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.