Dimitrios Papas v. Buchwald Capital Advisors, LLC

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit I.O.P. 32.1(b)

File Name: 13a0252p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

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In re GREEKTOWN HOLDINGS, LLC,

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Debtor.

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No. 12-2434

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DIMITRIOS PAPAS, aka Jim Papas, VIOLA

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PAPAS, TED GATZAROS, and MARIA

Appellants, --

GATZAROS,

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v.

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BUCHWALD CAPITAL ADVISORS, LLC,

Litigation Trustee for the Greektown -

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Litigation Trust, SAULT STE MARIE TRIBE OF

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CHIPPEWA INDIANS, and KEWADIN CASINOS

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GAMING AUTHORITY,

Appellees. -

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Appeal from the United States District Court

for the Eastern District of Michigan at Detroit.

No. 12-cv-12340—Paul D. Borman, District Judge.

Argued: July 23, 2013

Decided and Filed: August 26, 2013

Before: BOGGS and McKEAGUE, Circuit Judges, and BECKWITH, Senior District

Judge.*

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COUNSEL

ARGUED: Lisa S. Gretchko, HOWARD & HOWARD ATTORNEYS PLLC, Royal

Oak, Michigan, for Appellants. Joel D. Applebaum, CLARK HILL PLC, Birmingham,

Michigan, for Buchwald Appellee. Grant S. Cowan, FROST BROWN TODD LLC,

Cincinnati, Ohio, for Chippewa and Kewadin Appellees. ON BRIEF: Nancy K. Stone,

Mary C. Dirkes, HOWARD & HOWARD ATTORNEYS PLLC, Royal Oak, Michigan,

for Appellants. Joel D. Applebaum, CLARK HILL PLC, Birmingham, Michigan, for

*

The Honorable Sandra Shank Beckwith, Senior United States District Judge for the Southern

District of Ohio, sitting by designation.

1

No. 12-2434 In re Greektown Holdings Page 2

Buchwald Appellee. Grant S. Cowan, FROST BROWN TODD LLC, Cincinnati, Ohio,

for Chippewa and Kewadin Appellees.

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OPINION

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McKEAGUE, Circuit Judge. At issue in this appeal is a claims bar order entered

in an adversary proceeding connected with the bankruptcy of Greektown Holdings, LLC.

The appellants, the Papases and Gatzaroses, and two of the appellees, the Sault Ste.

Marie Tribe of Chippewa Indians and the Kewadin Casinos Gaming Authority, are

defendants in a fraudulent transfer action that was brought in federal bankruptcy court

by Buchwald Capital Advisors, LLC. Buchwald Capital Advisors is the trustee of the

Greektown Litigation Trust and an appellee in this appeal. The Sault Ste. Marie Tribe

and the Kewadin Casinos Gaming Authority agreed to settle with Buchwald Capital

Advisors. However, they conditioned the settlement upon the entry of an order that

would bar any claims against them “arising out of or reasonably flowing from” either the

fraudulent transfer proceeding or the allegedly fraudulent transfers themselves. The

Papases and Gatzaroses objected to this requested order, but when they could not come

up with any viable claims that would be enjoined by the bar order, the district court

approved the settlement and entered the bar order. A short time later, the Papases and

Gatzaroses filed a motion for reconsideration in which they detailed additional claims

that they feared might be barred by the order. The district court denied their motion.

On appeal, the Papases and Gatzaroses argue that the bar order was improper and

also contend that the district court abused its discretion when it denied their motion for

reconsideration. The district court was clearly acting within its discretion when it denied

the motion for reconsideration, so we affirm its order denying reconsideration. But the

bar order itself raises several interesting questions of first impression in this Circuit.

These questions concern the district court’s jurisdiction and power to enter the bar order

and the proper scope of such an order. Unfortunately, these issues have not been

adequately briefed and argued by the parties and were not addressed below. We

No. 12-2434 In re Greektown Holdings Page 3

therefore remand this case to the district court and instruct the district court to reevaluate

the bar order under the guidance provided in this opinion.

I. BACKGROUND

The Greektown Bankruptcy and the Fraudulent Transfer Action

On May 29, 2008, Greektown Holdings, LLC, and several affiliates filed for

Chapter 11 bankruptcy in the United States Bankruptcy Court for the Eastern District of

Michigan. Greektown Holdings owned Greektown Casino, LLC, the company that

owned and operated the Greektown Casino in downtown Detroit. The bankruptcy court

confirmed a plan of reorganization on January 22, 2010, and the plan became effective

on June 30, 2010. The plan provided for the establishment of the Greektown Litigation

Trust, for which Buchwald Capital Advisors, LLC, was named trustee. We will refer to

Buchwald Capital Advisors, which is one of the appellees in this appeal, as the

“Trustee.”

