evaluating the fairness of a settlement.6 Id.; see also Hindelang v. Mid-State Aftermarket
Body Parts Inc. (In re MQVP, Inc.), 477 F. App’x 310, 313 (6th Cir. 2012) (noting that
the Sixth Circuit applies Bard when faced with appeals from settlements in bankruptcy
cases). These factors are useful when the issue on appeal is whether the settlement is
fair, but the Appellants have not challenged the fairness of the settlement. Reply Br. at
6
These factors are: “(a) The probability of success in the litigation; (b) the difficulties, if any, to
be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense,
inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper
deference to their reasonable views in the premises.” Bard, 49 F. App’x at 530 (quotation omitted).
No. 12-2434 In re Greektown Holdings Page 12
18-19. They challenge only the bar order entered in connection with the settlement.
Bard’s four-factor test, then, is inapplicable here.
The second decision provides that, in certain situations, a court must conduct a
fairness hearing before imposing a bar order. Our court has held, outside the bankruptcy
context, that when “a settlement agreement contains a bar order extinguishing possible
legal claims of non-settling defendants, the court must conduct an evidentiary fairness
hearing to determine whether the settling defendants are paying their fair share of the
liability.” McDannold v. Star Bank, N.A., 261 F.3d 478, 484 (6th Cir. 2001). But this
rule only applies when the defendants share a common liability and the non-settling
defendant’s right of contribution against the settling defendant is extinguished by the bar
order. If a court eliminates the non-settling defendant’s contribution right and in
exchange reduces any judgment against the non-settling defendant by the settlement
amount, the court must ensure that the settling defendant pays its fair share of the
plaintiff’s damages.7 In this case, the district court determined that the Appellants had
no right of contribution against the Tribe (a conclusion that the Appellants have not
challenged on appeal), and therefore no evidentiary fairness hearing was necessary.
The third decision governs the circumstances under which a bankruptcy court can
“enjoin a non-consenting creditor’s claims against a non-debtor to facilitate a
reorganization plan.” See Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow
Corning Corp.), 280 F.3d 648, 656 (6th Cir. 2002). We held that such an injunction is
permissible, but instructed that it is appropriate only in “unusual circumstances,” which
can be found when seven factors are present. Id. at 658 (quotation omitted).
7
Furthermore, this rule applies only when the judgment reduction specifies that the nonsettling
defendant’s liability will be reduced by the amount paid by the settling defendant—a reduction method
known as the pro tanto method. See Kovacs v. Ernst & Young (In re Jiffy Lube Secs. Litig.), 927 F.2d 155,
160 & n.3 (4th Cir. 1991) (“A separate hearing on fairness from the perspective of the non-settling
defendant is not required unless the district court chooses to adopt the ‘pro tanto’ method of setoff.”);
Gerber v. MTC Elec. Techs. Co., Ltd., 329 F.3d 297, 306 (2d Cir. 2003) (explaining that no fairness
hearing is required if the judgment reduction is at least as great as the settling defendant’s proportionate
fault). If the judgment reduction calls for a pro rata reduction method (each defendant pays an equal share
of the total liability irrespective of relative fault) or a proportionate fault method (each defendant pays
damages corresponding to its degree of fault), no evidentiary fairness hearing is necessary. See Kovacs,
927 F.2d at 160 & n.3.
No. 12-2434 In re Greektown Holdings Page 13
The Appellants cite Class Five Nevada Claimants for the proposition that
“[i]nvoluntary releases of third party claims against non-debtors . . . are disfavored as
a matter of bankruptcy law” and should be implemented only in “unusual
circumstances.” Appellant Br. at 25. However, they do not explicitly argue that we
should apply the seven-factor analysis when evaluating the bar order at issue here.
Furthermore, this case involves a bar order entered in connection with a settlement
agreement long after the plan of reorganization was confirmed, whereas Class Five
Nevada Claimants involved an injunction incorporated into a plan of reorganization.
