(7) specific findings to support the bankruptcy court’s conclusions. Class Five Nev. Claimants v. Dow Corning Corp. (In re Dow Corning Corp.), 280 F.3d 648, 658 (6th Cir. 2002). Addressing the Section 524(e) and Section 105(a) interface, the Sixth Circuit finds that interpreting Section 105(a) as not being limited by Section 524(e) reinforces the Bankruptcy Code’s allowing bankruptcy courts “considerable discretion to approve plans of reorganization.” Id. at 657.
The Fourth Circuit in Behrmann v. Nat'l Heritage Found., Inc., 663 F.3d 704 (4th Cir. 2011), a case involving a non-profit public charity that administered funds from more than 9,000 donors, held that “nondebtor releases are appropriate only in very limited circumstances” and remanded the case to the bankruptcy court because its “ultimate decision to grant equitable relief lacks adequate factual support.” Id. at 711-712. Such factual support required “specific factual findings explaining why” the third party releases were essential and otherwise met the stringent requirements articulated in Dow Corning. Id. at 713.
In Airadigm, the Seventh Circuit interprets Section 524(e) not as a limitation on the equitable powers of the bankruptcy court granted under Section 101(a), but as a “saving clause” meant so that it “preserves rights that might otherwise be construed as lost after the reorganization.” Airadigm Communs., Inc. v. FCC (In re Airadigm Communs., Inc.), 519 F.3d 640, 656 (7th Cir. 2008). Finding the release of the plan financer to be very narrow and the financer’s involvement essential for the reorganization, the Seventh Circuit affirmed the third-party release.
Finally, the Second Circuit in Metromedia defended the granting of third party releases when, along with a finding that the third party was “important to the Plan,” there has been “substantial consideration” given. Deutsche Bank AG, London Branch v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136, 142 (2d Cir. 2005). Finding the the bankruptcy court’s findings to be “insufficient“ to support the granting of third party releases, including that a substantial contribution alone cannot justify third-party releases, the Second Circuit noted that third party releases cannot be granted without finding “truly unusual circumstances.” Id. at 143. In this case, despite the standard for third party releases not having been met, the circuit court nonetheless upheld plan confirmation based on equitable mootness.
The cases following American Hardwoods are based on a different statutory interpretation, but are also not “unusual.” The Tenth Circuit in In re W. Real Estate Fund, 922 F.2d 592 (10th Cir. 1990), held that “while a temporary injunction . . . may be warranted during the pendency of this bankruptcy proceeding” to facilitate a reorganization, id. at 601, “the stay may not be extended post-confirmation in the form of a permanent injunction that effectively relieves the non-debtor from its own liability to the creditor.” Id. at 601-602. The debt at issue involved fees that could be collected from a third party in state court. Noting that while Section 524(a) “affords broad benefits to the debtor,” section 524(e) does not extend those benefits to third parties because “Congress did not intend to extend such benefits to third party bystanders.” Id. at 600.
In Lowenschuss, the addition of Section 524(g) providing for injunctions in asbestos cases under specific circumstances was discussed in the context of the statutory interface between Section 105(a) and 524(e). The Ninth Circuit, in affirming its decision in American Hardwoods, explained:
The numerous requirements of section 524(g) make it clear that this subsection constitutes a narrow rule specifically designed to apply in asbestos cases only, where there is a trust mechanism and the debtor can prove, among other things, that it is likely to be subject to future asbestos claims. . . . That Congress provided explicit authority to bankruptcy courts to issue injunctions in favor of the third parties in an extremely limited class of cases reimburses the conclusion that section 524(e) denies such authority in other, non-asbestos, cases.
Resorts Int'l v. Lowenschuss (in Re Lowenschuss), 67 F.3d 1394, 1402 n.6 (9th Cir. 1995).
15