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Full title: Objection to disclosure statement (RE: related document(s)395 Disclosure statement) filed by U.S. Trustee United States Trustee. (Kippes, Meredyth)

Document posted on Jan 28, 2021 in the bankruptcy, 24 pages and 0 tables.

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Article, III, Section B of the Disclosure Statement discusses release (including releases of third parties by third parties), injunction, and exculpation provisions.The proposed releases grant releases of third party claims against nondebtor third parties. 27. Judge Hale also adopted the reasoning of Judge Mullin in Mac Churchill and Judge Bernstein in SunEdison in sustaining the United States trustee’s objection to confirmation, striking any third party release by “a party who does not vote on the plan one way or another” because such non-voting party “has not expressed his consent” to the third party release and “this Court does not have the ability to force the release of an non-debtor against another non-debtor.”Accordingly, the Court should decline to approve a Disclosure Statement that contains release provisions that would extinguish third parties’ (creditors) property rights – potential claims against nondebtor third parties – without the creditors’ consent by way of the opt-out releases.Instead, the proposed opt out release, which will extinguish third party claims against non-debtor third parties, was made not by parties similarly situated to the proposed releasers, but made primarily at the behest of the people who would be the beneficiaries of the releases.

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United States Department of Justice Office of the United States Trustee 1100 Commerce St. Room 976 Dallas, Texas 75242 (214) 767-1079 Meredyth A. Kippes, for the United States Trustee meredyth.a.kippes@usdoj.gov IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION IN RE: § § Studio Movie Grill Holdings, LLC, et al., § Case No. 20-32633-SGJ-11 § § Debtors-in-Possession. § (Jointly Administered)     United States Trustee’s Objection to Joint Disclosure Statement for Joint Plan of Reorganization for Studio Movie Grill Holdings, LLC and Jointly Administered Debtors (Docket Entry No. 395) To the Honorable Stacey G.C. Jernigan, United States Bankruptcy Judge: The United States Trustee for Region 6 files this Objection (the “Objection”) to Joint Disclosure Statement for Joint Plan of Reorganization for Studio Movie Grill Holdings, LLC and Jointly Administered Debtors (the “Disclosure Statement,” Docket Entry No. 395). In support of the relief requested, the United States Trustee would show: Summary The Court should decline to approve the Disclosure Statement for the following reasons:  Debtors’ Plan of Reorganization (the “Plan,” Docket Entry No. 394) is patently unconfirmable. The Disclosure Statement and the Plan contain impermissible release and exculpation provisions in contravention of Bank of N.Y. Trust Co. v. Off’l Unsecured Creditors’ Comm. (In re Pacific Lumber Co.), 584 F.3d 229, 252 (5th Cir. 2009).  Additionally, the release provisions are “opt-out” releases and, therefore, nonconsensual for those parties who are not solicited or who otherwise do not vote on the Plan or return an opt out form because there is no meeting of the minds with regard to the releases.

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 The United States Trustee also requests that language be added to the Disclosure Statement and Plan that provides that no party shall be released from any causes of action or proceedings brought by any governmental agencies in accordance with their regulatory functions. Finally, the Disclosure Statement does not provide adequate information regarding the Debtors’ proposed exit financing.  The Disclosure Statement omits material information regarding the identity of the creditors’ trust, the value and type of causes of action to be pursued by the creditors’ trust, and description of the information will be contained in the Plan Supplement. Because this information is material, the Debtors should provide this information by the disclosure statement hearing so creditors can vote on the plan rather than a “plan to do a plan.” Amending by the Disclosure Statement prevents the cost and delay of materiality objections and, possibly, resolicitation. Alternatively, the Debtors should be required to file the Plan Supplement ten days before the plan voting deadline and serve it upon those whom they solicit to vote on the plan. On January 29, 2021, the Debtor agreed to a brief extension of time for the United States Trustee to file this Objection due the fact that the United States Trustee’s VPN system went down, which prevented the undersigned counsel to access the document on the United States Trustee’s server. This document is being filed as soon as possible after restoration of the United States Trustee’s VPN access to servers. Factual Allegations Releases, Injunction, and Exculpation 1. Article, III, Section B of the Disclosure Statement discusses release (including releases of third parties by third parties), injunction, and exculpation provisions. 2. Article VIII of the Plan sets forth those releases, injunctions, exculpations and related provisions. 3. Article VIII, Section C of the Plan sets forth the following releases by the Debtors:  

