The bankruptcy court overseeing Conseco’s massive bankruptcy case has issued a second opinion addressing the scope of a bankruptcy court’s post-confirmation jurisdiction in litigation involving the reorganized – or “New” – Conseco. In its earlier ruling (318 B.R. 425), the court concluded that it did not have jurisdiction over the reorganized debtor’s adversary proceeding against the debtor’s former officers and directors who had defaulted under Conseco’s prepetition loan programs. The court reasoned that bankruptcy’s broad “related to” jurisdiction is far more limited following plan confirmation than it is pre-confirmation, and that it “exists primarily to ensure that the plan is implemented and to protect estate assets devoted to implement the confirmed plan.”
More recently, the Conseco court held that, despite the fact that “the Seventh Circuit takes the most restrictive view of bankruptcy jurisdiction of any circuit,” “related to” jurisdiction existed over an adversary proceeding in which New Conseco sought to enjoin a class action filed in Pennsylvania state court against the reorganized debtor based primarily on contracts that took effect post-confirmation. (2005 WL 2292706). This is because, the court explained, the question of whether the class action violates a discharge injunction is within the “core” jurisdiction of the court.
The existence of post-confirmation jurisdiction in a bankruptcy court is a fact intensive matter that requires careful consideration and planning before the plan is confirmed, not afterwards. And as these cases illustrate, resolution of the question can yield surprising and disappointing results for the losing litigant. Surely New Conseco didn’t expect to be precluded from suing its officers and directors for prepetition loan defaults. Nor is it likely that the class action plaintiffs expected to have to defend themselves in the bankruptcy court for asserting claims that arose post-confirmation. Such are the traps that await experienced and unexperienced bankruptcy litigators alike. Caveat Litigator!
© Steve Jakubowski 2005