Releasing the Albatross

Last month, we discussed the fact that Chapter 11 cases can last for months or years after plan confirmation solely as a result of unresolved disputed claims. To address the speedy resolution of such claims, debtors have increasingly turned to mandatory “alternative dispute resolution” (ADR). We discussed the utilization of voluntary ADR by bankruptcy courts, and the implementation of ADR procedures. This month, we discuss The Sixth Circuit's Decision in Spierer v. Federated Department Stores, et al. (In re Federated Department Stores), 328 F. 3d 829 (6th Cir. 2003) (hereinafter, “Federated“), wherein the Sixth Circuit affirmed the power of the bankruptcy courts to implement mandatory ADR procedures

As we discussed, the authority of the bankruptcy court to enjoin a state court action emanates from section 105 of the Bankruptcy Code, together with the automatic stay of section 362 and/or the discharge injunction of section 524. Section 105 provides the bankruptcy courts with the power to issue “any order … necessary or appropriate” to carry out the provisions of the Bankruptcy code). Section 362 provides for, inter alia, an automatic stay of actions against the debtor arising from prepetition claims that lasts from the filing of a Chapter 11 case until confirmation, while section 524 (a) provides that a discharge in bankruptcy serves as an injunction against such actions after confirmation.