Contributions

Discharging the Debt of a Third-Party Non-Debtor is Within the Authority of the Bankruptcy Courts

By Chelsea Ire­land1

Every­body los­es in bank­rupt­cy, but the pur­pose of the Bank­rupt­cy Code is to appor­tion that loss fair­ly and sys­tem­at­i­cal­ly.2 Fil­ing for bank­rupt­cy is a course of action avail­able to an enti­ty that is insol­vent, mean­ing that the entity’s lia­bil­i­ties (debts) out­weigh its assets. By way of exam­ple, sup­pose that the insol­vent Debtor Com­pa­ny, a man­u­fac­tur­er of blenders, has $100 in assets. If Debtor Co. owes $50 each to Cred­i­tors A, B, and C, it is not pos­si­ble for all three cred­i­tors to be paid in full. The Cred­i­tors are now in com­pe­ti­tion with each oth­er over the lim­it­ed pot of assets. Rather than a sys­tem of ‘first come, first served,’ the Code lays out the rules for how much, and in what order, dif­fer­ent types of cred­i­tors are to be paid.3

The most basic type of cor­po­rate bank­rupt­cy is liq­ui­da­tion under Chap­ter 7 of the Code, and it calls for an appoint­ed “trustee” to take con­trol of and sell off the debtor’s assets.4 The trustee is then entrust­ed to dis­trib­ute pro­ceeds from the sale of those assets to the cred­i­tors.5 The pur­pose of a liq­ui­da­tion is “to dis­trib­ute any assets equi­tably among exist­ing cred­i­tors before lay­ing the defunct cor­po­ra­tion to rest.”6 A cor­po­ra­tion that does not want to be “laid to rest” may instead opt for a reor­ga­ni­za­tion under Chap­ter 11 of the Code.7 Rather than for­feit its assets to a trustee to be sold off, the debtor cor­po­ra­tion acts as its own trustee, becom­ing a “debtor in pos­ses­sion.”8 A debtor in pos­ses­sion main­tains con­trol of its assets, sub­ject to the author­i­ty of the bank­rupt­cy court.9 The debtor in pos­ses­sion will nego­ti­ate with cred­i­tors and third-par­ties in order to reor­ga­nize itself in such a way that it can emerge as a “prof­itable and pro­duc­tive mem­ber of its eco­nom­ic com­mu­ni­ty.”10 The idea behind a Chap­ter 11 reor­ga­ni­za­tion is that the debtor and cred­i­tors may be bet­ter served if cred­i­tors post­poned demands for pay­ment, and instead gave the debtor cor­po­ra­tion the oppor­tu­ni­ty to increase its val­ue by merg­er, acqui­si­tion, restruc­tur­ing of con­tracts, or through oth­er meth­ods of finan­cial restruc­tur­ing.11

Dur­ing Chap­ter 11 reor­ga­ni­za­tion, the debtor in pos­ses­sion con­tin­ues to oper­ate the busi­ness, while a com­mit­tee of cred­i­tors may begin to for­mu­late a reor­ga­ni­za­tion plan to restore the enti­ty to finan­cial health.12 If there is an oppor­tu­ni­ty for a merg­er with or acqui­si­tion by some third-par­ty enti­ty, the reor­ga­ni­za­tion plan will pro­vide for that merg­er and lay out how the dif­fer­ent class­es of cred­i­tors will be treat­ed as a result of the merg­er.13 The terms of the merg­er, includ­ed in the reor­ga­ni­za­tion plan, must ulti­mate­ly be con­firmed by the bank­rupt­cy court.14 If the plan is con­firmed, the merg­er is exe­cut­ed, along with all the pro­vi­sions laid out in the plan.15

A bank­rupt­cy court has broad (but not unlim­it­ed) dis­cre­tion to con­firm a wide range of reor­ga­ni­za­tion plans which affect the rela­tion­ship between the debtor and its cred­i­tors. Sup­pose that Debtor Co. files for Chap­ter 11 bank­rupt­cy after a design flaw in the blenders’ blades caus­es a num­ber of seri­ous injuries and sub­jects Debtor Co. to a prod­ucts lia­bil­i­ty class action. Debtor Co. then man­ages to con­vince Acquir­ing Com­pa­ny to acquire Debtor Co. Acquir­ing Co. man­u­fac­tures some of the parts that Debtor Co. used in its blenders, and it is unclear whether Acquir­ing Co. has any lia­bil­i­ty to the injured par­ties. To lim­it its own poten­tial lia­bil­i­ty, Acquir­ing Co. insists that in the reor­ga­ni­za­tion plan, there must be a term which per­ma­nent­ly enjoins all vic­tims of Debtor Co.’s mal­func­tion blender from seek­ing relief from Acquir­ing Co. Even if the major­i­ty of the blender vic­tims vote to approve the reor­ga­ni­za­tion plan, there is some debate as to whether a bank­rupt­cy court has the author­i­ty to approve it.

