In re Lower Bucks Hospital, 070314 FED3, 13-1311

Docket Nº:13-1311
Opinion Judge:AMBRO, Circuit Judge
Party Name:IN RE: LOWER BUCKS HOSPITAL THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., Appellant
Attorney:Christine B. Cesare, Esquire (Argued) Howard M. Rogatnick, Esquire Thomas J. Schell, Esquire Stephanie Wickouski, Esquire Bryan Cave LLP. Laurie A. Krepto, Esquire Natalie D. Ramsey, Esquire Patrick T. Ryan, III, Esquire Richard L. Scheff, Esquire Montgomery, McCracken, Walker & Rhoads, LLP.Couns...
Judge Panel:Before: AMBRO and BARRY, Circuit Judges and RESTANI, Judge
Case Date:July 03, 2014
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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IN RE: LOWER BUCKS HOSPITAL THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., Appellant

No. 13-1311

United States Court of Appeals, Third Circuit

July 3, 2014

NOT PRECEDENTIAL

Argued June 12, 2014

Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil Action No. 2-12-cv-03399) District Judge: Honorable Timothy J. Savage

Christine B. Cesare, Esquire (Argued) Howard M. Rogatnick, Esquire Thomas J. Schell, Esquire Stephanie Wickouski, Esquire Bryan Cave LLP.

Laurie A. Krepto, Esquire Natalie D. Ramsey, Esquire Patrick T. Ryan, III, Esquire Richard L. Scheff, Esquire Montgomery, McCracken, Walker & Rhoads, LLP.Counsel for Appellant

Daniel E. Bacine, Esquire Lisa M. Port, Esquire Barrack, Rodos & Bacine

D. Alexander Barnes, Esquire (Argued) Edmond M. George, Esquire Obermayer, Rebmann, Maxwell & Hippel LLP Counsel for Appellee

Before: AMBRO and BARRY, Circuit Judges and RESTANI, [*] Judge

OPINION

AMBRO, Circuit Judge

The Bank of New York Mellon Trust Company, N.A. ("BNYM") appeals the order of the District Court that affirmed a Bankruptcy Court decision denying approval of a release provision in the plan of confirmation of Debtor Lower Bucks Hospital (the "Debtor" or "Lower Bucks"). The provision purported to prohibit a class of creditors that held corporate bonds in the Debtor from bringing claims against their trustee, BNYM. Because we agree that the third-party release was not adequately disclosed, we affirm.

I. Background

In 1992, Lower Bucks issued bonds to refinance some of its debt and fund various capital improvements. The debt was secured by an interest in the gross revenues of Lower Bucks. An indenture trustee was appointed to act on behalf of the holders of the bonds (the "Bondholders") and was responsible for, among other things, maintaining an accurate financing statement with respect to the Bondholders' security interest.

Lower Bucks filed for bankruptcy in 2010. When it did, it still owed about $26 million in principal and interest to the Bondholders. The debt should have held a secured status given the security interest in the gross revenues. However, Lower Bucks filed an adversary proceeding against BNYM (who became indenture trustee in 2007) alleging the indenture trustee failed to maintain a correct financing statement with respect to the Bondholders' security interest during the Debtor's name changes in 1997 and 2006. Although BNYM amended the financing statement in October 2009 to reflect the correct name of the Debtor, that was within 90 days of the bankruptcy filing and thus the secured claim, if based on that version of the financing statement, was voidable as a preference under 11 U.S.C. § 547(b). BNYM contested the allegations, arguing that, under the terms of the bond documents, Lower Bucks was required to notify BNYM when it changed its name.

Lower Bucks and BNYM ultimately settled the adversary proceeding: in exchange for Lower Bucks giving the Bondholders secured status, their secured claim was reduced to $8.15 million. Included within the settlement were releases not only between the agreement's signers (Lower Bucks and BNYM) but also a provision releasing all claims by the Bondholders against BNYM (the "Third-Party Release" or "Release"). The proposed settlement was presented to Bankruptcy Judge Frank via a Rule 9019 motion. The transcript of the hearing and subsequent events reveal that Judge Frank was not aware of the Third-Party Release. Although there were brief references to it in the motion, App. at 1040, and in a related proposed order, id. at 1062, his questions at the hearing demonstrated that he did not know of the Release, and no party took the opportunity to direct his attention to it. See id. at 1072-74, 1078-80.

It is in this context that Judge Frank approved the settlement and Lower Bucks later filed a proposed plan of reorganization and disclosure statement. In those filings, the Third-Party Release was referenced on page 42 of the plan (out...

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