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4. Article VIII, Section D of the Plan describes releases of holders of claims or interests the (“Third Party Release”) as follows:

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5. Article VIII, Section E of the Plan sets forth the following Exculpation provision: 6. Article VIII, Section F of the Plan contains the following injunction:

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7. The terms “Releasing Creditor” and “Released Creditor,” which are used in the Third Party Release are not defined in the Plan. 8. The term “Releasing Parties” is defined in Article I., Section A of the Plan as follows: 9. The term “Released Parties” is defined in Article I., Section A of the Plan as follows:

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10. The term “Exculpated Parties” is defined in Article I., Section A of the Plan as follows: 11. The term “Holder” is defined in Article I., Section A of the Plan as follows: 12. The term “Claim” is defined in Article I, Section A of the Plan as follows: 13. The term “Interest” is defined in Article I, Section A of the Plan as follows:

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14. The term “Management Incentive Plan” is defined in Article I, Section A of the Plan as follows: 15. Article IV, Section C of the Disclosure Statement lists the classes of claims, whether those classes are impaired or unimpaired, and whether those classes are deemed to accept or deemed to reject the Plan as follows:

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     16. Classes 7, 8, 9, and 10 are deemed to have rejected the Plan. Classes 1is not entitled to vote. 17. Article I, Section D of the Plan provides that the Plan shall be construed and enforced in accordance with the laws of the State of Texas. Management Incentive Plan 18. Article VI, Section A, paragraph 8 of the Plan describes the Debtors’ intention to implement a Management Incentive Plan (“MIP”) as follows:

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Creditors’ Trust 19. Article III, Section B of the Disclosure Statement describes the establishment of a creditors’ trust in the event of an Equitization Restructuring. The Trust is described as follows:

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Plan Supplement 20. Article X, Section G of the Disclosure Statement describes a Plan Supplement as follows: 21. Additional information to be provided in the Plan Supplement is referenced throughout the Disclosure Statement, but there is no one place where creditors and parties in interest may look to see the information that the Debtors intend to provide in the Plan Supplement. 22. The Disclosure Statement does not provide a deadline or date by which the Plan Supplement must be filed.

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Argument and Authority I. The Disclosure Statement fails to provide adequate information. 23. In In re Metrocraft Pub. Serv., Inc., 39 B.R. 567 (Bankr. N.D. Ga. 1984), the court listed the following nineteen factors relevant to an analysis of the adequacy of a disclosure statement: (1) the events which led to the filing of a bankruptcy petition; (2) a description of the available assets and their value; (3) the anticipated future of the company; (4) the source of information stated in the disclosure statement; (5) a disclaimer; (6) the present condition of the debtor while in chapter 11; (7) the scheduled claims; (8) the estimated return to creditors under a chapter 7 liquidation; (9) the accounting method utilized to produce financial information and the name of the accountants responsible for such information; (10) the future management of the debtor; (11) the chapter 11 plan or a summary thereof; (12) the estimated administrative expenses, including attorneys' and accountants' fees; (13) the collectability of accounts receivable; (14) financial information, data, valuations or projections relevant to the creditors' decision to accept or reject the chapter 11 plan; (15) information relevant to risks posed to creditors under the Plan; (16) the actual or projected realizable value from recovery of preferential or otherwise voidable transfers; (17) litigation likely to arise in a nonbankruptcy context; (18) tax attributes of the debtor; and (19) the relationship of the debtor with affiliates. Adequate information also includes a description of the plan and the risks posed to creditor recovery under the plan. In re U.S. Brass Corp., 194 B.R. 420, 425-25 (Bankr. E.D. Tex. 1996). 24. The Disclosure Statement does not adequately disclose: a. The identity of the future management, officers and directors of the reorganized debtor; b. The identity of the creditors’ trust trustee; c. The value of the causes of action reserved for the creditors’ trust;