The Code con­fers upon bank­rupt­cy courts the “broad author­i­ty to mod­i­fy cred­i­tor-debtor rela­tion­ships,”16 but by con­firm­ing Debtor Co.’s reor­ga­ni­za­tion plan, the bank­rupt­cy court will have essen­tial­ly dis­charged the lia­bil­i­ty of the third-par­ty Acquir­ing Co., which is nei­ther a cred­i­tor nor a debtor. Addi­tion­al­ly, there are due process con­cerns relat­ing to blender vic­tims who vot­ed against the reor­ga­ni­za­tion plan: in gen­er­al, class­es of cred­i­tors vote on whether or not to accept a cer­tain reor­ga­ni­za­tion plan, and a major­i­ty of cred­i­tors in a class have the pow­er to bind a minor­i­ty.18 But when a reor­ga­ni­za­tion plan includes the dis­charge of a third-party’s lia­bil­i­ty, and a major­i­ty of a cred­i­tor class votes in favor, the minor­i­ty has effec­tive­ly been stripped of their claims against their con­sent.

While reor­ga­ni­za­tion plans com­mon­ly lim­it an acquir­ing company’s lia­bil­i­ty to the debtor’s cred­i­tors, a num­ber of cir­cuit courts of appeals have con­firmed reor­ga­ni­za­tion plans that dis­charge an acquirer’s lia­bil­i­ty to a class of cred­i­tors, even where that lia­bil­i­ty is unre­lat­ed to the debtor’s bank­rupt­cy. The Sec­ond, Third, Fourth, Sixth, Sev­enth, and Eleventh Cir­cuits have all allowed bank­rupt­cy courts to con­firm a third-par­ty dis­charge, though some of the dis­charges have been con­tro­ver­sial. For exam­ple, in a recent Eleventh Cir­cuit case, the court con­firmed a reor­ga­ni­za­tion plan that con­tained a pro­vi­sion that insu­lat­ed from lia­bil­i­ty the four indi­vid­u­als respon­si­ble for dri­ving the com­pa­ny into bank­rupt­cy.21 The Fifth, Ninth, and Tenth Cir­cuits have opined that the bank­rupt­cy court has no author­i­ty to dis­charge of the lia­bil­i­ty of a third-par­ty non-debtor.22 The Fifth Cir­cuit specif­i­cal­ly has reject­ed the bank­rupt­cy court’s author­i­ty to con­firm a third-par­ty dis­charge because such would result in con­se­quences nev­er intend­ed by the leg­is­la­ture.23

This Con­tri­bu­tion will argue that the dis­cre­tion to dis­charge the lia­bil­i­ty of a third-par­ty non-debtor is with­in the author­i­ty bank­rupt­cy courts. The Bank­rupt­cy Code is explic­it about the breadth of dis­cre­tion grant­ed to the bank­rupt­cy courts.24 That breadth is indica­tive of Congress’s con­fi­dence that the bank­rupt­cy courts are in the best posi­tion to deter­mine whether any spe­cif­ic course of action, includ­ing the dis­charge of a third-par­ty debt, is nec­es­sary or appro­pri­ate for any par­tic­u­lar reor­ga­ni­za­tion plan.

* * * * *

The Bank­rupt­cy Code does not pro­hib­it the bank­rupt­cy courts from dis­charg­ing the debt of a third-par­ty, and there­fore it is with­in the author­i­ty of the courts to do so. The broad dis­cre­tion of the bank­rupt­cy courts is laid out in § 105 of the Code, which allows a bank­rupt­cy court to “issue any order, process, or judg­ment” that is “nec­es­sary or appro­pri­ate to car­ry out the pro­vi­sions of [the Code].”25 This dis­cre­tion is not unlim­it­ed, and a court has no author­i­ty to con­firm a reor­ga­ni­za­tion plan that is “incon­sis­tent with the applic­a­ble pro­vi­sions” of the Code. 26 There­fore, if not oth­er­wise for­bid­den by the Code, a court may dis­charge the lia­bil­i­ty of a third-par­ty if doing so is “nec­es­sary or appro­pri­ate” in that instance.