Before the plan became effective, the bankruptcy court authorized a committee

of unsecured creditors to file a fraudulent transfer action. The committee filed its

complaint on May 28, 2010. The Trustee was later substituted as the plaintiff in the

action. The defendants named in the complaint included the Papases and the Gatzaroses,

the appellants in this appeal, as well as the Sault Ste. Marie Tribe of Chippewa Indians

and the Kewadin Casinos Gaming Authority, both appellees in this appeal.1 We will

refer to the Papases and the Gatzaroses together as the “Appellants” and refer to the

Sault Ste. Marie Tribe and the Kewadin Casinos Gaming Authority together as the

“Tribe.”2

The fraudulent transfer complaint alleged that in December 2005, Greektown

Holdings incurred $185 million dollars of debt and simultaneously transferred

approximately $177 million to several transferees, including the Appellants and the

1

Ted Gatzaros passed away during the course of this litigation.

2

The fraudulent transfer complaint describes the Kewadin Casinos Gaming Authority as a

political subdivision of the Sault Ste. Marie Tribe.

No. 12-2434 In re Greektown Holdings Page 4

Tribe. The complaint alleged that the Appellants directly received about $145 million

and that the Tribe directly received $6 million. However, the complaint also alleged that

the $145 million transferred to the Appellants indirectly benefitted the Tribe because the

Michigan Gaming Control Board had required the Tribe to pay this amount to the

Appellants if Greektown Holdings failed to do so, and thus the transfer discharged

obligations that the Tribe owed to the Appellants. The Trustee therefore claimed that

the Tribe was liable both for the $6 million it directly received and the $145 million that

indirectly benefitted it. The Trustee sought to recover the transfers under 11 U.S.C.

§§ 544 and 550 and the Michigan Uniform Fraudulent Transfer Act.

The Settlement Agreement

Two years after the fraudulent transfer complaint was filed, the Trustee decided

that the indirect benefit theory for recovering the $145 million from the Tribe was

unlikely to succeed. The Trustee and the Tribe agreed to a settlement, under which the

Tribe would pay $2.75 million and relinquish approximately $2.58 million in claims it

had filed against the estate of Greektown Casino, LLC. The settlement was expressly

conditioned upon the bankruptcy court’s entering a bar order to read as follows:

IT IS FURTHER ORDERED that all persons and entities are hereby

permanently BARRED, ENJOINED and RESTRAINED from

commencing, prosecuting, or asserting any claim against the Tribe

Defendants, including claims for indemnity or contribution, arising out

of or reasonably flowing from the facts or allegations or claims in this

MUFTA Adversary Proceeding, whether arising under state, federal or

foreign law as claims, cross-claims, counterclaims, or third-party claims,

in this MUFTA Adversary Proceeding Action, in any federal or state

court, or in any other court, arbitration proceeding, administrative

agency, or other forum in the United States or elsewhere (collectively,

the “Barred Claims”). These Barred Claims include, but are not limited

to, any and all claims arising out of or reasonably flowing from the

transfers which are the subject of this MUFTA Adversary Proceeding.

R. 1-1, Settlement Agreement, PageID # 44. Pursuant to Federal Rule of Bankruptcy

Procedure 9019(a), the Trustee filed a motion for approval of the settlement in the

Bankruptcy Court.

No. 12-2434 In re Greektown Holdings Page 5

The Appellants filed an objection. They also filed a motion to withdraw the

reference in the United States District Court for the Eastern District of Michigan.3 The

district court withdrew the reference and instructed the parties to file briefs. It also held

a hearing at which the parties were permitted to introduce evidence and argue their

positions on the bar order.

At the hearing, a financial advisor employed by the Trustee testified about the

settlement negotiations between the Trustee and the Tribe, offered his conclusion that

the indirect benefit theory was unlikely to succeed, and gave his opinion that the

settlement amount was reasonable. The financial advisor stated that the bar order was

a “critical aspect of the settlement” because the Tribe needed to eliminate the risk of

litigation in order to obtain necessary financing. He did not think that the settlement

would have been possible without the inclusion of the bar order.

The Tribe submitted an affidavit from its CFO who averred that, due to the

pending fraudulent transfer claims, the Tribe was experiencing difficulty in refinancing

its existing debt and obtaining additional financing. Lending institutions told him that

the Tribe was not an attractive lending prospect while the fraudulent transfer action

remained pending against it. The Tribe contended that unless all claims against it arising

out of the fraudulent transfer proceeding were barred, it would not be able to obtain the

financing it needed.

