Papas v. Buchwald Capital Advisors, LLC (In re Greektown Holdings, LLC)

• Citation: 728 F.3d 567
• Decision Date: 26 August 2013
• Docket Number: No. 12–2434.,12–2434.
• Parties: In re GREEKTOWN HOLDINGS, LLC, Debtor. Dimitrios Papas, aka Jim Papas, Viola Papas, Ted Gatzaros, and Maria Gatzaros, Appellants, v. Buchwald Capital Advisors, LLC, Litigation Trustee for the Greektown Litigation Trust, Sault Ste Marie Tribe of Chippewa Indians, and Kewadin Casinos Gaming Authority, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

728 F.3d 567

In re GREEKTOWN HOLDINGS, LLC, Debtor.Dimitrios Papas, aka Jim Papas, Viola Papas, Ted Gatzaros, and Maria Gatzaros, Appellants,

v.Buchwald Capital Advisors, LLC, Litigation Trustee for the Greektown Litigation Trust, Sault Ste Marie Tribe of Chippewa Indians, and Kewadin Casinos Gaming Authority, Appellees.

No. 12–2434.

United States Court of Appeals, Sixth Circuit.

Argued: July 23, 2013.

Decided and Filed: Aug. 26, 2013.

ARGUED:Lisa S. Gretchko, Howard & Howard Attorneys PLLC, Royal Oak, Michigan, for Appellants. Joel D. Applebaum, Clark Hill PLC, Birmingham, Michigan, for Buchwald Appellee. Grant S. Cowan, Frost Brown Todd LLC, Cincinnati, Ohio, for Chippewa and Kewadin Appellees. ON BRIEF:Nancy K. Stone, Mary C. Dirkes, Howard & Howard Attorneys PLLC, Royal Oak, Michigan, for Appellants. Joel D. Applebaum, Clark Hill PLC, Birmingham, Michigan, for Buchwald Appellee. Grant S. Cowan, Frost Brown Todd LLC, Cincinnati, Ohio, for Chippewa and Kewadin Appellees.

Before: BOGGS and McKEAGUE, Circuit Judges, and BECKWITH, Senior District ^* Judge.

OPINION

McKEAGUE, Circuit Judge.

At issue in this appeal is a claims bar order entered in an adversary proceeding connected with the bankruptcy of Greektown Holdings, LLC. The appellants, the Papases and Gatzaroses, and two of the appellees, the Sault Ste. Marie Tribe of Chippewa Indians and the Kewadin Casinos Gaming Authority, are defendants in a fraudulent transfer action that was brought in federal bankruptcy court by Buchwald Capital Advisors, LLC. Buchwald Capital Advisors is the trustee of the Greektown Litigation Trust and an appellee in this appeal. The Sault Ste. Marie Tribe and the Kewadin Casinos Gaming Authority agreed to settle with Buchwald Capital Advisors. However, they conditioned the settlement upon the entry of an order that would bar any claims against them “arising out of or reasonably flowing from” either the fraudulent transfer proceeding or the allegedly fraudulent transfers themselves. The Papases and Gatzaroses objected to this requested order, but when they could not come up with any viable claims that would be enjoined by the bar order, the district court approved the settlement and entered the bar order. A short time later, the Papases and Gatzaroses filed a motion for reconsideration in which they detailed additionalclaims that they feared might be barred by the order. The district court denied their motion.

On appeal, the Papases and Gatzaroses argue that the bar order was improper and also contend that the district court abused its discretion when it denied their motion for reconsideration. The district court was clearly acting within its discretion when it denied the motion for reconsideration, so we affirm its order denying reconsideration. But the bar order itself raises several interesting questions of first impression in this Circuit. These questions concern the district court's jurisdiction and power to enter the bar order and the proper scope of such an order. Unfortunately, these issues have not been adequately briefed and argued by the parties and were not addressed below. We therefore remand this case to the district court and instruct the district court to reevaluate the bar order under the guidance provided in this opinion.

I. BACKGROUND

The Greektown Bankruptcy and the Fraudulent Transfer Action

On May 29, 2008, Greektown Holdings, LLC, and several affiliates filed for Chapter 11 bankruptcy in the United States Bankruptcy Court for the Eastern District of Michigan. Greektown Holdings owned Greektown Casino, LLC, the company that owned and operated the Greektown Casino in downtown Detroit. The bankruptcy court confirmed a plan of reorganization on January 22, 2010, and the plan became effective on June 30, 2010. The plan provided for the establishment of the Greektown Litigation Trust, for which Buchwald Capital Advisors, LLC, was named trustee. We will refer to Buchwald Capital Advisors, which is one of the appellees in this appeal, as the “Trustee.”