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d. Why the causes of action are being reserved for the creditors’ trust and the reorganized debtors jointly; e. The date by which the Debtors will file the Plan Supplement (which, if file at all, should be required to be filed and served at least ten days before the Plan voting and objection deadline). II. The Court should decline to approve the Disclosure Statement because it is patently unconfirmable. 25. If there is a defect that makes a plan patently or inherently unconfirmable, the Court may consider and resolve that issue at the disclosure statement stage before requiring parties to proceed with solicitation of the plan and a contested confirmation hearing. In re American Capital Equipment, LLC, 688 F.3d 145, 153-54 (3d Cir. 2012). See also, In re United States Brass Corp., 194 B.R. 420, 422 (Bankr. E.D. Tex. 1996). 26. The Court’s equitable powers under 11 U.S.C. § 105 permit the Court to control its own docket and, therefore, to decline to approve a disclosure statement when the plan it supports may not be confirmable. In re American Capital Equipment, LLC, 688 F.3d at 154. A plan is patently unconfirmable when confirmation defects cannot be overcome by creditor voting and the confirmation defects relate to matters upon which the material facts are not in dispute or have been fully developed at the disclosure statement hearing. Id. at 154-55. The Plan is patently unconfirmable because it contains impermissible release and exculpation provisions, which should be excised prior to solicitation of the Plan. III. The proposed releases are impermissible under 11 U.S.C. § 524(e) and Fifth Circuit authority. A. The proposed releases grant releases of third party claims against nondebtor third parties. 27. The Third Party Release extends to myriad nondebtors including members of the board of directors, members of new management, and the Debtors’ professionals.

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28. The Fifth Circuit struck down all nondebtor releases except those releasing the unsecured creditors’ committee and its members because “its members are the only disinterested volunteers” to be released. Bank of N.Y. Trust Co. v. Off’l Unsecured Creditors’ Comm. (In re Pacific Lumber Co.), 584 F.3d 229, 253 (5th Cir. 2009) (“Pacific Lumber”). See also United Artists Theatre Co. v. Walton (In re United Artists Theatre Co.), 315 F.3d 217, 227 (3d Cir. 2003)(holding that plan release provisions did not render moot United States Trustee’s appeal of indemnity provisions of financial advisor’s employment agreement). The Fifth Circuit reasoned that the release of the debtors’ officers, directors, and professionals should be disallowed because there was no evidence that they “were jointly liable for any…pre-petition debt. They are not guarantors or sureties, nor are they insurers.” Id. at 252. The Fifth Circuit held that 11 U.S.C. § 524(e) was never intended to protect nondebtor parties from “any negligent conduct that occurred during the course of the bankruptcy.” Pacific Lumber, 584 F.3d at 252. See also, Dropbox, Inc. v. Thru, Inc., et al. (In re Thru, Inc.), 2018 WL 5113124, *23 (N.D. Tex. 2018). B. Rule 9019 does not solve the problem of nonconsensual third party releases. 29. In the Plan, the Debtors couch the Third Party Releases in terms of a Rule 9019 settlement. The Debtors may not settle third party claims against third parties. 30. This Court should decline to approve the Disclosure Statement unless and until the release, exculpation, and injunction provisions in the Plan are excised or modified so that they comply with Fifth Circuit authority. In re Zale Corp., 62 F.3d 746, 759-60 (5th Cir. 1995) (overturning the bankruptcy court’s injunction against pursuing claims against nondebtor third parties as effectively discharging a nondebtor) (“Zale”). 31. The Fifth Circuit has reaffirmed this principal in the context of an SEC receivership. SEC v. Stanford Int’l Bank, Ltd., 927 F.3d 830, 841 (5th Cir. 2019) (“Stanford”). “[T]he court

