November 6, 2017
Millennium Lab Holdings II, LLC—Judge Silverstein Holds that the Bankruptcy Court has Constitutional Authority to Approve Nonconsensual Third Party Releases
By Gregory J. Flasser
On October 3, 2017, Judge Laurie S. Silverstein of the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) issued an opinion in In re Millennium Lab Holdings II, LLC, et al., No. 15-12284-LSS, 2017 WL 4417562 (Bankr. D. Del. Oct. 3, 2017) holding that the Bankruptcy Court has constitutional adjudicatory authority to approve nonconsensual third-party releases of, a creditor’s direct non-bankruptcy common law fraud and RICO claims against TA Associates Management, L.P., T.A. Millennium, Inc., Millennium Lab Holdings, Inc., James Slattery, and Howard J. Appel (collectively, the “Non-Debtor Equity Holders”). The matter was remanded from the United States District Court for the District of Delaware (the “District Court”) following an appeal of the Bankruptcy Court’s order confirming a plan of reorganization for then-debtors Millennium Lab Holdings II, LLC and certain of its affiliates (collectively, the “Debtors”).
I. Case Background and Plan Confirmation
On November 10, 2015, the Debtors filed voluntary chapter 11 bankruptcy petitions with a prepackaged plan of reorganization (the “Plan”) and disclosure statement. The Plan was the result of multiple settlements, including a term sheet with the United States and certain individual states, and a restructuring support agreement with both an ad hoc group of bondholders and the Non-Debtor Equity Holders. The Plan provided for a global resolution of claims related to the Debtors’ April 2014 $1.825 billion senior secured credit facility, the proceeds of which funded a $1.3 million dividend to the Debtors’ equity holders, provided for working capital, and paid off certain debt. As part of the lender group, Voya, also known as the Opt-Out Lenders, funded $106.3 million of the loan. Pursuant to the Plan, Voya and the other lenders would receive allowed claims under section 502 of the Bankruptcy Code, and pro rata shares of: (i) a new $600 million term loan; (ii) 100% of the beneficial ownership interests of the reorganized Debtors; and (iii) any recoveries from a trust created under the Plan to pursue the Debtors’ retained causes of actions.
Prior to the confirmation hearing, Voya filed objections to the confirmation of the Plan. Voya did not object to the overall compromise of the Plan, but rather to the inclusion of releases of claims that creditors, including Voya, might assert against the Non-Debtor Equity Holders. Specifically, Voya argued: (i) the Bankruptcy Court did not have subject matter jurisdiction to grant nonconsensual third-party releases; (ii) the third party releases were impermissible; (iii) the Plan must permit parties to opt-out of the releases; and (iv) the releases did not meet the standard set forth in Gillman v. Continental Airlines (In re Continental Airlines), 203 F.3d 203 (3d Cir. 2000). In an effort to solidify its claims, Voya filed a complaint in the District Court against the Non-Debtor Equity Holders asserting RICO and common law fraud claims.
On December 14, 2015, Judge Silverstein entered an order confirming the Plan, and Voya filed its Notice of Appeal together with an emergency motion requesting certification of a direct appeal to the Third Circuit and a motion for stay pending appeal.
II. Appeal to the District Court
On March 20, 2017, the District Court remanded the case for further proceedings. In its Memorandum Opinion, the District Court explained:
It is unclear to what extent the Bankruptcy Court had the opportunity to consider what is now the main issue on appeal—the Bankruptcy Co
On October 3, 2017, Judge Laurie S. Silverstein of the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) issued an opinion in In re Millennium Lab Holdings II, LLC, et al., No. 15-12284-LSS, 2017 WL 4417562 (Bankr. D. Del. Oct. 3, 2017) holding that the Bankruptcy Court has constitutional adjudicatory authority to approve nonconsensual third-party releases of, a creditor’s direct non-bankruptcy common law fraud and RICO claims against TA Associates Management, L.P., T.A. Millennium, Inc., Millennium Lab Holdings, Inc., James Slattery, and Howard J. Appel (collectively, the “Non-Debtor Equity Holders”). The matter was remanded from the United States District Court for the District of Delaware (the “District Court”) following an appeal of the Bankruptcy Court’s order confirming a plan of reorganization for then-debtors Millennium Lab Holdings II, LLC and certain of its affiliates (collectively, the “Debtors”).
I. Case Background and Plan Confirmation
On November 10, 2015, the Debtors filed voluntary chapter 11 bankruptcy petitions with a prepackaged plan of reorganization (the “Plan”) and disclosure statement. The Plan was the result of multiple settlements, including a term sheet with the United States and certain individual states, and a restructuring support agreement with both an ad hoc group of bondholders and the Non-Debtor Equity Holders. The Plan provided for a global resolution of claims related to the Debtors’ April 2014 $1.825 billion senior secured credit facility, the proceeds of which funded a $1.3 million dividend to the Debtors’ equity holders, provided for working capital, and paid off certain debt. As part of the lender group, Voya, also known as the Opt-Out Lenders, funded $106.3 million of the loan. Pursuant to the Plan, Voya and the other lenders would receive allowed claims under section 502 of the Bankruptcy Code, and pro rata shares of: (i) a new $600 million term loan; (ii) 100% of the beneficial ownership interests of the reorganized Debtors; and (iii) any recoveries from a trust created under the Plan to pursue the Debtors’ retained causes of actions.
Prior to the confirmation hearing, Voya filed objections to the confirmation of the Plan. Voya did not object to the overall compromise of the Plan, but rather to the inclusion of releases of claims that creditors, including Voya, might assert against the Non-Debtor Equity Holders. Specifically, Voya argued: (i) the Bankruptcy Court did not have subject matter jurisdiction to grant nonconsensual third-party releases; (ii) the third party releases were impermissible; (iii) the Plan must permit parties to opt-out of the releases; and (iv) the releases did not meet the standard set forth in Gillman v. Continental Airlines (In re Continental Airlines), 203 F.3d 203 (3d Cir. 2000). In an effort to solidify its claims, Voya filed a complaint in the District Court against the Non-Debtor Equity Holders asserting RICO and common law fraud claims.
On December 14, 2015, Judge Silverstein entered an order confirming the Plan, and Voya filed its Notice of Appeal together with an emergency motion requesting certification of a direct appeal to the Third Circuit and a motion for stay pending appeal.
II. Appeal to the District Court
On March 20, 2017, the District Court remanded the case for further proceedings. In its Memorandum Opinion, the District Court explained:
It is unclear to what extent the Bankruptcy Court had the opportunity to consider what is now the main issue on appeal—the Bankruptcy Co