Help Center

What’s Done is Done: A Confirmation Order is Final Even When Fraud is Alleged

By: Zachary Sobel

St. John’s University School of Law

American Bankruptcy Institute Law Review Staff Member
 

In In re Apex Long Term Acute Care – Katy, L.P., the United States Bankruptcy Court for the Southern District of Texas held that a creditor could not reopen a confirmed Chapter 11 case to pursue causes of action related to allegedly false financial statements and hidden assets. According to the bankruptcy court, such claims would be a collateral attack on the confirmation order and are consequently prohibited by section 1144 of Title 11 of the United States Code (“the Bankruptcy Code”).[1] On September 25, 2009, Apex Long Term Acute Care (“Debtor”) filed a voluntary bankruptcy petition for relief under Chapter 11 of the Bankruptcy Code.[2] Thereafter, the bankruptcy court confirmed Debtor’s Second Amended Chapter 11 Plan (the “Plan”), pursuant to which  the Apex LTAC Distribution Trust (the “Trust”) was established.[3] Under the Plan, all of the Debtor’s assets and causes of action were vested in the Trust.[4] On March 14, 2013 and the bankruptcy court closed the Debtor’s bankruptcy  case .[5]  On September 18, 2018, Apex Katy Physicians, LLC and P.K. Shah, M.D. (“Claimants”) filed a motion to reopen the Debtor’s bankruptcy case.[6] Claimants alleged that various parties had filed fraudulent financial statements in the bankruptcy case, making it likely that assets were hidden from the bankruptcy estate.[7] Claimants further argued that because these allegedly hidden assets were not contemplated in the confirmation order that reopening the case distributing such assets would not alter it.[8] Ultimately the bankruptcy court held that section 1144 precluded the reopening of the case in this instance.[9]

The court’s decision to maintain the finality of the confirmation order is consistent with current bankruptcy policy.[10] The strict standard required to revoke a confirmation order in addition to the 180-day deadline, both imposed by section 1144 of the Bankruptcy Code, reflects the “strong policy in favor of the finality of a confirmation order.”[11] Here, the Claimants, although alleging the fraud standard under section 1144, were not only beyond the 180-day deadline, but were also looking to change the confirmation order.[12] The confirmation order and the Plan vested “any potential causes of action known or unknown and any assets disclosed or undisclosed” in the Trust.[13] Therefore, because the Trust had distributed all of its assets, reopening the bankruptcy case to distribute any assets would be inconsistent with the confirmation order.[14]

The Texas bankruptcy court concluded that need for finality in the confirmation order superseded claims for assets it “explicitly dealt with and which may or may not add value to the estate.”[15] A creditor cannot attack the finality of a confirmation order by characterizing their attempts as independent causes of action as opposed to an outright request to revoke the confirmation order.[16] Moreover, Claimants’ claim that 180 days was insufficient time to uncover fraud is irrelevant because the question courts consider is whether the Claimants’ request for damages is a collateral attack on the confirmation order.[17] Additionally, courts generally hold that the most important consideration in determining if a claim is an independent attack on the confirmation order is if it changes the confirmed plan of arrangement.[18] Here, in holding that section 1144 precludes reopening of the bankruptcy case, the Texas bankruptcy court followed this general line of authority in furtherance of maintaining the finality of the confirmation order.[19]



[1] In re Apex Long Term Acute Care-Katy, L.P., 599 B.R.  314, 322 (S.D. Texas 2019)

[2] Id. at 315.

[3] Id.

[4] Id. at 321.

[5] Id. at 315.

[6] Id. at 314–15.

[7] Id. at 315.

[8] Id. at 321.

[9] Id. at 319.

[10] See Richard Levin & Henry J. Sommer eds., 8 Collier on Bankruptcy ¶ 1144.04[2] (16th ed.).

[11] Richard Levin & Henry J. Sommer eds., 8 Collier on Bankruptcy ¶1144.04[2] (16th ed.); see also 11 U.S.C. § 1144 (2012) (“On request of a party in interest at any time before 180 days after the date of the entry of the order of confirmation . . . the court may revoke such order if and only if such order was procured by fraud.”).

[12] In re Apex Long Term Acute Care-Katy, L.P., 599 B.R. at 321.

[13] Id. at 321–22.

[14] See id. at 322 (emphasizing that even if Claimants’ claim was an independent claim, it “is an undeniable attack on the confirmation order”).

[15] Id.

[16] See Richard Levin & Henry J. Sommer eds., 8 Collier on Bankruptcy ¶ 1144.04[2][b] (16th ed.).

[17] See In re Apex Long Term Acute Care-Katy, L.P., 599 B.R. at 320 (quoting In re Genesis Health Ventures, 324 B.R. 510, 516) (“The threshold question is whether the plaintiffs’ quest for money damages from the debtors . . .  based on allegations of pre-confirmation fraud, constitutes a collateral attack on the confirmation order”) (alteration in original).

[18] See id. at 320 n.7.

[19] See id. at 319.