Although they presented no evidence at the hearing, the Appellants raised

numerous arguments against entry of the bar order. They asserted that bar orders are

only allowed in unusual circumstances and that the bar order was not essential to the

bankruptcy reorganization. They claimed that since the fraudulent transfer proceedings

were in the early stages of discovery, they were unable to identify all the potentially

barred claims that they might bring against the Tribe. However, they suggested four

possibilities: common law indemnity, fraud, contribution, and deepening insolvency.

3

A district court can refer any or all bankruptcy cases or proceedings to the bankruptcy judges

in its district and can withdraw the reference for a case or proceeding “for cause shown.” 28 U.S.C.

§ 157(a) & (d).

No. 12-2434 In re Greektown Holdings Page 6

They further contended that under Sixth Circuit precedent, the district court was required

to hold an evidentiary fairness hearing to evaluate the fairness of the bar order.

Additionally, they argued that the bar order should be mutual, barring claims by the

Tribe as well as claims against the Tribe.

The Tribe and the Trustee argued that the four claims the Appellants had

identified were not viable and that any such claims would be barred by sovereign

immunity, by statutes of limitation, and by releases that the Appellants signed in

connection with the allegedly fraudulent transfers. The Trustee further disputed the

Appellants’ contention that an evidentiary fairness hearing was required.

The district court granted the motion to approve the settlement and entered the

bar order. The district court stated that although the Appellants lacked standing to

challenge the fairness of the settlement because they were not creditors, it needed to

consider the interests of third parties whose legal rights would be affected by the

settlement. Preliminarily, the district court found it significant that the Appellants had

never filed a cross-claim in the fraudulent transfer proceeding and that their summary

judgment motion in that proceeding did not even hint at the possibility of asserting

claims against the other defendants.

Additionally, the district court found that the four claims the Appellants had

suggested that they might bring against the Tribe were not viable. Their suggested

indemnity claim was not viable because they had directly received the $145 million

transfer and there was no indication of vicarious liability. Their suggested contribution

claim was not viable because claims for contribution arise only in cases that involve a

common injury that results in common liability. The district court explained that “[t]he

allegedly fraudulent transfers . . . are directly traceable to the individuals who received

them. There is no ‘common injury’ in which the Papas and the Gatzaros Defendants

share.” R. 10, Opinion and Order, PageID # 315. The district court found the fraud and

deepening insolvency claims to be equally meritless. It further concluded that even if

the four proposed claims were viable, they would be barred by the Tribe’s sovereign

immunity.

No. 12-2434 In re Greektown Holdings Page 7

Because the district court found that the bar order did not affect any viable claims

possessed by the Appellants, it determined that an evidentiary fairness hearing was not

required. Finally, the district court concluded that based on the evidence submitted by

the Trustee and the Tribe, the terms of the settlement were fair and reasonable.

The district court entered its initial opinion and order approving the settlement

agreement and the bar order on July 13, 2012. The Trustee and the Tribe filed a

proposed order on July 19.4 On July 26, the Appellants filed what they referred to as

their “sole objection” to the proposed order (this objection related to discovery

cooperation) and submitted a revised proposed order. The Trustee and the Tribe replied

that they had no objection to the Appellants’ revision, and the district court entered that

order on August 9.

The Motion for Reconsideration

Two weeks later, the Appellants filed a motion asking the district court to

reconsider its August 9 order. They explained that they had discovered potential claims

against the Tribe under a Guaranty Agreement that had been executed twelve years

earlier in the summer of 2000. This motion appears to be the first time in the adversary

proceeding that there had been any mention of this Guaranty Agreement. The briefs

filed with the district court and the statements at the evidentiary hearing indicated that

certain guaranty obligations formed the basis of the Trustee’s indirect benefit theory of

recovery against the Tribe, but the document that established these guaranty rights had

not been specifically referenced or filed as an exhibit.

In their motion for reconsideration, the Appellants argued that this Guaranty

Agreement gave them viable claims (they identified two claims in particular) against the

Tribe that were at risk of being enjoined by the bar order. They argued that the district

4

The Eastern District of Michigan’s Local Rule 58.1(c) provides that “[w]ithin seven days after

granting the judgment or order . . . a person seeking entry of a judgment or order may serve a copy of the

proposed judgment or order on the other parties . . . with notice that it will be submitted to the court for

signing if no written objections are filed within seven days after service of the notice. . . . If objections are

filed, within seven days after receiving notice of the objections, the person who proposed the judgment

or order must notice it for settlement before the court.”

No. 12-2434 In re Greektown Holdings Page 8

court “was misled which resulted in a palpable error warranting reconsideration”

because the Guaranty Agreement included a waiver of the Tribe’s sovereign immunity

and provided that the Appellants’ claims were not barred by the statute of limitations.

