In re Avianca Holdings S.A.
| Decision Date | 27 January 2023 |
| Docket Number | Case No. 20-11133 (MG) |
| Citation | 648 B.R. 358 |
| Parties | IN RE: AVIANCA HOLDINGS S.A., et al., Debtors and Reorganized Debtors. |
| Court | U.S. Bankruptcy Court — Southern District of New York |
Milbank LLP, Counsel for Debtors and Reorganized Debtors, 55 Hudson Yards, New York, New York 10001, By: Dennis F. Dunne, Esq., Evan R. Fleck, Esq., Benjamin Schak, Esq., Gregory A. Bray, Esq.
More than 150 Avianca creditors in Columbia and Brazil that filed proofs of claim in these cases also filed lawsuits in courts in Columbia and Brazil that they continue to prosecute and have refused to withdraw or discontinue. By filing proofs of claim in this Court, those creditors submitted to the jurisdiction of this Court. Avianca's confirmed chapter 11 plan and the Bankruptcy Code discharge prepetition claims and enjoin the claimholders from commencing or continuing any action or proceeding to enforce or collect on those claims. After unsuccessfully trying to persuade these creditors to discontinue their foreign lawsuits, Avianca now seeks to hold those creditors in civil contempt.
Avianca requests the Court to enter an order imposing coercive sanctions, giving those creditors 30-days to discontinue their foreign lawsuits, and if they fail to do so, disallowing their claims in these cases. For the reasons explained below, the Court grants the requested relief, conditionally disallowing the claims unless the creditors discontinue their foreign lawsuits within 30 days from the date of this Opinion and Order.
Pending before the Court is the Reorganized Avianca Holdings S.A. ("Avianca") and its above-captioned affiliates’ (collectively, the "Reorganized Debtors") motion (the "Motion," ECF Doc. # 2644) for an order imposing sanctions on the Foreign Plaintiffs (as defined below) for violations of section 524(a)(2) of the Bankruptcy Code and certain provisions of the Further Modified Joint Chapter 11 Plan of Avianca Holdings S.A. and Its Affiliated Debtors confirmed on November 2, 2021 (the "Plan"). Attached to the Motion as Exhibit A is the Declaration of Elizabeth Riaño Alarcón in Support of the Debtors’ Motion for Order Imposing Sanctions for Violations of Section 524 of the Bankruptcy Code and Discharge and Injunction Provisions of Their Confirmed Chapter 11 Plan (the "Riaño Declaration"). The objection deadline was December 9, 2022. No objections were filed.
On May 10, 2020 and on September 21, 2020 (each, the "Petition Date"), the Reorganized Debtors’ predecessors in interest (the "Debtors") filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Debtors’ chapter 11 cases were jointly administered pursuant to Bankruptcy Rule 1015(b) and the Amended Order (I) Directing Joint Administration of Chapter 11 Cases and (II) Granting Related Relief [Docket No. 73] and the Order Directing Certain Orders in Chapter 11 Cases of Avianca Holdings S.A., et al. Be Made Applicable to Subsequent Debtors [ECF Doc. # 1030].
The Debtors operated their businesses and managed their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code until they emerged from bankruptcy protection on December 1, 2021. Additional information regarding the Debtors’ business, capital structure, and the circumstances leading to the filing of their chapter 11 cases is set forth in the Declaration of Adrian Neuhauser in Support of the Debtors’ Chapter 11 Petitions and First Day Orders [ECF Doc. # 20].
On November 2, 2021, the Court entered the Order (I) Confirming Further Modified Joint Chapter 11 Plan of Avianca Holdings S.A. and Its Affiliated Debtors and (II) Granting Related Relief [Docket No. 2300] (the "Confirmation Order"), and the Plan became effective on December 1, 2021 (the "Effective Date"). See Notice of (I) Entry of Order Confirming Further Modified Joint Chapter 11 Plan of Avianca Holdings S.A. and Its Affiliated Debtors, (II) Occurrence of Effective Date, and (III) Final Deadlines for Filing Certain Claims [ECF Doc. # 2384].
As of the applicable Petition Date, various judicial proceedings were pending against certain Debtors in Colombia and Brazil. (Motion ¶ 4.) In addition, numerous actions, mostly on account of claims that arose before the applicable Petition Date, were filed in these countries against certain Debtors after the applicable Petition Date (together with the prepetition proceedings, the "Foreign Actions"). (Id .) Many plaintiffs in the Foreign Actions (the "Foreign Plaintiffs") filed proofs of claim in the Debtors’ chapter 11 cases (the "Foreign Litigation Proofs of Claim") without discontinuing their Foreign Actions.
