In In re U.S. Brass Corp., 301 F.3d 296 (5th Cir. 2002), the Fifth Circuit considered the post-confirmation jurisdiction of bankruptcy courts and the modification of chapter 11 plans. In U.S. Brass, the confirmed chapter 11 plan provided for a mechanism to resolve certain creditors' claims by either settlement or litigation. Following confirmation, various parties including the debtor filed a motion with the bankruptcy court to approve a settlement, providing that the claims would be liquidated by binding arbitration. Various insurers objected to the motion, contending that the bankruptcy court did not have jurisdiction to approve the settlement and that arbitration of the claims without the consent of the insurers would alter the insurers' rights under the confirmed and substantially consummated plan. The Fifth Circuit held that bankruptcy courts have post-confirmation jurisdiction over matters that pertain to the implementation or execution of the confirmed plan, as previously stated in In re Craig's Stores of Texas Inc., 266 F.3d 388 (5th Cir. 2001). Here, the Fifth Circuit found that the motion to approve the settlement pertained to the implementation or execution of the confirmed plan. The Fifth Circuit next addressed whether the relief sought in the settlement motion violated the provisions of §1127(b), forbidding modification of a plan that has been substantially consummated. The court held that the relief sought by the motion would substitute arbitration for litigation and, therefore, would alter the plan provision obtained by the insurers in exchange for the withdrawal of the insurers' objections to the plan.

Chapter 11 Rent Claims

In In re LPM Corp., 300 F.3d 1134 (9th Cir. 2002), the Ninth Circuit addressed for the first time the issue of whether chapter 11 rent claims, which have administrative priority pursuant to §365(d)(3), also have super priority over chapter 7 administrative claims. In addition, the Ninth Circuit also addressed whether a creditor's request for a writ of execution in support of a previous court order authorizing payment to such creditor violated the automatic stay provisions under §362. The court held that the bankruptcy court order directing the debtor to "immediately pay" the back rent in a specified amount by a date certain was not sufficient authority for the creditor to obtain a writ of execution without first complying with the provisions of 11 U.S.C. §362 by obtaining an order from the bankruptcy court explicitly lifting the automatic stay to commence collection proceedings. The Ninth Circuit also affirmed the bankruptcy court's ruling that chapter 11 post-petition pre-conversion rent claims did not have super priority over the chapter 7 administrative creditors. The court noted that although Congress gave post-chapter 11 rent administrative priority in chapter 11 cases, it did not authorize super priority over other administrative expenses in the event the case is converted to a chapter 7.

10th Cir. BAP Adopts Proration Rule for Expense Claims

In In re Furr's Supermarkets Inc., 283 B.R. 60 (B.A.P. 10th Cir. 2002), the Tenth Circuit Bankruptcy Appellate Panel (BAP) adopted the proration rule for post-conversion administrative expense claims owed to a lessor under 11 U.S.C. §365(d)(3). The BAP discussed the split among the three circuit courts that had addressed the issue of when a claim arises under §365(d)(3). The proration rule, which was adopted by the Seventh Circuit in In re Handy Andy Home Improvement Centers Inc., 144 F.3d 1125 (7th Cir. 1998), requires that a court prorate the amounts due under a lease between the pre-conversion period and the post-conversion period. The performance date rule, which was adopted by the Third Circuit in In re Montgomery Ward Holding Corp., 268 F.3d 205 (3rd Cir. 2001), entitles the lessor to any lease payments that become due under the lease post-conversion, even if the lease payments due are attributable to periods prior to the conversion date. The BAP, in adopting the proration rule, stated that the performance rule unraveled the priority scheme of the Bankruptcy Code by requiring payment of pre-conversion claims under §365(d)(3), which would be subordinated to other administrative expense claims pursuant to the priority scheme established under §726(b).

Mandatory Arbitration Denied by Bankruptcy Court

In In re Gandy, 299 F.3d 489 (5th Cir. 2002), the Fifth Circuit upheld a bankruptcy court's refusal to compel arbitration of disputes between the debtor and certain parties. The Fifth Circuit considered the mandate set out in the Federal Arbitration Act that directs courts to rigorously enforce agreements to arbitrate. The Fifth Circuit generally agreed that bankruptcy courts do not have discretion to decline staying, pending arbitration, proceedings involving non-core matters that are arbitral issues under a relevant agreement. Where a cause of action at issue is not derivative from the debtor's pre-petition legal or equitable rights, but is derived entirely from federal rights conferred by the Bankruptcy Code, the bankruptcy court retains significant discretion to refuse to compel arbitration of the matter. The Fifth Circuit stated that the bankruptcy court has discretion to deny enforcement of the arbitration clause only when enforcement would conflict with the purpose or provisions of the Code. The Fifth Circuit found that the resolution of the bankruptcy claims predominated in this case and that the bankruptcy court had not abused its discretion in refusing to stay the adversary proceeding pending arbitration under the agreement. Furthermore, the Fifth Circuit found that the bankruptcy court had properly exercised its discretion in not severing the non-core matters for arbitration.

Abstention on Personal Injury Claims

In In re Federal-Mogul Global Inc., 282 B.R. 301 (Bankr. D. Del. 2002), District Judge Alfred M. Wolin considered motions pursuant to 28 U.S.C. §157 to transfer the venue of certain personal-injury claims against third-party non-debtors based on the non-debtor's potential indemnification claims against the debtor. Under §1334(b) of the Bankruptcy Code, bankruptcy courts may have subject-matter jurisdiction over civil proceedings arising in or related to cases under Title 11, including litigation between third parties that has an effect on the estate. The court found that the leading case concerning "related to" jurisdiction was Pacor Inc. v. Higgins, 743 F.2d 984 (3rd Cir. 1984), where the Third Circuit held that a bare claim of common-law indemnity was not enough to establish "related to" jurisdiction. The court, after finding that the bankruptcy court did not have "related to" jurisdiction over the matter, discussed the doctrines of mandatory and permissive abstention under 28 U.S.C. §1334. The court set out the factors considered when deciding to abstain under §1334(c)(1) that were listed in In re Donington, Karcher, Salmond, Ronan & Rainone P.A., 194 B.R. 750 (D. N.J. 1996), and found that, under such factors, it was appropriate to abstain from hearing the matter and to order the remand of all the personal injury claims directly to the several state courts from which they were removed.

Miscellaneous

• In re Teligent Inc., 282 B.R. 765 (Bankr. S.D.N.Y. 2002) (under 11 U.S.C. §1129(a)(9), which requires administrative and priority creditors to be paid in full unless they agree to different treatment of their claims, express consent to such treatment is not required, but can be implied by the administrative creditors' failure to respond to the treatment proposed by the debtors);
• In re Henry Mayo Newhall Memorial Hospital, 282 B.R. 444 (B.A.P. 9th Cir. 2002) (a bankruptcy court's decision to extend the exclusivity period "for cause" is a mixed question of fact and law, and therefore reviewable de novo by the BAP);
• In re Bradley, 282 B.R. 430 (Bankr. W.D. Ark. 2002) (where the size of the homestead exceeded the acreage limited under the state homestead exemption and the land could not be subdivided, it was appropriate to sell the entire tract with the sales proceeds being apportioned between the homestead and non-homestead portions of the land); and
• In re Pacific Gas & Electric Co., 283 B.R. 41 (N.D. Cal. 2002) (language in §1123(a) of the Bankruptcy Code, providing that "notwithstanding any otherwise applicable non-bankruptcy law," a plan shall provide means for the plan's implementation, preempts state regulation of a public utility concerning approval by state agency of the restructuring of the public utility).