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may not exercise unbridled authority over assets belonging to third parties to which the receivership estate has no claim.” Id. Analogizing the SEC receivership in Stanford to bankruptcy cases, the Fifth Circuit highlighted Zale and other Fifth Circuit opinions that prohibit settling unrelated, third party claims against non-debtor third parties. “The prohibition on enjoining unrelated, third-party claims without the third parties’ consent does not depend on the Bankruptcy Code, but is a maxim of law not abrogated by the district court’s equity power to fashion ancillary relief measures.” Id. at 842. 32. Accordingly, the Debtors cannot use Rule 9019 to obtain this Court’s approval of an otherwise nonconsensual third party release. C. Release and exculpation provisions of professionals violate professional ethical obligations. 33. Attorneys practicing in federal courts in this circuit are subject both to federal and state ethics canons. The Fifth Circuit has held that federal law applies to attorney conduct in federal court. In re Dresser Industries, Inc., 972 F.2d 540, 543 (5th Cir. 1992). In Dresser Industries, the Fifth Circuit applied the ABA Model Rules of Professional Conduct, the ABA Model Code of Professional Responsibility, and the American Law Institute’s Restatement of the Law Governing Lawyers. Id. at 544-45. In Dresser, the Fifth Circuit held, after examining relevant federal ethics canons, that an attorney may not sue a client he represents in another matter. Id. at 544. 34. ABA Model Rule of Professional Conduct 1.8(h)(1) prohibits lawyers from making “an agreement prospectively limiting the lawyer’s liability to a client for malpractice unless the client is independently represented in making the agreement.” Similarly, Texas Disciplinary Rule 1.08(g) of Professional Conduct provides:

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Texas Disciplinary Rule of Professional Conduct 1.08(g). 35. The Released Entities in the Plan include advisors, attorneys, accountants, investment bankers, and consultants. The proposed releases therefore prospectively limit various counsels’ liability to the Releasing Parties, and as such are not permissible. In re Thru, Inc., 2018 WL 5113124 at *22 (finding that plan’s exculpatory provisions releasing professionals and other third parties from liability incurred in connection with, among other actions, formulating or implementing plan, were improper). 36. Furthermore, Debtors cannot unilaterally release Debtors’ counsel from prospective liability given that counsel owes a duty not only to the Debtors but also to the bankruptcy estate. While the Bankruptcy Code does not specifically impose a fiduciary requirement on counsel for debtors-in-possession, “[i]t is undisputed that counsel of a debtor-in-possession owes certain fiduciary duties to both the client debtor-in-possession and the bankruptcy court.” ICM Notes, Ltd. V. Andrews & Kurth, LLP, 278 B.R. 117, 124 (S.D. Tex. 2002), aff’d. 324 F.3d 768 (5th Cir. 2003). Thus while “counsel to a debtor in possession may not owe a duty directly to creditors, counsel does have an obligation to ensure the debtor properly maintains the estate.” In re Texasoil Enterprises, Inc., 296 B.R. 431, 435 (Bankr. N.D. Tex. 2003). See, e.g., Pacific Lumber, 584 F.3d at 252 (striking third-party releases of attorneys in conjunction with confirmation of plan of reorganization). 37. Finally, professionals are protected by fee review under section 330 of the Bankruptcy Code, under which the Court evaluates the reasonableness of a professional’s services, including whether those services were necessary to the administration of the estate or beneficial at

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the time the services were rendered. See In re Frazin, 732 F.3d 313, 319-21 (5th Cir. 2013) (citing Osherow v. Ernst & Young, L.L.P., 200 F.3d 382 (5th Cir. 2000)). 38. Accordingly, the Court should not approve the Disclosure Statement until the release and exculpation provisions of professionals are stricken from the Plan. D. The opt-out releases are not consensual. 39. In the Fifth Circuit, releases must be consensual. See Pacific Lumber, 584 F.3d at 252 (observing that prior Fifth Circuit authority “seem broadly to foreclose non-consensual non-debtor releases and permanent injunctions”). 40. Contract principals govern whether a release is consensual. In re SunEdison, Inc., 576 B.R. 453, 458 (S.D.N.Y. Bankr. 2017) (“SunEdison”). 41. The SunEdison court, in applying New York state contract principles to opt-out releases, found that an opt-out provision in a ballot was not sufficient “consent” to the release to convert the failure to opt-out into affirmative consent to give the release. Id. 42. “Courts generally agree that an affirmative vote to accept a plan that contains a third-party release constitutes an express consent to the release.” SunEdison, 576 B.R. at 458 Id. “Consent through silence or inaction – ‘deemed consent’ – raises a more difficult question. Absent a duty to speak, silence does not constitute consent.” Id. 43. The SunEdison court observed that, under New York state contract law, an offeror cannot transform an offeree’s silence into acceptance when the offeree does not intend to accept the offer. Id. The only exceptions to this rule are (a) when the silence is misleading, (b) when silence as consent is supported by the parties’ ongoing course of conduct, or (c) when the offeree accepts the benefits of the offer despite reasonable opportunity to reject and understand that the offeror expects compensation. Id. at 458-59.

