The United States Bankruptcy Court for the Southern District of Texas in In re Waco Town Square Partners, L.P., et al.
considered whether it had the authority to order a non-debtor to dismiss a state court lawsuit. Finding that “when you snooze, you lose,” the bankruptcy court held that although it did not necessarily have the authority to order the non-debtor to dismiss all of the claims in its state court lawsuit, the non-debtor forfeited its right to challenge the bankruptcy court’s authority to do so by failing to file a timely objection.
NSJS Limited Partnership commenced a lawsuit against Waco Town Square Partners II, LP (WTSP II) and certain other defendants in state court for, among other things, fraud and breach of contract. WTSP II subsequently commenced a chapter 11 proceeding. The confirmation order for WTSP II’s chapter 11 plan required NSJS to remove any derivative claims (i.e.
, claims belonging to WTSP II or its estate) from its state court complaint within 45-days or all of NSJS’s claims would be deemed derivative claims, which must be dismissed with prejudice. NSJS failed to amend its complaint within the 45-day period.