Vedder Price Wins Reversal in Second Circuit Court of Appeals

On March 26, 2009, the United States Court of Appeals for the Second Circuit reversed the decision of the United States District Court for the Eastern District of New York, which had affirmed the Bankruptcy Court’s order denying appellant Roger Jackson Pleasant’s motion to compel payment of a settled claim from appellee TLC Liquidation Trust pursuant a confirmed plan of reorganization. In so doing, the Second Circuit rejected outright the Trust’s contention that reconsideration of a claims allowance order after the running of the one-year time limitation imposed by Federal Rule of Bankruptcy Procedure 9024 was appropriate where a claims settlement had resolved a contested matter.

Agreeing fully with appellant’s arguments, the Second Circuit held when a debtor files an objection to a claim, that objection alone gives rise to a contested matter to which Bankruptcy Rule 9024’s one-year time limitation applies, such that the bankruptcy court’s order allowing the claim is “entered with a contest” even though the parties had settled the objection without court intervention (as opposed to being resolved in proceedings on the merits).

In its Per Curiam decision, the Second Circuit not only rejected the trust’s cited authority and related argument, but also held that to accept the trust’s rationale would “create a significant disincentive to parties settling disputes” absent court involvement, frustrating a fundamental purpose underlying the Bankruptcy Code.

Because the trust sought reconsideration by the Bankruptcy Court more than one year following entry of the claims allowance order, the Second Circuit held the trust’s relief to be untimely and, accordingly, the case was remanded with directions to enter judgment in favor of the appellant in respect of his allowed claim.