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44. The Plan provides that the construction and enforcement of the Plan is governed by the laws of the State of Texas. The laws of the State of Texas, like New York, hold that silence does not equal consent except under limited circumstances not applicable in this case. 45. “A contract implied in fact is one in which, under the circumstances, the acts of the parties are such as to indicate according to the ordinary course of dealing and the common understanding of men a mutual intention to contract, as where one accepts the tendered service of another under circumstances justifying the inference that such other expected to be paid for such services. Of course, in implied contracts as well as express contracts there must be shown the element of mutual agreement. But the only difference is that such agreement is expressly stated, in the one instance, and is inferred from the circumstances, in the other. A contract implied from the facts and circumstances in evidence is as binding as would be an expressed one.” Marr-Piper Co. v. Bullis, 1 S.W.2d 572, 575 (Tex. Comm. App. 1928, judgment adopted). 46. Silence and inaction, however, will generally not be deemed assent to an offer because, with silence, there is generally no meeting of the minds. Texas Ass'n of Ctys. Cty. Gov't Risk Mgmt. Pool v. Matagorda Cty., 52 S.W.3d 128, 132-33 (Tex. 2000) (quoting 2 Williston on Contracts § 6:49 (4th ed. 1991)). “[A]s a matter of law, when a party is unilaterally informed of [a contract term], ‘mere failure to object within a reasonable time . . ., without more, could not establish an agreement between the parties.’” In re Couture Hotel Corporation, 554 B.R. 369, 381 (Bankr. N.D. Tex. 2016) (quoting Triton Oil and Gas Corp. v. Marine Contractors and Supply, Inc., 665 S.W. 2d 443, 445 (Tex. 1982)). “‘[A] meeting of the minds is an essential element of an implied in fact contract.’” Id. (quoting Excess Underwriters at Lloyd’s, London v. Frank’s Casing Crew & Rental Tools, Inc., 246 S.W.3d 42, 49 (Tex. 2008)).

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47. Conspicuous warnings of the effect of silence in the disclosure statement, on the plan ballots, or on an opt out form are not enough to convert a creditor’s silence into consent to the release. In SunEdison, the debtors argued that the warning in the disclosure statement and on the ballots regarding the potential effect of silence gave rise to a duty to speak, and the nonvoting creditors’ failure to object to the plan or to reject the plan should be deemed their consent to the release. SunEdison, 576 B.R. at 460. The court rejected this argument because the debtors failed to show that the nonvoting creditors’ silence was misleading or that the nonvoting creditors silence signified their intention to consent to the release (finding that silence could easily be attributable to other causes). Id. The debtors did not contend that an ongoing course of conduct between themselves and the nonvoting creditors gave rise to a duty to speak. Id. 48. “Charging all inactive creditors with full knowledge of the scope and implications of the proposed third-party releases, and implying a ‘consent’ to the third party releases based on the creditors’ inaction, is simply not realistic or fair and would stretch the meaning of ‘consent’ beyond the breaking point.” In re Chassix Holdings, Inc., 533 B.R. 64, 88 (Bankr. S.D.N.Y. 2015). 49. This is particularly true with regard to the classes of creditors and claimants who are presumed to reject the Plan and, therefore, will never be solicited such that they might opt-out. These classes of creditors and claimants will never be given the chance to opt-out of the release and, thus, will have it imposed on them without being given the opportunity to consent or not consent (even by way of the opt-out provision). Thus, the pretext of “consent” by failure to opt-out falls away. 50. Moreover, the court in SunEdison observed that parties who are solicited, but do not vote, may have failed to vote for reasons other than an intention to assent to the releases. SunEdison, 576 B.R. at 461.

