By analogy to Espinosa, the Eleventh Circuit held that the failure to give notice of non-debtor, third-party releases, as required by Bankruptcy Rule 2002(c)(3), is not fatal when the same information was contained in the plan and disclosure statement sent to the creditor who sought to sue third parties.
The debtor was the owner of a hotel leased to and operated by other entities. The creditor was a guest at the hotel who was severely injured by a valet parking attendant. The injured creditor sued the valet company in state court.
Later, the hotel owner filed a chapter 11 petition. The creditor sought and obtained a modification of the automatic stay from the bankruptcy court to continue the suit in state court nominally against the debtor-hotel owner but in reality to recover from insurance. In state court, the creditor also sued related non-debtors involved in the operation and management of the hotel.
The hotel owner proposed a chapter 11 plan that included releases covering the related defendants in state court.
The debtor sent the creditor notice of the confirmation hearing and copies of the plan and disclosure statement. According to the November 15 hearing by Circuit Judge Jill Pryor, the disclosure statement had a four-page disclaimer immediately after the cover page.
In bold letters, the disclaimer urged creditors to read the entire disclosure statement. It told creditors they would be bound if they voted for the plan or did not vote. Like the plan, the disclosure statement said that related non-debtors would be released by confirmation.
Attorneys for the creditor admitted receiving copies of the plan and disclosure statement, but they did not object to confirmation. The plan was confirmed.
After confirmation, the non-debtors moved in state court to dismiss the suit, saying that the claims were barred by confirmation. The creditor returned to bankruptcy court, asking the judge to modify confirmation by allowing the creditor to sue the non-debtors nominally to reach insurance coverage.
The bankruptcy court declined to allow the creditors to sue the non-debtors nominally, and the district court affirmed.
In the circuit, the creditor argued that the non-debtor releases were invalid for lack of due process because the debtor had not given notice required by Bankruptcy Rule 2002(c)(3).
If a plan releases non-debtors, Judge Pryor said, the rule requires giving “notice that includes a conspicuous statement that the plan proposes a discharge injunction, a brief description of the injunction, and the identity of the entities subject to the injunction.” The debtor conceded that notice of the plan did not comply with the rule.
The creditor contended that due process required receiving notice in the form specified in the rule, but Judge Pryor said that the creditor “received actual notice of the same information in a different form.”
In United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), the Supreme Court “addressed a very similar issue in another bankruptcy context,” Judge Pryor said. There, the confirmed chapter 13 plan discharged student loans even though the debtor had not prosecuted an adversary proceeding as required by statute. The Court nonetheless upheld the discharge of the student loans.
Like the student loan lender in Espinosa, the creditor did receive actual notice of the contents of the plan. Also like Espinosa, the creditor did not object to the failure to comply with the rules.
“Given the Supreme Court’s rejection of a nearly identical argument in a very similar bankruptcy context, the [creditor’s] argument must fail,” Judge Pryor said.
The creditor, she said, had notice “well beyond” the mere existence of the bankruptcy and was told in the disclaimer to read the entire plan and disclosure statement, which included sections describing the releases.
Judge Pryor held that the creditor “received all the information required by Rule 2002(c)(3) — just not in the form contemplated by the Rule.” Following Espinosa, she affirmed and held that “the district court did not err in determining that the [creditor] suffered no due process violation.”
By analogy to Espinosa, the Eleventh Circuit held that the failure to give notice of non-debtor, third-party releases, as required by Bankruptcy Rule 2002(c)(3), is not fatal when the same information was contained in the plan and disclosure statement sent to the creditor who sought to sue third parties.
The debtor was the owner of a hotel leased to and operated by other entities. The creditor was a guest at the hotel who was severely injured by a valet parking attendant. The injured creditor sued the valet company in state court.
Later, the hotel owner filed a chapter 11 petition. The creditor sought and obtained a modification of the automatic stay from the bankruptcy court to continue the suit in state court nominally against the debtor-hotel owner but in reality to recover from insurance. In state court, the creditor also sued related non-debtors involved in the operation and management of the hotel.
The hotel owner proposed a chapter 11 plan that included releases covering the related defendants in state court.