Because the bank­rupt­cy courts are capa­ble of con­firm­ing any reor­ga­ni­za­tion plan that is not incon­sis­tent with the Code, objec­tions to the use of the third-par­ty dis­charge have been ground­ed main­ly in over­ly lit­er­al read­ings of the Code itself. The Ninth and Tenth Cir­cuits cite § 524(e) of the Code as the pro­vi­sion which for­bids the third-par­ty dis­charge.27 Sec­tion 524(e) states that the “dis­charge of a debt of the debtor does not affect the lia­bil­i­ty of any oth­er enti­ty on, or the prop­er­ty of any oth­er enti­ty for, such debt.”28 In the Ninth Cir­cuit case of In re Lowen­schuss, the court read the lan­guage of 524(e) to explic­it­ly pre­clude bank­rupt­cy courts from dis­charg­ing third-par­ty debts.29 In con­trast, in In re Air­a­digm Com­mu­ni­ca­tions., Inc., the Sev­enth Cir­cuit held that, rather than a lim­it on dis­cre­tion, § 524(e) is more nat­u­ral­ly read as a “sav­ings clause” which “pre­serves rights that might oth­er­wise be con­strued as lost.”30

Sec­tion 524(e) is more nat­u­ral­ly read to mean that the “dis­charge of a debt of the debtor does not affect the lia­bil­i­ty of any oth­er enti­ty” unless oth­er­wise pro­vid­ed for. Giv­en that Con­gress chose the phrase “does not”, rather than “may not” or “must not”, it would be strange to read § 524(e) as a restric­tion on the bank­rupt­cy court’s author­i­ty.31 Addi­tion­al­ly, where Con­gress has intend­ed to lim­it the author­i­ty of the bank­rupt­cy court, it has done so explic­it­ly.32 For exam­ple, in § 1129, the Code states that a bank­rupt­cy court “may not con­firm a plan if the prin­ci­pal pur­pose of the plan is the avoid­ance of tax­es.”33 Sec­tion 524(e) is not so explic­it, and there­fore can­not be read as a lim­it on the court’s author­i­ty. The Sec­ond, Third, Fourth, Sixth, and Eleventh Cir­cuits have all agreed with or fol­lowed the Sev­enth Cir­cuit, hold­ing that the use of a third-par­ty dis­charge is not pre­clud­ed by the Code.34

Addi­tion­al­ly, the Ninth Cir­cuit has read § 524(e) of the Code to pro­hib­it the use of the third-par­ty dis­charge based on the the­o­ry that, because the Code specif­i­cal­ly pro­vides for the use of a third-par­ty dis­charge in asbestos cas­es, Con­gress intend­ed asbestos cas­es to pro­vide the only cir­cum­stances where such a dis­charge can be used.35 Sec­tion 524(g) of the Code lays out a step-by-step process for the admin­is­tra­tion of asbestos cas­es, pro­vides that the court may per­ma­nent­ly enjoin plain­tiffs from fil­ing claims against that defen­dant debtor or a third-par­ty.36 Asbestos lit­i­ga­tion imposed an unpar­al­leled bur­den upon the courts, and § 524(g) lays out the step-by-step process for the over­sight of bank­rupt­cy admin­is­tra­tion was nec­es­sary in order to effi­cient­ly wade through the ocean of asbestos-relat­ed claims.37 The speci­fici­ty of the require­ments laid out in § 524(g) are indica­tive of the need for a clear and spe­cif­ic process for orga­niz­ing and over­see­ing asbestos cas­es, rather than of Congress’s inten­tion to dras­ti­cal­ly nar­row the cir­cum­stances under which a third-par­ty dis­charge could be used.38 The inclu­sion of a third-par­ty dis­charge as an avail­able option under § 524(g) was there­fore not meant to impose any addi­tion­al restric­tions on the bank­rupt­cy courts out­side of § 524(g).