Due to this distinction, the seven-factor test we applied in Class Five Nevada Claimants
provides little help in determining whether the bar order here was proper.
Finding no guidance from these three previous decisions, we next consider the
approach taken by the district court below. The district court essentially asked whether
the order would bar any viable claims and then entered the order when it found that it
would not. The Tribe and the Trustee contend that this approach was correct, stating that
“[t]he District Court properly sought to determine whether [the Appellants] had a viable
claim subject to the claims bar order,” Tribe Br. at 23, and “[a]s the sole objecting
parties to the settlement, Appellants had an obligation to credibly show that they had
potentially viable claims against the Tribe Defendants that would be ‘unfairly’ or
‘inequitably’ impacted by the Claims Bar,” Trustee Br. at 24.
But we are not inclined to adopt this approach. The whole purpose of a bar order
is to bar claims. If there are no claims to bar, there is no need for a bar order and none
should be entered. Furthermore, the district court’s approach is unwieldy; it requires a
time-consuming merits evaluation of each potential claim proffered by the party
objecting to the settlement.
Therefore, finding little guidance from our previous decisions and disinclined to
follow the approach taken below, we turn to decisions from other circuits for guidance.
From these cases we discern three issues the district court should have resolved before
deciding to enter the bar order in this case.
No. 12-2434 In re Greektown Holdings Page 14
First, the district court should have initially determined whether it had
jurisdiction to enjoin the potential claims encompassed by the bar order. See Feld v.
Zale Corp. (Matter of Zale Corp.), 62 F.3d 746, 751 (5th Cir. 1995). A district court’s
jurisdiction over bankruptcy cases and proceedings comes from 28 U.S.C. § 1334(b),
which gives the district courts “jurisdiction of all civil proceedings arising under title 11,
or arising in or related to cases under title 11.” The grant of jurisdiction over
proceedings “related to” the bankruptcy case is quite broad. See Celotex Corp. v.
Edwards, 514 U.S. 300, 307-08 (1995).
“‘[T]he test for determining whether a civil proceeding is related to bankruptcy
is whether the outcome of that proceeding could conceivably have any effect on the
estate being administered in bankruptcy.’” Lindsey v. O’Brien, Tanski, Tanzer and
Young Health Care Providers of Conn. (In re Dow Corning Corp.), 86 F.3d 482, 489
(6th Cir. 1996) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). “An
action is related to bankruptcy if the outcome could alter the debtor’s rights, liabilities,
options, or freedom of action (either positively or negatively) and which in any way
impacts upon the handling and administration of the bankrupt estate.” Id. (quotation
omitted). “[T]he mere fact that there may be common issues of fact between a civil
proceeding and a controversy involving the bankruptcy estate does not bring the matter
within the scope of section [1334(b)].” Id. (quotation omitted). “Instead, there must be
some nexus between the ‘related’ civil proceeding and the title 11 case.” Id. (quotation
omitted).
This case presents a slightly different twist from Lindsey because here the dispute
over the bar order occurred after the Chapter 11 plan was confirmed. “At the most literal
level, it is impossible for the bankrupt debtor’s estate to be affected by a post-
confirmation dispute because the debtor’s estate ceases to exist once confirmation has
occurred.” Resorts Int’l Fin., Inc. v. Price Waterhouse & Co., LLP (In re Resorts Int’l,
Inc.), 372 F.3d 154, 165 (3d Cir. 2004). It is possible that a bankruptcy court’s “related
to” jurisdiction diminishes somewhat post-confirmation. Compare id. at 167 (“At the
post-confirmation stage, the claim must affect an integral aspect of the bankruptcy
No. 12-2434 In re Greektown Holdings Page 15
process—there must be a close nexus to the bankruptcy plan or proceeding.”), with
Boston Reg’l Med. Ctr., Inc. v. Reynolds (In re Boston Reg’l Med. Ctr., Inc.), 410 F.3d
100, 106-07 (1st Cir. 2005) (indicating that a bankruptcy court’s jurisdiction does not
diminish post-confirmation in the context of a liquidating plan of reorganization).