R. 17, Motion, PageID # 434, 450-51. The Appellants suggested a revision to the bar

order that would explicitly exclude from its scope any claims brought pursuant to the

Guaranty Agreement and related documents.

The district court denied the Appellants’ motion for reconsideration. It noted

that the Appellants had most likely possessed the Guaranty Agreement since 2000.

Additionally, the Trustee had provided it to them during discovery in March 2011. But

in their briefs and during the evidentiary hearing the Appellants had never “even hint[ed]

that they may have [had] a claim or legal theory of recovery based on the Guaranty

Agreement.” R. 31, Order, PageID # 682. Nor did they mention the Guaranty

Agreement when they filed their objection to the proposed order. The district court

therefore ruled that “[t]he Papas and Gatzaros Defendants have offered no excuse for

their failure to previously present this evidence and argument, and the Court declines to

consider it now.” Id. at PageID # 683.

The Appellants now appeal all three orders entered by the district court.

II. ANALYSIS

A. Motion for Reconsideration

We review a district court’s denial of a motion for reconsideration for abuse of

discretion (unless the movant asked the court to reconsider a grant of summary

judgment). Indah v.U.S. Secs. and Exch. Comm’n, 661 F.3d 914, 924 (6th Cir. 2011).

The Federal Rules of Civil Procedure do not provide for a “motion for reconsideration,”

but the local rules in the Eastern District of Michigan do. See E.D. Mich. Local Rule

7.1(h). The local rule explains that the decision to grant the motion is within the court’s

discretion. To establish grounds for reconsideration, “[t]he movant must not only

demonstrate a palpable defect by which the court and the parties . . . have been misled

No. 12-2434 In re Greektown Holdings Page 9

but also show that correcting the defect will result in a different disposition of the case.”

E.D. Mich. Local Rule 7.1(h)(3).

The district court’s order and the briefs from the Tribe and the Trustee all say

that motions for reconsideration are treated as motions to alter or amend the judgment

under Federal Rule of Civil Procedure 59(e). R. 31, Order, PageID # 681; Tribe Br. at

31; Trustee Br. at 37. Opinions from our court sometimes intone that mantra. See, e.g.,

Moody v. Pepsi-Cola Metro. Bottling Co., Inc., 915 F.2d 201, 206 (6th Cir. 1990)

(“Motions for reconsideration of a judgment are construed as motions to alter or amend

the judgment . . . .”). But context matters here. Treating a motion for reconsideration

as a motion to alter or amend the judgment makes sense when a party files a document

titled “Motion for Reconsideration” in a district that does not have a local rule providing

for such a motion. Since in those districts there is no such thing as a “Motion for

Reconsideration,” a motion with that title that is filed within 28 days can be construed

as a motion to alter or amend the judgment under Rule 59(e), and one that is filed after

28 days can be construed as a motion for relief from judgment under Rule 60(b).

But this approach makes little sense in the Eastern District of Michigan, which

has a local rule specifically providing for a motion for reconsideration. When a party

files a motion for reconsideration pursuant to the Eastern District’s local rule, we review

the district court’s ruling on the motion using the standard set forth in the local rule. See

Indah, 661 F.3d at 924 (“A motion for reconsideration is governed by the local rules in

the Eastern District of Michigan, which provide that the movant must show both that

there is a palpable defect in the opinion and that correcting the defect will result in a

different disposition of the case.”).

In this case, there is no need to construe the motion for reconsideration as a

motion to alter or amend the judgment because it was filed pursuant to the Eastern

District’s local rule. Therefore, the question we must answer is whether the district court

abused its discretion when it determined that the motion for reconsideration failed to

demonstrate an outcome-determinative “palpable defect” that misled the court and the

parties.

No. 12-2434 In re Greektown Holdings Page 10

The question is not a hard one. The Appellants provide no reason to hold that

the district court abused its discretion. Tellingly, they do not even invoke the standard

from Local Rule 7.1(h) in their briefs (nor do they, as do the Tribe and the Trustee,

invoke the Rule 59(e) standard). Unguided by the applicable standard, their numerous

arguments all miss their mark.

First, the Appellants complain that the Guaranty Agreement was not mentioned

in or attached to the complaint filed by the Trustee in the fraudulent transfer proceeding.

But they do not deny that they possessed the Guaranty Agreement. Nor do they attempt

to explain why the absence of the Guaranty Agreement from the complaint even matters.

