In re Lear: Litigants Enjoined from Pursuing Pre-Plan Effective Date Antitrust Claims

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On February 10, 2012, Judge Allan L. Gropper of the U.S. Bankruptcy Court for the Southern District of New York held that certain plaintiffs alleging antitrust violations against Lear Corporation and its reorganized debtor affiliates (i) hold “claims” that are enjoined to the extent they arose before the effective date of the reorganized debtors’ plan, (ii) are entitled to pursue their alleged post-effective date claims against the reorganized debtors, and (iii) are not precluded from seeking permission to file late proofs of claims and to have those claims afforded class status.  In re Lear Corp., No. 09-14326 (ALG), 2012 WL 443951 (Bankr. S.D.N.Y. Feb. 10, 2012).  In addition to reaffirming the legal limits of a discharge under a confirmed plan of reorganization, this decision recognizes the (likely remote) possibility that class claims may proceed in the bankruptcy context.

Background

A purported representative of certain antitrust plaintiffs commenced a class action lawsuit against the reorganized debtors on October 5, 2011, nearly two years after the effective date of the reorganized debtors’ plan (November 9, 2009), alleging that the reorganized debtors had participated in a price-fixing conspiracy since January 1, 2000.  This class action was one of forty-four similar antitrust lawsuits that were transferred to the U.S. District Court for the Eastern District of Michigan by the Judicial Panel on Multidistrict Litigation.  In response to the complaint, the reorganized debtors filed a motion requesting entry of an order enforcing the discharge provisions of their confirmed plan and a dismissal of the complaint.

Decision

The Court first determined that certain of the antitrust plaintiff’s causes of action are “claims,” as defined by the Bankruptcy Code, subject to the discharge provisions of the reorganized debtors’ plan, as they alleged rights to payment that, in at least some instances, arose prior to the effective date.  The antitrust plaintiffs made no effort to refute this determination, and instead argued that the reorganized debtors’ discharge under their plan was subject to the antitrust plaintiffs’ constitutional right to notice, and that they received inadequate notice of the reorganized debtors’ bankruptcy cases and claims bar dates.  The Court refused to rule on the adequacy of the antitrust plaintiffs’ notice, finding that notice was a separate question from the issue of whether the antitrust plaintiffs held claims.

In addition, the Court found that the notice issue was not ripe, and that the proper recourse for a claimant asserting a lack of adequate notice of a claims bar date would ordinarily be to seek permission to file a late proof of claim.  The Court also determined, in reliance on the Fourth Circuit’s recent decision in the recent decision in Gentry v. Siegel, — F.3d —-, 2012 WL 310870 (4th Cir. 2012), which we discussed in an earlier post, that the named antitrust plaintiffs lacked standing to assert the due process rights of a class that has not yet been certified.  Accordingly, the Court held that this decision did not bar the antitrust plaintiffs from moving to file late proofs of claim and seeking to prosecute such claims as class actions.  In so holding, however, the Court noted that other courts, including the Third Circuit, had rejected similar insufficient notice arguments in recent decisions.

The Court next determined that the reorganized debtors’ plan did not discharge any of the antitrust plaintiff’s causes of action that arose after the effective date of the plan, stating that “a debtor is responsible for the consequences of its actions after it emerges from chapter 11, and if bankruptcy law discharges a liability, but the debtor takes new action and incurs a similar liability after receiving its discharge, there may be no entitlement to an injunction against prosecution of the latter.”  2012 WL 443951, at *10.  Thus, the Court held that the reorganized debtors’ potential liability for post-effective date conduct is a determination for the district court adjudicating the consolidated antitrust actions.

This decision reaffirms the enforceability of a confirmed plan of reorganization’s discharge provisions over pre-effective date claims, and that such provisions cannot shield a reorganized debtor from liability for actions taken during the post-confirmation period.  In addition, while the Court left open the possibility for the antitrust claimants to file late proofs of claim and seek class treatment of those claims, the Court hinted that such relief would be denied because the notice of the claims bar dates provided by the debtors was likely constitutionally adequate.  Furthermore, because the inherent characteristics of the bankruptcy claims adjudication process disfavor class claims and the application of class action procedures, as discussed in the Gentry v. Siegel decision, the odds that these antitrust litigants could pursue class claims in the bankruptcy court are remote.

This entry was posted in Claims.