Before the plan became effective, the bankruptcy court authorized a committee of unsecured creditors to file a fraudulent transfer action. The committee filed its complaint on May 28, 2010. The Trustee was later substituted as the plaintiff in the action. The defendants named in the complaint included the Papases and the Gatzaroses, the appellants in this appeal, as well as the Sault Ste. Marie Tribe of Chippewa Indians and the Kewadin Casinos Gaming Authority, both appellees in this appeal.¹ We will refer to the Papases and the Gatzaroses together as the “Appellants” and refer to the Sault Ste. Marie Tribe and the Kewadin Casinos Gaming Authority together as the “Tribe.” ²

The fraudulent transfer complaint alleged that in December 2005, Greektown Holdings incurred $185 million dollars of debt and simultaneously transferred approximately $177 million to several transferees, including the Appellants and the Tribe. The complaint alleged that the Appellants directly received about $145 million and that the Tribe directly received $6 million. However, the complaint also alleged that the $145 million transferred to the Appellants indirectly benefitted the Tribe because the Michigan Gaming Control Board had required the Tribe to pay this amount to the Appellants if Greektown Holdings failed to do so, and thus the transfer discharged obligations that the Tribe owed to the Appellants. The Trustee therefore claimed that the Tribe was liable both for the $6 million it directly received and the $145 million that indirectlybenefitted it. The Trustee sought to recover the transfers under 11 U.S.C. §§ 544 and 550 and the Michigan Uniform Fraudulent Transfer Act.

The Settlement Agreement

Two years after the fraudulent transfer complaint was filed, the Trustee decided that the indirect benefit theory for recovering the $145 million from the Tribe was unlikely to succeed. The Trustee and the Tribe agreed to a settlement, under which the Tribe would pay $2.75 million and relinquish approximately $2.58 million in claims it had filed against the estate of Greektown Casino, LLC. The settlement was expressly conditioned upon the bankruptcy court's entering a bar order to read as follows:

IT IS FURTHER ORDERED that all persons and entities are hereby permanently BARRED, ENJOINED and RESTRAINED from commencing, prosecuting, or asserting any claim against the Tribe Defendants, including claims for indemnity or contribution, arising out of or reasonably flowing from the facts or allegations or claims in this MUFTA Adversary Proceeding, whether arising under state, federal or foreign law as claims, cross-claims, counterclaims, or third-party claims, in this MUFTA Adversary Proceeding Action, in any federal or state court, or in any other court, arbitration proceeding, administrative agency, or other forum in the United States or elsewhere (collectively, the “Barred Claims”). These Barred Claims include, but are not limited to, any and all claims arising out of or reasonably flowing from the transfers which are the subject of this MUFTA Adversary Proceeding.

R. 1–1, Settlement Agreement, PageID # 44. Pursuant to Federal Rule of Bankruptcy Procedure 9019(a), the Trustee filed a motion for approval of the settlement in the Bankruptcy Court.

The Appellants filed an objection. They also filed a motion to withdraw the reference in the United States District Court for the Eastern District of Michigan.³ The district court withdrew the reference and instructed the parties to file briefs. It also held a hearing at which the parties were permitted to introduce evidence and argue their positions on the bar order.

At the hearing, a financial advisor employed by the Trustee testified about the settlement negotiations between the Trustee and the Tribe, offered his conclusion that the indirect benefit theory was unlikely to succeed, and gave his opinion that the settlement amount was reasonable. The financial advisor stated that the bar order was a “critical aspect of the settlement” because the Tribe needed to eliminate the risk of litigation in order to obtain necessary financing. He did not think that the settlement would have been possible without the inclusion of the bar order.

The Tribe submitted an affidavit from its CFO who averred that, due to the pending fraudulent transfer claims, the Tribe was experiencing difficulty in refinancing its existing debt and obtaining additional financing. Lending institutions told him that the Tribe was not an attractive lending prospect while the fraudulent transfer action remained pending against it. The Tribe contended that unless all claims against it arising out of the fraudulent transfer proceeding were barred, it would not be able to obtain the financing it needed.

Although they presented no evidence at the hearing, the Appellants raised numerous arguments against entry of the bar order. They asserted that bar orders are only allowed in unusual circumstances and that the bar order was not essential to the bankruptcy reorganization. They claimed that since the fraudulent transfer proceedings were in the early stages of discovery, they were unable to identify all the potentially barred claims that they might bring against the Tribe. However, they suggested four possibilities: common law indemnity, fraud, contribution, and deepening insolvency. They further contended that under Sixth Circuit precedent, the district court was required to hold an evidentiary fairness hearing to evaluate the fairness of the bar order. Additionally, they argued that the bar order should be mutual, barring claims by the Tribe as well as claims against the Tribe.

The Tribe and the Trustee argued that the four claims the Appellants had identified were not viable and that any such claims would be barred by sovereign immunity, by statutes of limitation, and by releases that the Appellants signed in connection with the allegedly fraudulent transfers. The Trustee further...