Second, the Appellants insinuate that the Tribe behaved improperly by keeping

them “in the dark” about the settlement negotiations for a long time. But they are

sophisticated business people, represented by a large law firm, and their objection to

what they apparently consider hardball litigation seems unreasonable. The settlement

motion was filed on April 13, and the hearing was held on June 27. If the Appellants

needed more time to prepare their arguments, they should have requested it.

Third, the Appellants contend that their potential claims under the Guaranty

Agreement are not yet ripe and argue that the district court should not have forced them

to raise unripe claims. But the district court did not require them to file a complaint

alleging unripe claims. It just required them to identify what potential claims might be

barred by the claims bar order. Whether these claims were ripe or unripe is irrelevant.

Fourth, the Appellants tout the merits of their claims under the Guaranty

Agreement. The Tribe and the Trustee dispute that these claims have any merit. This

disagreement is one we need not resolve. The issue before us is not the merits of these

claims but rather whether the district court abused its discretion when it refused to reach

the merits.5

5

The Gatzaroses have filed a lawsuit based on one of these claims, and the Tribe has asked us to

take judicial notice of some of the filings in that lawsuit. Since we do not reach the merits of the Guaranty

Agreement claims, we deny as moot the Tribe’s motions to take judicial notice.

No. 12-2434 In re Greektown Holdings Page 11

Although the district court did not use the term, the import of its order—and what

this issue really boils down to—is forfeiture. By waiting until a motion for

reconsideration to raise their argument and not providing a good excuse for the delay,

the Appellants forfeited it. “[A]bsent a legitimate excuse, an argument raised for the

first time in a motion for reconsideration at the district court generally will be forfeited.”

United States v. Huntington Nat’l Bank, 574 F.3d 329, 331-32 (6th Cir. 2009).

Therefore, we hold that the district court acted well within its discretion when it denied

the Appellants’ motion for reconsideration.

B. Propriety of the Bar Order

The propriety of the bar order presents a more difficult question. To begin, what

standards or principles guide a court in determining whether a bar order is proper in a

case like this? The parties have cited three previous decisions from our court, but upon

close inspection none of these decisions helps us here.

The first decision provides guidance for determining whether a settlement in a

bankruptcy case is fair. The Federal Rules of Bankruptcy Procedure allow a bankruptcy

court to approve a settlement upon the trustee’s motion and after notice and a hearing.

Fed. R. Bankr. P. 9019(a). Before approving the settlement, the court must “apprise

itself of all facts necessary to evaluate the settlement and make an informed and

independent judgment as to whether the compromise is fair and equitable.” Bard v.

Sicherman (In re Bard), 49 F. App’x 528, 530 (6th Cir. 2002) (per curiam) (quotation

omitted). Bard sets out four factors that a bankruptcy court should consider when

evaluating the fairness of a settlement.6 Id.; see also Hindelang v. Mid-State Aftermarket

Body Parts Inc. (In re MQVP, Inc.), 477 F. App’x 310, 313 (6th Cir. 2012) (noting that

the Sixth Circuit applies Bard when faced with appeals from settlements in bankruptcy

cases). These factors are useful when the issue on appeal is whether the settlement is

fair, but the Appellants have not challenged the fairness of the settlement. Reply Br. at

6

These factors are: “(a) The probability of success in the litigation; (b) the difficulties, if any, to

be encountered in the matter of collection; (c) the complexity of the litigation involved, and the expense,

inconvenience and delay necessarily attending it; (d) the paramount interest of the creditors and a proper

deference to their reasonable views in the premises.” Bard, 49 F. App’x at 530 (quotation omitted).

No. 12-2434 In re Greektown Holdings Page 12

18-19. They challenge only the bar order entered in connection with the settlement.

Bard’s four-factor test, then, is inapplicable here.

The second decision provides that, in certain situations, a court must conduct a

fairness hearing before imposing a bar order. Our court has held, outside the bankruptcy

context, that when “a settlement agreement contains a bar order extinguishing possible

legal claims of non-settling defendants, the court must conduct an evidentiary fairness

hearing to determine whether the settling defendants are paying their fair share of the

liability.” McDannold v. Star Bank, N.A., 261 F.3d 478, 484 (6th Cir. 2001). But this

rule only applies when the defendants share a common liability and the non-settling

defendant’s right of contribution against the settling defendant is extinguished by the bar

order. If a court eliminates the non-settling defendant’s contribution right and in

exchange reduces any judgment against the non-settling defendant by the settlement

amount, the court must ensure that the settling defendant pays its fair share of the

plaintiff’s damages.7 In this case, the district court determined that the Appellants had

no right of contribution against the Tribe (a conclusion that the Appellants have not

challenged on appeal), and therefore no evidentiary fairness hearing was necessary.