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51. On June 4, 2019, this Court, Judge Mullin sitting in Fort Worth, adopted the reasoning of the SunEdison court in considering similar opt-out third party releases in In re Mac Churchill, Inc., Case No. 18-41988-MXM-11 (“Mac Churchill”). Like in SunEdison, Judge Mullin found that inaction in connection with an opt-out provision set forth on a plan ballot is not sufficient an affirmative action on the part of the non-voting creditor to constitute consent. “The courts generally do agree that you have to have an affirmative opt-out and that silence really shouldn’t be deemed consent.” See Transcript of Confirmation Hearing, Mac Churchill, June 4, 2019, p. 14, ln. 1 to 3. Judge Mullin adopted the reasoning in the SunEdison opinion and sustained the United States Trustee’s objection to confirmation. Id. at ln. 4 to 8. 52. Judge Hale also adopted the reasoning of Judge Mullin in Mac Churchill and Judge Bernstein in SunEdison in sustaining the United States trustee’s objection to confirmation, striking any third party release by “a party who does not vote on the plan one way or another” because such non-voting party “has not expressed his consent” to the third party release and “this Court does not have the ability to force the release of an non-debtor against another non-debtor.” See Transcript of Confirmation Hearing on Amended Chapter 11 Plan, In re PHI, Inc., et al., Case No. 19-30923-HDH-11, July 30, 2019, p. 161-62, ln. 22 to 4. 53. In a colloquy with debtor’s counsel in Mac Churchill, Judge Mullin observed than an opt-in release would be acceptable “because that’s clearly an affirmative action taken on behalf of the creditor” and that, under his reading, the opt-out release would not pass muster as a consensual release under Pacific Lumber. Mac Churchill Transcript, p. 16, ln. 9-24.1   1 Judge Mullin also distinguished dicta from a recent opinion from the Southern District of Texas, Cole v. Nabors Corp. Serv., Inc. (In re CJ Holding Co.), 597 B.R. 597 (S.D. Tex. 2019) (“CJ Holdings”) that seems to approve of nondebtor third party releases. Mac Churchill Transcript, p. 15, ln. 5 to 10. The Fifth Circuit in Pacific Lumber similarly distinguished Republic Supply Company v. Shoaf, 815 F.2d 1046 (5th Cir. 1987) (“Shoaf”) from other Fifth Circuit authority prohibiting, non-consensual third party releases. See Pacific Lumber, 584 F.3d at 252 n. 27. Like in Shoaf, CJ Holdings essentially involved a question of res judicata of a confirmation order, rather than an appeal of the confirmation order in the first instance. In a collateral attack to the confirmation order, the creditor in CJ Holdings

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54. Finally, as set forth above, the Fifth Circuit, has also reaffirmed the proposition that enjoining unrelated, third-party claims without the third parties’ consent is improper. Stanford, 927 F.3d at 842. “No matter the euphemism, a permanent bar order is a death knell intended to extinguish the [third-party] claims, which are a property interest.” Id. at 848. Construing a creditor’s failure to opt out of a release as affirmative consent to the release is every bit as euphemistic as the injunction in Stanford. 55. Accordingly, the Court should decline to approve a Disclosure Statement that contains release provisions that would extinguish third parties’ (creditors) property rights – potential claims against nondebtor third parties – without the creditors’ consent by way of the opt-out releases. Rather, the Court should require the Debtors to amend the Plan and Disclosure Statement to provide for truly consensual releases or to excise the releases in their entirety. E. The opt out releases are not analogous to class action opt outs. 56. The exception for class actions is based on the unique character of class actions – on of the most important of which is the fact that the interests of the absent class members are adequately protected by court-certified class representatives who hold similar claims, who have incentives to pursue them, and who can be trustiest to litigate or settle the class of claims in a way that will fully protect the absent parties’ interests.” In re Aegean Marine Petroleum Network, Inc., 599 B.R. 717, 724 (Bankr. S.D.N.Y. 2019). 57. In the present bankruptcy, when third party releases are proposed, “no such similar protections exist.” Id. There is no court-certified representative who held similar claims against these third parties of a kind that would be released and who has acted on behalf of other parties   challenged an order enforcing the confirmation order long past the time to appeal the confirmation order, rather than appealing the order confirming a plan in the first place. CJ Holdings, 597 B.R. at 602-05.  

