We continue this week with our Bankruptcy Judges series. Georgia’s Ret. Judge W. Homer Drake, Jr. is the focus. You can find the introductory post here. Last week we covered the first half of Judge Drake’s Top 10 Chapter 11 confirmation opinions (i.e., #10 through #6). You can find it here. And this week, we continue with the second half. However, rather than combining the #5 to #1 opinions all in one post, we figured we’d experiment with one case per post for a shorter post that’s easier to digest. Here is Judge Drake’s fifth most cited confirmation opinion.
Leeds is a post-confirmation jurisdiction case. The debtor, represented by Frank Wilensky and an early 30s David Kurzweil (now Co-Chair of Greenberg Traurig’s Global Restructuring & Bankruptcy Practice), was in the business of selling construction materials. Judge Drake confirmed Leeds’ plan in late 1992.
The plan required that the debtor fund a trust indenture that would be the distribution mechanism for paying unsecured creditors over ten years. Zahn Associates, serving as Trustee for the Trust, was represented by Bruce Moorhead and David Balser (now at King & Spalding). The debtor was to fund the Trust with a $1.2 million note that required 96 monthly payments.
Shortly after confirmation, Zahn sued Leeds in the bankruptcy court, alleging that Leeds was in default due to a late payment and, thus, that Leeds owed the entire $1.2 million via acceleration. Leeds challenged the default, alleging a mutual departure from the Trust and the note terms, such that strict compliance wasn’t necessary.
However, Judge Drake never reached the merits of the dispute. Instead, he raised on his own the issue of post-conformation jurisdiction, ultimately ruling that the court did not have subject matter jurisdiction over the dispute.
First, he observed that bankruptcy courts are to “play a limited role in the affairs of a reorganized debtor.” As the Second Circuit had ruled pre-Code, “it should be the objective of [bankruptcy] courts to cast off as quickly as possible all leading strings” to the reorganized debtor because it’s inconsistent with the Act/Code and not feasible for them to provide indefinite supervision.
Second, he observed that, while confirmation doesn’t divest the court of all jurisdiction, its jurisdiction is limited to the “execution, implementation, or interpretation of the plan’s provisions, and to disputes requiring the application of bankruptcy law.” In fact, most post-confirmation issues and disputes are outside of the court’s jurisdiction:
Once the confirmation order is entered, the court no longer acts in loco parentis over any and all squabbles and disputes that may arise in the affairs of the reorganized debtor.
Therefore, Judge Drake ruled that subject matter jurisdiction “does not exist over this postconfirmation dispute since it involves contractual matters, governed entirely by state law, and does not involve the implementation or interpretation of any provisions of the Plan.” He dismissed the adversary proceeding without prejudice.
Almost six years ago today, we were engaged by a municipal water provider in Baton Rouge on less than 24 hours’ notice about an answer that was due in a post-confirmation adversary proceeding. The subject plan had no jurisdiction provision. While it ultimately settled, we filed a pretty good motion to dismiss, with Leeds being one of the central opinions. Usually a debtor’s lawyer, I was surprised how limited post-confirmation jurisdiction really is but was not surprised that Judge Drake’s concise, then 22-year-old Leeds opinion was consistent with the leading circuit opinions in 2015 and told us everything we really needed to know.
Next week, we’ll cover #4 through #1. Until then, have a great weekend!
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