While the Ninth Cir­cuit focus­es intent­ly on spe­cif­ic statu­to­ry text, the Fifth Cir­cuit looks to the broad­er pur­pos­es of the Code. The Fifth Cir­cuit also “broad­ly [] foreclose[s] [the con­fir­ma­tion of] non-con­sen­su­al non-debtor releas­es and per­ma­nent injunc­tions,” but it sup­ports this con­clu­sion on the idea that equi­ty and the bur­den-ben­e­fit trade-off inher­ent in the bank­rupt­cy process as defined by the code.39 The Fifth Cir­cuit, in In re Pacif­ic Lum­ber Co., opined that there was “lit­tle equi­table about pro­tect­ing the released non-debtors.”40 The Fifth Cir­cuit has stressed the “pol­i­cy that bank­rupt­cy should ben­e­fit only the debtor,”41 and the Tenth Cir­cuit has sim­i­lar­ly sug­gest­ed that a per­ma­nent injunc­tion of a claim against a third-par­ty affords that par­ty the ben­e­fits of the bank­rupt­cy process with­out requir­ing that par­ty to sub­mit itself to the bur­dens of the bank­rupt­cy process.42 This con­cern is derived from the pos­si­bil­i­ty that enti­ties might “push the fail­ing enter­prise into bank­rupt­cy not for the debtor’s sake, but for [its] own inter­ests,”43 which could turn bank­rupt­cies into a com­mod­i­ty as a poten­tial extin­guish­er of extrin­sic lia­bil­i­ty.44

The pol­i­cy con­cerns assert­ed by the Fifth and Tenth Cir­cuits dras­ti­cal­ly under­es­ti­mate the apti­tude of the bank­rupt­cy courts to exer­cise dis­cre­tion in the inclu­sion of a third-par­ty dis­charge in a reor­ga­ni­za­tion plan. The Code restricts the bank­rupt­cy court’s dis­cre­tion to those cours­es of action which are “nec­es­sary or appro­pri­ate” in any giv­en cir­cum­stance, and so bank­rupt­cy courts are already required by the Code to eval­u­ate whether a third-par­ty dis­charge meets this cri­te­ria.45 Sev­er­al cir­cuits have explic­it­ly deter­mined that such a dis­charge is unac­cept­able where the lia­bil­i­ty to be dis­charged arose as a result of “will­ful mis­con­duct.”46 Addi­tion­al­ly, the Sixth Cir­cuit has devel­oped a mul­ti-fac­tor test for deter­min­ing whether a third-par­ty dis­charge is appro­pri­ate, and this test (or some ver­sion of it) has been adopt­ed by sev­er­al cir­cuits.47 Courts are already comb­ing through the facts in each rel­e­vant case to deter­mine whether the use of a third-par­ty dis­charge is appro­pri­ate and are com­plete­ly capa­ble of ascer­tain­ing whether some third-par­ty is attempt­ing to take advan­tage of the bank­rupt­cy process. For exam­ple, should a bank­rupt­cy court find that some third-par­ty is exploit­ing the bank­rupt­cy process sole­ly to insu­late itself from lia­bil­i­ty, the court may refuse to allow the dis­charge and point to prece­den­tial lan­guage in the Code as jus­ti­fi­ca­tion.48 The Code already pro­hibits the con­fir­ma­tion of reor­ga­ni­za­tion plans that have the prin­ci­pal pur­pose of avoid­ing tax lia­bil­i­ty, and so courts may be jus­ti­fied in find­ing that Con­gress nev­er intend­ed to allow sophis­ti­cat­ed par­ties to employ games­man­ship to use the bank­rupt­cy process sole­ly as a lia­bil­i­ty shield.

There­fore, because the Code does not pro­hib­it the use of a third-par­ty dis­charge, and because the bank­rupt­cy courts are qual­i­fied to exer­cise dis­cre­tion con­cern­ing whether a dis­charge would be nec­es­sary or appro­pri­ate in any giv­en sit­u­a­tion, third-par­ty dis­charges should be per­mit­ted.

Notes:

