Friday, July 11, 2008

Fifth Circuit Clarifies Post-Confirmation Jurisdiction

The Fifth Circuit has written a new opinion in which it holds that once "related to" jurisdiction attaches, confirmation of the plan will not divest that jurisdiction. The opinion reconciles an apparent conflict with its holding in Craig's Stores that post-confirmation jurisdiction is limited to enforcing the plan. Newby v. Enron Corporation, No. 07-20051 (5th Cir. 7/10/08).

In the Newby case, nine actions against Enron-related parties were removed to federal court based upon "related-to" jurisdiction. Seven cases were removed prior to confirmation of Enron's plan and two were removed between plan confirmation and the plan's effective date. The cases were consolidated in U.S. District Court where they were dismissed with prejudice. The plaintiffs appealed the dismissal on the basis that the U.S. District Court lacked jurisdiction subsequent to plan confirmation.

The Fifth Circuit noted an apparent conflict in its opinions.

"We previously have stated that 'Section 1334 does not expressly limit bankruptcy jurisdiction upon plan confirmation.' (citation omitted). Other Circuits agree, holding that 'if ‘related to’ jurisdiction actually existed at the time of . . . removal” subsequent events '[can]not divest the district court of that subject matter jurisdiction.” (citation omitted). But at the same time, this Court has stated that '[a]fter a debtor’s reorganization plan has been confirmed, the debtor’s estate, and thus bankruptcy jurisdiction, ceases to exist, other than for matters pertaining to the implementation or execution of the plan.' (citations omitted). Although these statements may seem contradictory, they are easily reconciled."

Slip Opinion, at 14-15.

The Fifth Circuit clarified its holding in Craig's Stores as one relating to claims brought post-confirmation. Thus, if bankruptcy jurisdiction attaches to a claim prior to confirmation, the court retains jurisdiction over that claim post-confirmation.

"(Plaintiffs)cannot point to a single case in which we have held that plan confirmation divests a District Court of bankruptcy jurisdiction over preconfirmation claims based on pre-confirmation activities that properly had been removed pursuant to 'related to' jurisdiction. We likewise find none. Accordingly, we hold that the District Court had bankruptcy jurisdiction over the Fleming plaintiffs’ claims at the time it issued its decision dismissing them with prejudice."

Slip Opinion at 16.

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