The third decision governs the circumstances under which a bankruptcy court can

“enjoin a non-consenting creditor’s claims against a non-debtor to facilitate a

reorganization plan.” See Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow

Corning Corp.), 280 F.3d 648, 656 (6th Cir. 2002). We held that such an injunction is

permissible, but instructed that it is appropriate only in “unusual circumstances,” which

can be found when seven factors are present. Id. at 658 (quotation omitted).

7

Furthermore, this rule applies only when the judgment reduction specifies that the nonsettling

defendant’s liability will be reduced by the amount paid by the settling defendant—a reduction method

known as the pro tanto method. See Kovacs v. Ernst & Young (In re Jiffy Lube Secs. Litig.), 927 F.2d 155,

160 & n.3 (4th Cir. 1991) (“A separate hearing on fairness from the perspective of the non-settling

defendant is not required unless the district court chooses to adopt the ‘pro tanto’ method of setoff.”);

Gerber v. MTC Elec. Techs. Co., Ltd., 329 F.3d 297, 306 (2d Cir. 2003) (explaining that no fairness

hearing is required if the judgment reduction is at least as great as the settling defendant’s proportionate

fault). If the judgment reduction calls for a pro rata reduction method (each defendant pays an equal share

of the total liability irrespective of relative fault) or a proportionate fault method (each defendant pays

damages corresponding to its degree of fault), no evidentiary fairness hearing is necessary. See Kovacs,

927 F.2d at 160 & n.3.

No. 12-2434 In re Greektown Holdings Page 13

The Appellants cite Class Five Nevada Claimants for the proposition that

“[i]nvoluntary releases of third party claims against non-debtors . . . are disfavored as

a matter of bankruptcy law” and should be implemented only in “unusual

circumstances.” Appellant Br. at 25. However, they do not explicitly argue that we

should apply the seven-factor analysis when evaluating the bar order at issue here.

Furthermore, this case involves a bar order entered in connection with a settlement

agreement long after the plan of reorganization was confirmed, whereas Class Five

Nevada Claimants involved an injunction incorporated into a plan of reorganization.

Due to this distinction, the seven-factor test we applied in Class Five Nevada Claimants

provides little help in determining whether the bar order here was proper.

Finding no guidance from these three previous decisions, we next consider the

approach taken by the district court below. The district court essentially asked whether

the order would bar any viable claims and then entered the order when it found that it

would not. The Tribe and the Trustee contend that this approach was correct, stating that

“[t]he District Court properly sought to determine whether [the Appellants] had a viable

claim subject to the claims bar order,” Tribe Br. at 23, and “[a]s the sole objecting

parties to the settlement, Appellants had an obligation to credibly show that they had

potentially viable claims against the Tribe Defendants that would be ‘unfairly’ or

‘inequitably’ impacted by the Claims Bar,” Trustee Br. at 24.

But we are not inclined to adopt this approach. The whole purpose of a bar order

is to bar claims. If there are no claims to bar, there is no need for a bar order and none

should be entered. Furthermore, the district court’s approach is unwieldy; it requires a

time-consuming merits evaluation of each potential claim proffered by the party

objecting to the settlement.

Therefore, finding little guidance from our previous decisions and disinclined to

follow the approach taken below, we turn to decisions from other circuits for guidance.

From these cases we discern three issues the district court should have resolved before

deciding to enter the bar order in this case.

No. 12-2434 In re Greektown Holdings Page 14

First, the district court should have initially determined whether it had

jurisdiction to enjoin the potential claims encompassed by the bar order. See Feld v.

Zale Corp. (Matter of Zale Corp.), 62 F.3d 746, 751 (5th Cir. 1995). A district court’s

jurisdiction over bankruptcy cases and proceedings comes from 28 U.S.C. § 1334(b),

which gives the district courts “jurisdiction of all civil proceedings arising under title 11,

or arising in or related to cases under title 11.” The grant of jurisdiction over

proceedings “related to” the bankruptcy case is quite broad. See Celotex Corp. v.

Edwards, 514 U.S. 300, 307-08 (1995).

“‘[T]he test for determining whether a civil proceeding is related to bankruptcy

is whether the outcome of that proceeding could conceivably have any effect on the

estate being administered in bankruptcy.’” Lindsey v. O’Brien, Tanski, Tanzer and

Young Health Care Providers of Conn. (In re Dow Corning Corp.), 86 F.3d 482, 489

(6th Cir. 1996) (quoting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984)). “An

action is related to bankruptcy if the outcome could alter the debtor’s rights, liabilities,

options, or freedom of action (either positively or negatively) and which in any way

impacts upon the handling and administration of the bankrupt estate.” Id. (quotation

omitted). “[T]he mere fact that there may be common issues of fact between a civil

proceeding and a controversy involving the bankruptcy estate does not bring the matter

within the scope of section [1334(b)].” Id. (quotation omitted). “Instead, there must be

some nexus between the ‘related’ civil proceeding and the title 11 case.” Id. (quotation

omitted).