1. Chelsea Ire­land is a 3L at New York Uni­ver­si­ty School of Law. This piece is a com­men­tary on the 2017 Prob­lem at the Duber­stein Moot Court Com­pe­ti­tion held in Queens, New York at St. John’s Uni­ver­si­ty School of Law. There were two issues pre­sent­ed in the Duber­stein Prob­lem. This piece is restrict­ed to the issue con­cern­ing whether bank­rupt­cy courts have the author­i­ty to dis­charge the lia­bil­i­ty of a non-debtor to a non-con­sent­ing cred­i­tor. The views expressed in this arti­cle do not nec­es­sar­i­ly rep­re­sent the views of the author on this point of law. Rather, this arti­cle is a dis­til­la­tion of one side of an argu­ment assigned to the team that the author rep­re­sent­ed in the com­pe­ti­tion.
2. See Mid­lan­tic Nat’l Bank v. N.J. Dept. of Envtl. Prot., 474 U.S. 494, 508 (1986) (“the over­rid­ing pur­pose of bank­rupt­cy liq­ui­da­tion [is] the expe­di­tious reduc­tion of the debtor’s prop­er­ty to mon­ey, for equi­table dis­tri­b­u­tion to cred­i­tors”).
3. See gen­er­al­ly 11 U.S.C. §§ 701–84.
4. See 11 U.S.C. §§ 701–84; Col­lier on Bank­rupt­cy ¶ 1.07(1) (Alan N. Resnick & Hen­ry J. Som­mer eds., 16th ed.).
5. See 11 U.S.C. §§ 701–84; Col­lier on Bank­rupt­cy ¶ 1.07(1) (Alan N. Resnick & Hen­ry J. Som­mer eds., 16th ed.).
6. In re Blan­ton, 105 B.R. 811, 824 (Bankr. W.D. Tex. 1989).
7. See 11 U.S.C. §§ 1101–74.
8. See 11 U.S.C. § 1101(1).
9. See Col­lier on Bank­rupt­cy ¶ 1.07(3) (Alan N. Resnick & Hen­ry J. Som­mer eds., 16th ed.).
10. Id.
11. See Michael A. Ger­ber & George W. Kuney, Busi­ness Reor­ga­ni­za­tions 6–7 (3d ed. 2013) (“[T]he risk of loss to all par­ties is reduced when a sal­vage­able busi­ness is res­cued rather than liq­ui­dat­ed and sold piece­meal.”).
12. See 11 U.S.C. § 1103©.
13. 11 U.S.C. § 1123(a)(5)©.
14. See gen­er­al­ly 11 U.S.C. § 1129.
15. Id.
16. Unit­ed States v. Ener­gy Res. Co., 495 U.S. 545, 549 (1990) (not­ing the tra­di­tion­al role of bank­rupt­cy courts as courts of equi­ty).
17. See 11 U.S.C. § 1129(a)(8).
18. See 11 U.S.C. § 1126© (“A class of claims has accept­ed a plan if such plan has been accept­ed by cred­i­tors, …that hold at least two-thirds in amount and more than one-half in num­ber of the allowed claims of such class held by creditors…that have accept­ed or reject­ed such plan.”).
19. See 11 U.S.C. § 363(f).
20. See In re Metro­me­dia Fiber Net­work, Inc., 416 F.3d 136, 142 (2d Cir. 2005) (“The Bank­rupt­cy Code does not explic­it­ly pro­hib­it or autho­rize a bank­rupt­cy court to enjoin a non-con­sent­ing creditor’s claims against a non-debtor.” (quot­ing In re Dow Corn­ing Corp., 280 F.3d 648, 656 (6th Cir. 2002)); In re Con­ti­nen­tal Air­lines, 203 F.3d 203, 213–14 (3d Cir. 2000) (declin­ing to adopt a rule pro­hibit­ing the use of third-par­ty dis­charges); In re A.H. Robins Co., 880 F.2d 694, 702 (4th Cir. 1989) (opin­ing that § 524(e) does not have to be “lit­er­al­ly applied in every case as a pro­hi­bi­tion on the pow­er of the bank­rupt­cy courts.”); In re Dow Corn­ing Corp., 280 F.3d at  656  (“The Bank­rupt­cy Code does not explic­it­ly pro­hib­it or autho­rize a bank­rupt­cy court to enjoin a non-con­sent­ing creditor’s claims against a non-debtor.”); In re Air­a­digm Commc’ns, Inc., 519 F.3d 640, 656 (7th Cir. 2008) (“The nat­ur­al read­ing of [11 U.S.C. § 524(e)] does not fore­close a third-par­ty release from a creditor’s claims.”); In re Sea­side Eng’g & Sur­vey­ing, 780 F.3d. 1070, 1078 (11th Cir. 2015) (adopt­ing the read­ing of the Sev­enth Cir­cuit).
