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subordinated note holders raised the argument that the issuance of new stock was an exception to the indenture. 50 The subordinated note holders, thus, argued that the plan should use the new stock to pay their claims, the subordination agreement notwithstanding. Failure to do so, said the subordinated note holders, amounted to unfair discrimination. Construing the subordinated notes indenture as a whole, the court recognized that the subordinated note holders were entitled to payment only after full payment of all senior debt. Because the plan did not propose to pay the senior debt in full, the court declined to interpret the X-Clause is such a way that would effectively eviscerate the subordination merely because the debtor chose a certain type of consideration -- that is, new common stock. Furthermore, continued the court, section 1129(b)'s prohibition on unfair discrimination was inapplicable where a group of creditors consents to disparate treatment through some sort of a subordination agreement. Discrimination, said the court, which is based upon a bargained-for subordination agreement is not unfair.
* Johns-Manville Corp. v. Chubb Indemnity Ins. Co. (In re Johns-Manville Corp.), 517 F.3d 52 (2d Cir. Feb. 2008) (Wesley, J.)
A court cannot clarify its own orders enjoining certain complaints where the court lacks subject matter jurisdiction over those complaints. When Judge Lifland entered a series of orders confirming the plan of Johns-Manville in 1986, he simultaneously entered an order enjoining all future asbestos actions against the settling insurance companies to collect or otherwise receive payment on asbestos claims asserted against the debtor. These orders notwithstanding, several individuals continued to file claims against a group of insurance providers based on various theories, including the insurance companies' failure to disclose its knowledge of the dangers of asbestos. By 2002, the insurance providers sought to put an end to these additional claims by negotiating a settlement and then sought approval from the bankruptcy court. The bankruptcy court so approved and entered a "clarifying order" declaring all further claims against the insurance providers to be enjoined by the 1986 orders. The district court affirmed.
The Second Circuit reversed and remanded. Said the court of appeals, the lower courts' extensive findings regarding whether the claims were based on or related to property of the estate, were only half of the analysis. The lower courts failed to consider what duties the insurance providers owed the claimants. Furthermore, said the Second Circuit, the lower courts did not discuss whether the claimants could assert causes of action against the insurance
50 As the court put it quite succinctly, "[T]he draftsmanship [of the indenture agreement] falls somewhere outside of the realm of utter clarity, yet not quite in the region of ambiguity."
