In CJ Holding, a confirmed plan of reorganization contained a third-party release. A creditor holding a late-filed claim did not object to the plan. That creditor later sought relief from stay, asserting that the bankruptcy court lacked jurisdiction to grant third-party releases.
The bankruptcy court denied the creditor’s motion, and on appeal the U.S. District Court sustained the denial. Even if third-party releases are disfavored, the creditor, having been given adequate notice and opportunity to object to plan confirmation, was prevented by issue preclusion from attacking the release under the confirmed plan, consistent with Travelers Indem. Co. v. Bailey, 557 U.S. 137. “For a bankruptcy court to enforce the plan after confirmation and to enjoin a plaintiff from pursuing a claim, two requirements must be met: (1) the bankruptcy court must have jurisdiction to hear the plaintiff’s claim under 28 U.S.C. § 1334; and (2) the bankruptcy court’s confirmation order must specifically approve the release of the plaintiff’s claim.” CJ Holding at *10.
“Although ‘anyone who objected was free to argue that the Bankruptcy Court had exceeded its jurisdiction, and the District Court or Court of Appeals could have raised such concerns sua sponte,’ a creditor must raise that challenge directly in the bankruptcy court. Once the confirmation order became final, preclusion prevents the creditor from challenging the enforcement of the order in a later litigation, because he was a party to the bankruptcy proceeding and had the opportunity to object to the bankruptcy court's jurisdiction in that forum.” CJ Holding at *12 (citing to Travelers).
If you do not like your proposed treatment under an unconfirmed plan of reorganization, file an objection.