21. See In re Sea­side Eng’g & Sur­vey­ing, 780 F.3d at 1075–81. In Sea­side, a close­ly held civ­il engi­neer­ing firm, Sea­side, filed for Chap­ter 11 bank­rupt­cy. The firm pro­posed to reor­ga­nize and con­tin­ue oper­at­ing as a new enti­ty, Gulf, which would be man­aged by four of the five orig­i­nal share­hold­ers of Sea­side. The bank­rupt­cy court, and lat­er the Eleventh Cir­cuit, con­firmed a reor­ga­ni­za­tion plan that includ­ed a pro­vi­sion effec­tive­ly insu­lat­ing the man­agers from any lia­bil­i­ty aris­ing out of the reor­ga­ni­za­tion process.
22. See In re Zale Corp., 62 F.3d 746, 757 n.28 (5th Cir. 1995); In re Lowen­schuss, 67 F.3d 1394, 1401 (9th Cir. 1995) (“[Sec­tion] 524(e) pre­cludes bank­rupt­cy courts from dis­charg­ing the lia­bil­i­ties of non-debtors.”); In re W. Real Estate Fund, 922 F.2d 592, 600 (10th Cir. 1990) (inter­pret­ing § 524(e) to mean that “it is the debtor, who has invoked and sub­mit­ted to the bank­rupt­cy process, that is enti­tled to its pro­tec­tions” and that “Con­gress did not intend to extend such ben­e­fits to third-par­ty bystanders.”).
23. See In re Zale Corp., 62 F.3d at 757 n.28 (explain­ing that such author­i­ty would incen­tivize cred­i­tors to push debtors into bank­rupt­cy for cred­i­tors’ own sake).
24. See 11 U.S.C. § 105(a). The Bank­rupt­cy Code, in lay­ing out the pow­ers of the court dur­ing bank­rupt­cy pro­ceed­ings, allows a court to issue “any order, process, or judg­ment that is nec­es­sary or appro­pri­ate to car­ry­ing out” the bank­rupt­cy pro­ceed­ings.
25. Id.
26. 11 U.S.C. § 1123(b)(6).
27. See In re Lowen­schuss, 67 F.3d at 1401 (“Sec­tion 524(e) pre­cludes bank­rupt­cy courts from dis­charg­ing the lia­bil­i­ties of non-debtors.”); In re W. Real Estate Fund, 922 F.2d at 600 (inter­pret­ing § 524(e) to mean that “it is the debtor, who has invoked and sub­mit­ted to the bank­rupt­cy process, that is enti­tled to its pro­tec­tions” and that “Con­gress did not intend to extend such ben­e­fits to third-par­ty bystanders.”).
28. 11 U.S.C. § 524(e). A num­ber of cir­cuit courts refer to the third par­ty dis­charge as a “non-debtor release.” See, e.g., In re Metro­me­dia Fiber Net­work, Inc., 416 F.3d 136, 142 (2d Cir. 2005); In re Sea­side Eng’g & Sur­vey­ing, 780 F.3d 1070, 1077 (11th Cir. 2015). Call­ing the dis­charge a release dis­tances this activ­i­ty from the lan­guage of 11 U.S.C. § 524(e), which refers specif­i­cal­ly to a dis­charge, not a release. Such clas­si­fi­ca­tion is an unper­sua­sive mis­nomer.. A release indi­cates con­sent by the cred­i­tor, see, e.g., Release, Black’s Law Dic­tio­nary (10th ed. 2014) (“The relin­quish­ment or con­ces­sion of a right, title, or claim.”), where­as the third-par­ty dis­charge is con­tro­ver­sial because it is invol­un­tary.
29. See In re Lowen­schuss, 67 F.3d at 1401 (“Sec­tion 524(e) pre­cludes bank­rupt­cy courts from dis­charg­ing the lia­bil­i­ties of non-debtors.”).
30. 519 F.3d 640, 656 (7th Cir. 2008).
31. See id. (“The nat­ur­al read­ing of this pro­vi­sion does not fore­close a third-par­ty release from a creditor’s claims.”).
32. See, e.g., 11 U.S.C. § 1112(b)(2) (“The court may not con­vert a case under this chap­ter to a case under chap­ter 7” if cer­tain cri­te­ria are met.); 11 U.S.C. § 1172(b) (If … trans­fer of … any of the debtor’s rail lines by an enti­ty oth­er than the debtor … would require approval by the Board … , then a plan may not pro­pose such a trans­fer [unless cer­tain con­di­tions are met].”); 11 U.S.C. § 1116(3) (impos­ing express lim­its on the court’s abil­i­ty to grant exten­sions in cer­tain cir­cum­stances by stat­ing that the court “shall not extend such time peri­od to a date lat­er than 30 days after the date of the order of relief.”).
