BANKRUPTCY CORNER
Which Factors Apply to Your Bar Order
JASON S . RIGOLI
The 11th Circuit has issued two opinions setting forth differing factors regarding the entry of bar orders , In re Munford , 97 F . 3d 449 ( 11th Cir . 1996 ) and In re Seaside Engineering & Surveying , Inc ., 780 F . 3d 1070 ( 11th Cir . 2015 ). On November 5 , 2021 , the Eleventh Circuit issued a third opinion telling the courts of this circuit when Munford or Seaside is to be applied . Markland v . David ( In re Centro Group , LLC ), Case No . 21-11364 , 2021 U . S . App . LEXIS 32962 , 2021 WL 5158001 ( 11th Cir . Nov . 5 , 2021 ) (“ Centro ”). In Centro , the Eleventh Circuit clarified that courts are to apply Munford factors in the connection with the settlement of litigation , while the Seaside factors are applied when a bar order is integral to a plan of reorganization . 2021 U . S . App . LEXIS 32962 at * 8-9 .
The Munford Factors
Munford applies “ where such orders are integral to settlement in an adversary proceeding ." 97 F . 3d at 455 . The factors to determine whether a bar order is fair and equitable under Munford are : ( 1 ) " the interrelatedness of the claims that the bar order precludes "; ( 2 ) " the likelihood of the non-settling defendants to prevail on the barred claim "; ( 3 ) " the complexity of the litigation "; and ( 4 ) " and the likelihood of depletion of the resources of the settling defendants ." Id .
The Seaside Factors
Seaside applies where “ a bar order was an integral part of a reorganization plan ,” and “ deemed necessary for the reorganized entity to succeed .” Centro , at * 6 and * 7-8 ( citing Seaside , 780 F . 3d at 1077 ). The factors considered when reviewing a bar order as part of a plan of reorganization include :
reorganization ; ( 3 ) The injunction is essential to reorganization , namely , the reorganization hinges on the debtor being free from indirect suits against parties who would have indemnity or contribution claims against the debtor ; ( 4 ) The impacted class , or classes , has overwhelmingly voted to accept the plan ; ( 5 ) The plan provides a mechanism to pay for all , or substantially all , of the class or classes affected by the injunction ; ( 6 ) The plan provides an opportunity for those claimants who choose not to settle to recover in full and ; ( 7 ) The bankruptcy court made a record of specific factual findings that support its conclusions .
Seaside , 790 F . 3d at 1079 ( quoting In re Dow Corning Corp ., 280 F . 3d 648 , 658 ( 6th Cir . 2002 )).
Questions that Remain for Entry of Bar Orders
For me , some questions that remain are how far the applications of both Munford and Seaside reach . Is Munford limited to settlements of adversary proceedings or does it apply to any contested matter in a bankruptcy case ? Do the Seaside factors apply to plans of liquidation ? In this scenario , there is no estate to be depleted or reorganized debtor that could be affected by the “ indirect ” litigation against the thirdparty entities , however , a bar order may be integral to confirmation of the liquidating plan .
This article was submitted by Jason S . Rigoli , Furr and Cohen , P . A ., 2255 Glades Road , Suite 419A , Boca Raton , FL 33431 , jrigoli @ furrcohen . com
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( 1 ) There is an identity of interests between the debtor and the third party , usually an indemnity relationship , such that a suit against the nondebtor is , in essence , a suit against the debtor or will deplete the assets of the estate ; ( 2 ) The non-debtor has contributed substantial assets to the
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