The Eleventh Circuit has held that when a defendant in an adversary proceeding
conditions its agreement to a settlement upon the entry of a bar order, the claims
encompassed by the bar order are necessarily “related to” the bankruptcy case. See
Munford v. Munford, Inc. (Matter of Munford, Inc.), 97 F.3d 449, 454 (11th Cir. 1996).
The court reasoned that “[b]ecause the nonsettling defendant’s assertion of their . . .
claims would have an effect on [the] estate being administered in bankruptcy, . . . a
sufficient nexus exists between [the] title 11 adversary proceeding and the nonsettling
defendants’ . . . claims.” Id. The court further reasoned that “it is the ‘nexus’ of [the
claims covered by the bar order] to the settlement agreement” that confers jurisdiction.
Id.We decline to follow the Eleventh Circuit’s approach. The “related to” inquiry
asks not whether the assertion of the claims would effect the bankruptcy estate but
whether the outcome of the claims would effect the estate. See Lindsey, 86 F.3d at 489.
Furthermore, the “related to” inquiry asks not whether there is a nexus between the other
proceeding and the settlement agreement but whether there is a nexus between the other
proceeding and the bankruptcy case. See id. Additionally, despite the court’s
protestation to the contrary, the Eleventh Circuit’s approach clearly results in “subject
matter jurisdiction by consent.” See Munford, 97 F.3d at 454. It allows the settling
defendant to supply the bankruptcy court with subject matter jurisdiction to enjoin other
claims simply by deciding to condition its agreement to the settlement upon the entry of
an order barring those claims.
A better approach was taken by the Fifth Circuit in Feld v. Zale Corporation
(Matter of Zale Corporation), 62 F.3d 746 (5th Cir. 1995). In Feld, the Fifth Circuit
inquired simply whether the outcome of the actions covered by the bar order would
affect the bankruptcy estate. See id. at 755-59. When it found that the outcome of some
No. 12-2434 In re Greektown Holdings Page 16
of those actions would not affect the bankruptcy estate, the Fifth Circuit held that the
bankruptcy court had no jurisdiction over them. See id. at 755-57. This approach
comports with the “related to” test we followed in Lindsey, and this is the approach the
district court should follow on remand.
Second, the district court should have determined whether it had the power to
enter the order. Other circuits have answered this question differently. Compare
Munford, 97 F.3d at 455 (holding that Bankruptcy Code § 105(a) and Federal Rule of
Civil Procedure 16 give bankruptcy courts the authority to enter a bar order), with Feld,
62 F.3d at 759-62 (holding that Bankruptcy Code § 524 prohibits a bankruptcy court
from permanently enjoining claims against a non-debtor but holding that § 105 gives it
the power to temporarily enjoin such claims in “unusual circumstances”). When
analyzing this issue, the district court may discern some guidance from our previous
holding that Bankruptcy Code § 524 does not prohibit a court from releasing a non-
debtor from liability. See Class Five Nev. Claimants, 280 F.3d at 657.
Third, the district court should have more closely scrutinized the bar order’s
scope. Other circuits have been careful to limit bar orders “to ensure that the only claims
that are extinguished are claims where the injury is the non-settling defendant’s liability
to the plaintiffs” (i.e. claims for contribution or indemnity). Gerber v. MTC Elec. Techs.
Co., Ltd., 329 F.3d 297, 307 (2d Cir. 2003) (Sotomayor, J.); see also Lead Plaintiffs v.
HealthSouth Corp. (In re HealthSouth Corp. Secs. Litig.), 572 F.3d 854, 863 (11th Cir.
2009) (noting that “the cases which have approved bar orders have involved orders that
preclude claims by non-settling defendants against settling defendants where the injury
to the non-settling defendant was its liability to the underlying plaintiffs”); Betker v. U.S.