33. 11 U.S.C. § 1129(d).
34. See In re Metro­me­dia Fiber Net­work, Inc., 416 F.3d 136, 142 (2d Cir. 2005) (“The Bank­rupt­cy Code does not explic­it­ly pro­hib­it or autho­rize a bank­rupt­cy court to enjoin a non-con­sent­ing creditor’s claims against a non­debtor.”) (cit­ing In re Dow Corn­ing Corp., 280 F.3d 648, 656 (6th Cir. 2002)); In re Con­ti­nen­tal Air­lines, 203 F.3d 203, 211 & n.6 (3d Cir. 2000) (declin­ing to adopt a rule pro­hibit­ing the use of third-par­ty dis­charges); In re A.H. Robins Co., 880 F.2d 694, 702 (4th Cir. 1989) (opin­ing that § 524(e) does not have to be “lit­er­al­ly applied in every case as a pro­hi­bi­tion on the pow­er of the bank­rupt­cy courts.”); In re Sea­side Eng’g & Sur­vey­ing, 780 F.3d. 1070, 1078 (11th Cir. 2015) (adopt­ing the read­ing of the Sev­enth Cir­cuit).
35. See In re Lowen­schuss, 67 F.3d 1394, 1402 n.6 (9th Cir. 1995) (assert­ing that a third-par­ty dis­charge was “specif­i­cal­ly designed to apply in asbestos cas­es only.”).
36. See 11 U.S.C. § 524(g)(4)(A).
37. See 140 Cong. Rec. H10,752 (dai­ly ed. Oct. 4, 1994) (“The pro­ce­dure is mod­eled on the trust/injunction in the Johns-Manville case, which pio­neered the approach a decade ago in response to the flood of asbestos law­suits, it was fac­ing.”); Andrew W. Caine & Thom­sen Young, Need Post-Con­fir­ma­tion Injunc­tive Relief? Get Some Class, 14 Am. Bankr. Inst. J. 30, 31 (Nov. 1995) (explain­ing § 524(g) cod­i­fied the trust-injunc­tion approach from MacArthur v. Johns Manville Corp., 837 F.2d 89 (2d Cir. 1988)).
38. Sec­tion 524(g) neces­si­tates that a num­ber of require­ments be met before an asbestos defen­dant can take advan­tage of the ben­e­fits of § 524(g). Some of these require­ments include the estab­lish­ment of a trust that assumes the lia­bil­i­ty of the debtor and is fund­ed by the debtor, that the debtor is like­ly to be sub­ject to sub­stan­tial future lit­i­ga­tion, and that the actu­al amounts and tim­ing of future claims can­not be deter­mined. 11 U.S.C. § 524(g)(1)(B).
39. See In re Pacif­ic Lum­ber Co., 584 F.3d 229, 252 (5th Cir. 2009).
40. Id.
41. In re Zale Corp., 62 F.3d 746, 757 n.28 (5th Cir. 1995).
42. See In re W. Real Estate Fund, 922 F.2d 592, 600 (10th Cir. 1990) (“the debtor, who has invoked and sub­mit­ted to the bank­rupt­cy process … is enti­tled to its pro­tec­tions; Con­gress did not intend to extend such ben­e­fits to third-par­ty bystanders.”).
43. In re Zale Corp., 62 F.3d at 757 n.28.
44. See id. (cit­ing Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159, 163 (7th Cir.1994)).
45. See 11 U.S.C. § 105(a).
46 See e.g., In re Air­a­digm Commc’ns., Inc., 519 F.3d 640, 657 (7th Cir. 2008); In re Sea­side Eng’g & Sur­vey­ing, 780 F.3d 1070, 1081 (11th Cir. 2015).
47. See gen­er­al­ly Nat’l Her­itage Found., Inc. v. High­bourne Found., 760 F.3d 344, 347 (4th Cir. 2014); In re Sea­side Eng’g & Sur­vey­ing, 780 F.3d at 1079.
48. See 11 U.S.C. § 1129(b)(1) (explain­ing that a court “shall con­firm the plan … if the plan does not dis­crim­i­nate unfair­ly, and is fair and equi­table, with respect to each class of claims or inter­ests that is impaired under, and has not accept­ed, the plan.”).
49. See 11 U.S.C. 1129(d).