Sharon Levine is a partner with
Saul Ewing LLP in Newark, New
Jersey. She represents purchasers,
debtors, creditors, unions, municipal
employee pension plans, boards of
directors, and special committees in
cases such as Detroit, Alpha Natural
Resources, CHC Helicopter, and
Phoenix Brands. Levine is a Litigation
Counsel of America Fellow, and
has been named one of America’s
Leading Lawyers in Bankruptcy
by Chambers USA and Best
Lawyers in America for Bankruptcy
and Creditor-Debtor Rights/
Insolvency and Reorganization.
Stephen Ravin is a partner with
Saul Ewing LLP in Newark, New
Jersey. He is an insolvency and
bankruptcy attorney with more than
30 years of experience in the field.
He has served as a trustee and has
represented trustees, individual and
corporate debtors, creditors, creditors’
committees, assignees for the benefit
of creditors and receivers. Ravin
has handled a range of insolvency
issues, from single debt resolution
to large-scale restructurings
and liquidation proceedings in
Chapter 11 and Chapter 7.
Dipesh Patel is an associate
with Saul Ewing LLP in Newark,
New Jersey. He concentrates his
practice in commercial bankruptcy
and corporate reorganization
and has represented numerous
constituencies, both in and out
of bankruptcy, including debtors,
creditors, purchasers, and liquidating
trustees, and court-appointed
receivers and assignees in state
court insolvency proceedings. Patel
also has experience in bankruptcy
litigation. He has been named one
of the Rising Stars in Bankruptcy
Law by Super Lawyers magazine.
(3d Cir. 2000). In Continental, the 3rd
Circuit held that nonconsensual third-party releases may be permitted, but
there must be specific factual findings
that they are fair and necessary to the
plan of reorganization.
Continental did not establish a
hard-and-fast standard to apply in
addressing third-party releases.
In applying the Continental factors,
Bankruptcy Judge Laurie Selber
Silverstein made the following factual
findings: ( 1) the third-party releases were
fair and reasonable in light of the $325
million paid by the released parties; ( 2)
the objecting lenders would receive
more under the prepackaged joint plan
of reorganization than they would have
in liquidation; and ( 3) extraordinary
circumstances existed to approve
13 Based on those findings,
the Millennium court approved the
nonconsensual releases of third parties.
Implications. The court’s decision in
Millennium has created inconsistent
decisions from the country’s busiest
Bankruptcy Court, the District of
Delaware. Subsequent to the order
confirming the Millennium debtors’ joint
plan of reorganization, the objecting
lenders filed their notice of appeal. In
doing so, the objecting lenders filed
a motion seeking certification of the
appeal to the 3rd U.S. Circuit Court of
Appeals. While the Millennium court
determined that many of the grounds for
direct certification were not valid, it did
acknowledge that its decision to approve
the nonconsensual third-party releases
was at odds with the court’s decision
in the Washington Mutual case.
Based on the inconsistent decisions, the
Millennium court granted the objecting
lenders’ motion for direct appeal to
the 3rd Circuit. Notwithstanding the
Bankruptcy Court’s decision, the 3rd
Circuit Court of Appeals denied the
objecting lenders’ petition for a direct
appeal. The objecting lenders’ appeal is
currently pending before the U.S. District
Court for the District of Delaware.
Although plan proponents argue that
the issue of nonconsensual third-party releases is settled, the split of
authority leaves the issue ripe for
adjudication by the 3rd U.S. Circuit
Court of Appeals to set forth a clear
standard and view on the permissibility
of nonconsensual third-party releases. J
1 See In re Condel, Inc. 91 B. R. 79, 82 (B. A. P. 9th
2 See 11 U.S.C. § 524(e).
3 See First Fid. Bank v. Mc Ateer, 985 F.2d 114, 118
(3d Cir. 1993).
4 In re: One2One Commc’ns, LLC, No. 12-27311,
2016 WL 3398580 (D. N. J. June 14, 2016).
5 In re Zenith Elecs. Corp., 241 B. R. 92 (Bankr.
D. Del. 1999).
6 It should be noted that both One2One and Quad/
Graphics in their respective briefings before the
District Court applied the standard set forth in
Gillman v. Continental Airlines (In re Continental
Airlines), 203 F.3d 203 (3d. Cir. 2000). However,
the District Court stated the Zenith standard
applied to the matter at hand as the release
in question went from the Debtor to non-debtors, as opposed to non-debtor third parties
releasing other non-debtor third parties. See In
re: One2One Commc'ns, LLC, No. 12-27311,
2016 WL 3398580, at 7 (D. N. J. June 14, 2016).
7 Zenith at 110 citing Master Mortgage Inv.
Fund, Inc., 168 B. R. 930 (Bankr. W. D. Mo.1994).
8 In re Millennium Lab Holdings II, LLC, et al.,
Bankruptcy Case Number 15-12284 (LSS)
9 The practical effect of the proposed release
would have enjoined the objecting lenders
from continuing to litigate certain fraud
claims, including claims brought under
the Racketeer Influenced and Corrupt
Organizations Act (RICO) against several of
Millennium debtors’ directors and officers.
10 In re Washington Mut., Inc., 442 B.R.
314, 352 (Bankr. D. Del. 2011).
11 In re Cont’l Airlines, 203 F.3d 203, 214
(3d Cir. 2000).
13 The Millennium court found that the
substantial contributions made by the released
parties and the need to avoid contentious
and protracted litigation constituted
extraordinary circumstances warranting
the approval of the third-party releases.
14 In re Millennium Lab Holdings II, LLC,
543 B.R. 703, 715 (Bankr. D. Del. 2016).