Trust Corp., N.A. (In re Heritage Bond Litig.), 546 F.3d 667, 678-79 (9th Cir. 2008)
(adopting the Gerber approach for bar orders under the PSLRA).
In other words, “[c]ourts that have allowed bar orders have only barred claims
in which the damages are measured by the defendant’s liability to the plaintiff. Besides
contribution and indemnity claims, these include any claims in which the injury is the
nonsettling defendant’s liability to the plaintiff.” TBG, Inc. v. Bendis, 36 F.3d 916, 928
No. 12-2434 In re Greektown Holdings Page 17
(10th Cir. 1994) (quotation and internal citations omitted). Significantly, “[n]o court has
authorized barring claims with independent damages.” Id. This limitation makes sense
because when the scope of a bar order is limited to claims for contribution or indemnity,
the court can compensate the non-settling defendants for the loss of those claims by
reducing any future judgment against them. See Denney v. Deutsche Bank AG, 443 F.3d
253, 274 (2d Cir. 2006) (“Ordinarily, the potential harshness of a bar order is mitigated
by a judgment credit provision that protects a nonsettling party from paying damages
exceeding its own liability.”). A bar order that enjoins independent claims and provides
no compensation is problematic to say the least.
The bar order here enjoins all claims against the Tribe “arising out of or
reasonably flowing from” both the facts and allegations of the adversary proceeding and
the allegedly fraudulent transfers. Other circuits have found bar orders with similar
language to be overly broad because they have the potential to bar claims for
independent damages. See Betker, 546 F.3d at 680; Gerber, 329 F.3d at 307; TBG, Inc.,
36 F.3d at 929; Cullen v. Riley (In re Masters Mates & Pilots Pension Plan and IRAP
Litig.), 957 F.2d 1020, 1033 (2d Cir. 1992).8 While we could amend the bar order
ourselves to narrow its scope, see Gerber, 329 F.3d at 307 & n.7, we prefer to let the
district court address the order’s scope, in the first instance, as it sees fit.9
8
The Tribe contends that the scope of the bar order is not overly broad because “[t]he claims bar
order is limited to claims against the Tribe ‘arising out of or reasonably flowing from the facts or
allegations or claims’ in the Adversary Proceeding.” Tribe Br. at 24. They rely on a decision from the
Eleventh Circuit stating: “The propriety of the settlement bar order should turn upon the interrelatedness
of the claims that it precludes, not upon the labels which parties attach to those claims.” See Wald v.
Wolfson (In re U.S. Oil and Gas Litig.), 967 F.2d 489, 496 (11th Cir. 1992). However, the Eleventh
Circuit has subsequently explained that this language referred to a disguised indemnity claim and that the
opinion “expressly declined to address the issue of ‘truly independent claims.’” See AAL High Yield Bond
Fund v. Deloitte & Touche LLP, 361 F.3d 1305, 1312 (11th Cir. 2004); see also Betker, 546 F.3d at 678(noting that the Eleventh Circuit has “explicitly distanced itself from In re U.S. Oil & Gas Litigation by
explaining that its holding in that case had narrow applicability because it had barred the cross-claims at
issue there only because they were disguised contribution and indemnity claims, not truly independent
claims”). The Eleventh Circuit currently follows the approach taken by other Circuits that asks whether
the bar order enjoins claims beyond those for which “the injury to the non-settling defendant was its
liability to the underlying plaintiffs.” See HealthSouth Corp., 572 F.3d at 863. The Tribe’s reliance on
the factual interrelatedness test is misplaced.
9
Since the district court has already determined that the fraudulent transfer action does not
involve potential claims for contribution or indemnity, it might very well determine that a bar order would
be inappropriate in this case.
No. 12-2434 In re Greektown Holdings Page 18
III. CONCLUSION
We AFFIRM the district court’s order denying the Appellants’ motion for
reconsideration. However, we have identified three significant issues that the district
court should have addressed before entering the bar order. We therefore VACATE the
bar order and REMAND the case, instructing the district court to reevaluate the bar
order under the guidance provided in this opinion.