This case presents a slightly different twist from Lindsey because here the dispute

over the bar order occurred after the Chapter 11 plan was confirmed. “At the most literal

level, it is impossible for the bankrupt debtor’s estate to be affected by a post-

confirmation dispute because the debtor’s estate ceases to exist once confirmation has

occurred.” Resorts Int’l Fin., Inc. v. Price Waterhouse & Co., LLP (In re Resorts Int’l,

Inc.), 372 F.3d 154, 165 (3d Cir. 2004). It is possible that a bankruptcy court’s “related

to” jurisdiction diminishes somewhat post-confirmation. Compare id. at 167 (“At the

post-confirmation stage, the claim must affect an integral aspect of the bankruptcy

No. 12-2434 In re Greektown Holdings Page 15

process—there must be a close nexus to the bankruptcy plan or proceeding.”), with

Boston Reg’l Med. Ctr., Inc. v. Reynolds (In re Boston Reg’l Med. Ctr., Inc.), 410 F.3d

100, 106-07 (1st Cir. 2005) (indicating that a bankruptcy court’s jurisdiction does not

diminish post-confirmation in the context of a liquidating plan of reorganization).

The Eleventh Circuit has held that when a defendant in an adversary proceeding

conditions its agreement to a settlement upon the entry of a bar order, the claims

encompassed by the bar order are necessarily “related to” the bankruptcy case. See

Munford v. Munford, Inc. (Matter of Munford, Inc.), 97 F.3d 449, 454 (11th Cir. 1996).

The court reasoned that “[b]ecause the nonsettling defendant’s assertion of their . . .

claims would have an effect on [the] estate being administered in bankruptcy, . . . a

sufficient nexus exists between [the] title 11 adversary proceeding and the nonsettling

defendants’ . . . claims.” Id. The court further reasoned that “it is the ‘nexus’ of [the

claims covered by the bar order] to the settlement agreement” that confers jurisdiction.

Id.

We decline to follow the Eleventh Circuit’s approach. The “related to” inquiry

asks not whether the assertion of the claims would effect the bankruptcy estate but

whether the outcome of the claims would effect the estate. See Lindsey, 86 F.3d at 489.

Furthermore, the “related to” inquiry asks not whether there is a nexus between the other

proceeding and the settlement agreement but whether there is a nexus between the other

proceeding and the bankruptcy case. See id. Additionally, despite the court’s

protestation to the contrary, the Eleventh Circuit’s approach clearly results in “subject

matter jurisdiction by consent.” See Munford, 97 F.3d at 454. It allows the settling

defendant to supply the bankruptcy court with subject matter jurisdiction to enjoin other

claims simply by deciding to condition its agreement to the settlement upon the entry of

an order barring those claims.

A better approach was taken by the Fifth Circuit in Feld v. Zale Corporation

(Matter of Zale Corporation), 62 F.3d 746 (5th Cir. 1995). In Feld, the Fifth Circuit

inquired simply whether the outcome of the actions covered by the bar order would

affect the bankruptcy estate. See id. at 755-59. When it found that the outcome of some

No. 12-2434 In re Greektown Holdings Page 16

of those actions would not affect the bankruptcy estate, the Fifth Circuit held that the

bankruptcy court had no jurisdiction over them. See id. at 755-57. This approach

comports with the “related to” test we followed in Lindsey, and this is the approach the

district court should follow on remand.

Second, the district court should have determined whether it had the power to

enter the order. Other circuits have answered this question differently. Compare

Munford, 97 F.3d at 455 (holding that Bankruptcy Code § 105(a) and Federal Rule of

Civil Procedure 16 give bankruptcy courts the authority to enter a bar order), with Feld,

62 F.3d at 759-62 (holding that Bankruptcy Code § 524 prohibits a bankruptcy court

from permanently enjoining claims against a non-debtor but holding that § 105 gives it

the power to temporarily enjoin such claims in “unusual circumstances”). When

analyzing this issue, the district court may discern some guidance from our previous

holding that Bankruptcy Code § 524 does not prohibit a court from releasing a non-

debtor from liability. See Class Five Nev. Claimants, 280 F.3d at 657.

Third, the district court should have more closely scrutinized the bar order’s

scope. Other circuits have been careful to limit bar orders “to ensure that the only claims

that are extinguished are claims where the injury is the non-settling defendant’s liability

to the plaintiffs” (i.e. claims for contribution or indemnity). Gerber v. MTC Elec. Techs.

