The Fifth Circuit has recently ruled in two cases on a debtor’s attempt to retain the right to pursue claims and causes of action after confirmation. Part 1 of this article focused on the Fifth Circuit’s decision in Dynasty Oil & Gas, LLC v. Citizens Bank (In re United Operating).
Shortly after the decision in United Operating, the Fifth Circuit was asked to consider whether another plan contained sufficient language to confer post-confirmation jurisdiction in National Benevolent Ass’n of the Christian Church v. Weil, Gotshal & Manges (In re Nat’l Benevolent Ass’n of the Christian Church). In that case, the debtors had engaged a law firm to represent them in pre-petition negotiations related to the restructuring of debts. Those negotiations were unsuccessful, so the debtors filed voluntary petitions under Chapter 11. During the bankruptcy case, the debtor sold certain assets, generating sufficient proceeds to propose a plan that would pay creditors in full plus some interest and return sufficient funds to the debtors. The plan also contained two provisions relating to the general release of claims and the reservation of claims to be pursued after confirmation. In connection with the release language, the plan stated that it did not release any claims or causes of action against a professional that may be asserted by the reorganized debtor. Furthermore, the plan reserved claims related to professional compensation or any other claims by debtors against a professional. A professional was defined under the plan as a professional employed in the bankruptcy cases under 11 U.S.C. § 327. After confirmation of the plan, the debtors objected to the payment of its primary bankruptcy counsel, asserting that the bankruptcy counsel had committed malpractice both prior to and during the bankruptcy cases. The debtors also filed a lawsuit against their bankruptcy counsel for recovery of pre-petition claims.