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Business Law Today

August 2022

August 2022 in Brief: Bankruptcy & Finance

Janet Scoles Nadile, Megan M Adeyemo, and Samuel Henninger

August 2022 in Brief: Bankruptcy & Finance
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Post-Confirmation Jurisdiction Is Narrow, But Not That Narrow

By Michael Enright

At least since In re Resorts International, Inc., 372 F.3d 154 (3d Cir. 2004), litigants have been arguing over just how much the bankruptcy court’s jurisdiction has narrowed once a plan becomes effective. It is a gatekeeping question for anyone seeking relief from the bankruptcy court after confirmation. Recently, in Mesabi Metallics Co., LLC v. B. Riley FBR, Inc. (In re Essar Steel Minnesota, LLC), Case No. 20-3002 (3d Cir. Aug. 25, 2022), the Court of Appeals for the Third Circuit provided more context in that regard. The underlying dispute involved an effort by a financial advisor to collect a success fee from the reorganized debtor. The financial advisor had been employed during the chapter 11 case by an affiliate of the plan sponsor that acquired the debtor pursuant to the plan. On the day before the plan’s effective date, the parties entered into an amendment to the engagement agreement, purporting to also bind the reorganized debtor to the agreement. After a post-effective date debt financing transaction closed six months later, the financial consultant sought payment of a $16 million success fee, and the reorganized debtor refused to pay. The reorganized debtor sought declaratory relief and a contempt order from the bankruptcy court. The bankruptcy court raised the issue of its subject matter jurisdiction and dismissed the action. On direct appeal to the Third Circuit, the court, in an opinion authored by Judge Ambro, reversed. The court declined to apply the “close nexus” test from Resorts, holding that it was not necessary to meet that standard where the matter was a core proceeding, rather than merely “related to” the case (as had been the situation in Resorts). Because the dispute involved at least one of the items on the list in 28 U.S.C. Section 157(b)(2), it was a core proceeding.

Also, because the matter was a contempt proceeding that arose out of the confirmation order, it was a core proceeding. In a footnote, the court noted that it was not holding that all post-confirmation plan and confirmation order disputes are per se core proceedings that implicate post-confirmation jurisdiction, but that a court must consider on a case-by-case basis whether the facts render the matter a core proceeding. The court also emphasized that when the dispute involves the interpretation and implementation of the court’s own order (such as the confirmation order and the plan it confirmed), under Travelers Indemnity Co. v. Bailey, 557 U.S. 137 (2009), the bankruptcy court may exercise post-confirmation jurisdiction. Even so, the court noted that on remand the bankruptcy court could consider whether abstention was appropriate, given that other proceedings had been initiated by the financial advisor. Judge Ambro’s decision will provide plenty of fodder for jurisdictional arguments in the post-confirmation context, and litigants undoubtedly will study the decision closely and consider arguments about whether the matter they seek to have heard post-confirmation can be construed as a core proceeding.