Co., Ltd., 329 F.3d 297, 307 (2d Cir. 2003) (Sotomayor, J.); see also Lead Plaintiffs v.

HealthSouth Corp. (In re HealthSouth Corp. Secs. Litig.), 572 F.3d 854, 863 (11th Cir.

2009) (noting that “the cases which have approved bar orders have involved orders that

preclude claims by non-settling defendants against settling defendants where the injury

to the non-settling defendant was its liability to the underlying plaintiffs”); Betker v. U.S.

Trust Corp., N.A. (In re Heritage Bond Litig.), 546 F.3d 667, 678-79 (9th Cir. 2008)

(adopting the Gerber approach for bar orders under the PSLRA).

In other words, “[c]ourts that have allowed bar orders have only barred claims

in which the damages are measured by the defendant’s liability to the plaintiff. Besides

contribution and indemnity claims, these include any claims in which the injury is the

nonsettling defendant’s liability to the plaintiff.” TBG, Inc. v. Bendis, 36 F.3d 916, 928

No. 12-2434 In re Greektown Holdings Page 17

(10th Cir. 1994) (quotation and internal citations omitted). Significantly, “[n]o court has

authorized barring claims with independent damages.” Id. This limitation makes sense

because when the scope of a bar order is limited to claims for contribution or indemnity,

the court can compensate the non-settling defendants for the loss of those claims by

reducing any future judgment against them. See Denney v. Deutsche Bank AG, 443 F.3d

253, 274 (2d Cir. 2006) (“Ordinarily, the potential harshness of a bar order is mitigated

by a judgment credit provision that protects a nonsettling party from paying damages

exceeding its own liability.”). A bar order that enjoins independent claims and provides

no compensation is problematic to say the least.

The bar order here enjoins all claims against the Tribe “arising out of or

reasonably flowing from” both the facts and allegations of the adversary proceeding and

the allegedly fraudulent transfers. Other circuits have found bar orders with similar

language to be overly broad because they have the potential to bar claims for

independent damages. See Betker, 546 F.3d at 680; Gerber, 329 F.3d at 307; TBG, Inc.,

36 F.3d at 929; Cullen v. Riley (In re Masters Mates & Pilots Pension Plan and IRAP

Litig.), 957 F.2d 1020, 1033 (2d Cir. 1992).8 While we could amend the bar order

ourselves to narrow its scope, see Gerber, 329 F.3d at 307 & n.7, we prefer to let the

district court address the order’s scope, in the first instance, as it sees fit.9

8

The Tribe contends that the scope of the bar order is not overly broad because “[t]he claims bar

order is limited to claims against the Tribe ‘arising out of or reasonably flowing from the facts or

allegations or claims’ in the Adversary Proceeding.” Tribe Br. at 24. They rely on a decision from the

Eleventh Circuit stating: “The propriety of the settlement bar order should turn upon the interrelatedness

of the claims that it precludes, not upon the labels which parties attach to those claims.” See Wald v.

Wolfson (In re U.S. Oil and Gas Litig.), 967 F.2d 489, 496 (11th Cir. 1992). However, the Eleventh

Circuit has subsequently explained that this language referred to a disguised indemnity claim and that the

opinion “expressly declined to address the issue of ‘truly independent claims.’” See AAL High Yield Bond

Fund v. Deloitte & Touche LLP, 361 F.3d 1305, 1312 (11th Cir. 2004); see also Betker, 546 F.3d at 678

(noting that the Eleventh Circuit has “explicitly distanced itself from In re U.S. Oil & Gas Litigation by

explaining that its holding in that case had narrow applicability because it had barred the cross-claims at

issue there only because they were disguised contribution and indemnity claims, not truly independent

claims”). The Eleventh Circuit currently follows the approach taken by other Circuits that asks whether

the bar order enjoins claims beyond those for which “the injury to the non-settling defendant was its

liability to the underlying plaintiffs.” See HealthSouth Corp., 572 F.3d at 863. The Tribe’s reliance on

the factual interrelatedness test is misplaced.

9

Since the district court has already determined that the fraudulent transfer action does not

involve potential claims for contribution or indemnity, it might very well determine that a bar order would

be inappropriate in this case.

No. 12-2434 In re Greektown Holdings Page 18

III. CONCLUSION

We AFFIRM the district court’s order denying the Appellants’ motion for

reconsideration. However, we have identified three significant issues that the district

court should have addressed before entering the bar order. We therefore VACATE the

bar order and REMAND the case, instructing the district court to reevaluate the bar

order under the guidance provided in this opinion.