In In re Greektown Holdings, LLC, 2013 U.S. App. LEXIS 17718 (6th Cir. 2013), the Court of Appeals for the Sixth Circuit considered the propriety of an order barring claims among non-debtor third parties in connection with the proposed settlement of a fraudulent conveyance action. In Greektown, the trustee (“Trustee”) of the post-confirmation liquidation trust was prosecuting a fraudulent conveyance action against certain transferee defendants that included the Sault Ste. Marie Tribe of Chippewa Indians (the “Tribe Defendants”) and the Papases and Gatazaroses (the “Appellants”). After two years, a settlement was reached between the Trustee and the Tribe Defendants. The settlement agreement, however, included a proposed bar order enjoining any person or entity from “commencing, prosecuting, or asserting any claim against the Tribe Defendants, including claims for indemnity and contribution, arising out of or reasonably flowing from the facts or allegations or claims in [the fraudulent conveyance adversary proceeding].” Greektown at *6. Appellants objected but the district court approved the settlement and granted the bar order, primarily on the ground that it did not appear the Appellants had any viable claims against the Tribe Defendants that would be enjoined by the bar order.
On appeal, the Sixth Circuit held that the district court erred in its analysis. Instead, the Court held that in order to determine whether or not to approve the bar order, the district court should have analyzed three issues. First, the district court should have determined whether it had jurisdiction to enter the bar order. In this regard, the Sixth Circuit noted that the district court has “related-to” jurisdiction to enjoin claims insofar as the outcome of those claims would affect the bankruptcy estate. Second, it should have determined whether it had the authority to enter the bar order under the Bankruptcy Code or otherwise. Finally, the Sixth Circuit held that the district court should have more closely scrutinized the scope of the bar order “to ensure that the only claims that are extinguished are claims where the injury is the non-settling defendant’s liability to the plaintiffs (i.e. claims for contribution or indemnity).” Greektown at *16 (internal quotations omitted). The Sixth Circuit further stated that “A bar order that enjoins independent claims and provides no compensation is problematic to say the least.” Greektown at *17. As a result, the case was remanded to the district court for further evaluation.