Pursuant to section 1141(d)(1)(A) of the Bankruptcy Code, the confirmation of the Plan has discharged the Debtors "from any debt that arose before the date of such confirmation ...." 11 U.S.C. § 1141(d)(1)(A). Furthermore, section 524(a) of the Bankruptcy Code provides that the foregoing discharge "operates as an injunction against the commencement or continuation of an action, the employment of process, or an act, to collect, recover or offset" any "debt discharged under section ... 1141 [of the Bankruptcy Code]." 11 U.S.C. § 524(a)(1), (2).
To give effect to the foregoing provisions of the Bankruptcy Code, (i) section IX.B. of the Plan provides that, except as otherwise provided therein, the Plan treatment provided to all Claims "shall be in exchange for and in complete satisfaction, discharge, and release of all claims and interests of any nature whatsoever," and all such Claims "shall be satisfied, discharged and released in full, and the applicable Debtor's liability with respect thereto shall be extinguished completely, including any liability of the kind specified under section 502(g) of the Bankruptcy Code ; and (d) all entities shall be precluded from asserting against such Debtors, such Debtors’ estates, the applicable Reorganized Debtors, their successors and assigns and their assets and properties any other Claims ... based upon any documents, instruments or any act or omission, transaction or other activity of any kind or nature that occurred before the Effective Date" (the "Discharge Provision") and (ii) section IX.G of the Plan permanently enjoins all holders of Claims against the Debtors, from and after the Effective Date, from taking the following actions (), against the Debtors or Reorganized Debtors: "commencing or continuing in any manner any action or other proceeding of any kind on account of or in connection with or with respect to any such claims," as well as from "enforcing, collecting, attaching or recovering by any manner or means any judgment, award, decree or order against such entities on account of or in connection with or with respect to any such claims" (the "Injunction Provision").
The Reorganized Debtors argue that the very broad definition of "Claim" in section 101(5) of the Bankruptcy Code (which the Plan adopts), among other things, includes every "right to payment, whether or not such right is reduced to judgment, ... unliquidated, ... contingent, ... disputed, ... legal, equitable, secured or unsecured," clearly covers the Foreign Actions. (Motion ¶ 7.) Moreover, they also contend that by virtue of filing their respective proofs of claim, the Foreign Plaintiffs have subjected themselves to the equitable jurisdiction in this Court. See, e.g., Katchen v. Landy , 382 U.S. 323, 337, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966) ; Bankruptcy Servs. v. Ernst & Young (In re CBI Holding Co .), 529 F.3d 432, 466 (2d Cir. 2008) (citing Granfinanciera v. Nordberg , 492 U.S. 33, 58, 109 S.Ct. 2782, 106 L.Ed.2d 26 (1989) ).
The Foreign Plaintiffs were given notice of both the Debtors’ efforts to gain approval of the Disclosure Statement and of the confirmation of the Plan. (Motion ¶ 8.) The Reorganized Debtors have written to the Foreign Plaintiffs and spoken to many of them (or their counsel where such information was available) to inform them of the violations. (See Riaño Decl. ¶¶ 4-11.) In addition, the Reorganized Debtors have sent claimants and/or their counsel a written final demand reiterating the approval and contents of the Plan and demanding that the Foreign Plaintiffs withdraw their claims either in the applicable foreign jurisdiction or in the Bankruptcy Court. (See id .) Thus, the Reorganized Debtors contend that Foreign Plaintiffs were (or should have been) aware that their continued prosecution of the Foreign Actions violates the Discharge Provision and Injunction Provision of the Plan, as well as section 524 of the Bankruptcy Code. Most recently, the Reorganized Debtors sent written communications to the Foreign Plaintiffs (or their counsel) demanding that they either discontinue the applicable Foreign Action(s) or withdraw their Proof(s) of Claim. (See id. )
In its decision in Taggart v. Lorenzen , the Supreme Court established that a court is authorized under the Bankruptcy Code to impose civil contempt sanctions when "there is no objectively reasonable basis for concluding that the creditor's conduct might be lawful under the discharge order." ––– U.S. ––––, 139 S. Ct. 1795, 1801, 204 L.Ed.2d 129 (2019). Section 105(a) of the Bankruptcy Code gives this Court the power to "issue any order ... that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]." 11 U.S.C. § 105(a). This provision gives this Court the power to "tak[e] any action ... necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process." Id. The mechanism through which courts may take "whatever action appropriate or necessary" to protect the "integrity of the bankruptcy system" is their statutory contempt powers under section 105(a)...
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