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holding similar claims. There is no proposed resolution of claims that has been negotiated by people who hold such claims. Instead, the proposed opt out release, which will extinguish third party claims against non-debtor third parties, was made not by parties similarly situated to the proposed releasers, but made primarily at the behest of the people who would be the beneficiaries of the releases. IV. The proposed exculpation provision violates Fifth Circuit law. 58. The exculpation provision included in the Plan should be modified to clarify that it complies with 11 U.S.C. § 524(e), which was never intended to protect nondebtor parties from “any negligent conduct that occurred during the course of the bankruptcy.” Pacific Lumber, 584 F.3d at 252. In Pacific Lumber, the Fifth Circuit disallowed the release of the debtors’ officers, directors, and professionals because there was no evidence that they “were jointly liable for any…pre-petition debt. They are not guarantors or sureties, nor are they insurers.” Id. 59. The Fifth Circuit struck down all nondebtor releases except those releasing the unsecured creditors’ committee and its members because “its members are the only disinterested volunteers” seeking release. Id. at 253. See also United Artists Theatre Co. v. Walton (In re United Artists Theatre Co.), 315 F.3d 217, 227 (3d Cir. 2003)(holding that plan release provisions did not render moot United States Trustee’s appeal of indemnity provisions of financial advisor’s employment agreement). See also, In re Thru, Inc., 2018 WL 5113124, *23. Bankruptcy Courts within the Northern District of Texas have resolved objections to exculpation provisions by replacing such provisions with channeling injunctions. See Memorandum Opinion and Order, Docket Entry No. 4614, In re Pilgrim’s Pride Corporation, et al., Case No. 08-45664-DML-11 (January 14, 2010); Fourth Amended Joint Chapter 11 Plan of CHC Group Ltd. and its Affiliated Debtors (Section 10.8), Docket Entry No. 1701, In re CHC Group, Ltd., Case No. 16-31854-BJH-

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11, United States Bankruptcy Court for the Northern District of Texas, Dallas Division (February 16, 2017). V. The Debtors should clarify that claims of governmental agencies are not released. 60. The Debtors should modify the Disclosure Statement and the Plan to clarify that no party shall be released from any causes of action or proceedings brought by any governmental agencies in accordance with their regulatory functions, including but not limited to criminal and environmental matters. The United States Trustee requests that the Debtors include the following language in the Disclosure Statement and Plan: Nothing in the Confirmation Order or the Plan shall effect a release of any claim by the United States Government or any of its agencies or any state and local authority whatsoever, including without limitation any claim arising under the Internal Revenue Code, the environmental laws or any criminal laws of the United States or any state and local authority against any party or person, nor shall anything in the Confirmation Order or the Plan enjoin the United States or any state or local authority from bringing any claim, suit, action, or other proceedings against any party or person for any liability of such persons whatever, including without limitation any claim, suit or action arising under the Internal Revenue Code, the environmental laws or any criminal laws of the United States or any state and local authority against such persons, nor shall anything in the Confirmation Order or the Plan exculpate any party or person from any liability to the United States Government or any of its agencies or any state and local authority whatsoever, including any liabilities arising under the Internal Revenue Code, the environmental laws or any criminal laws of the United States or any state and local authority against any party or person. Wherefore, the United States Trustee requests that the Court deny approval of the Disclosure Statement and grant to the United States Trustee such other and further relief as is just and proper.

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DATED: January 29, 2021 Respectfully submitted, WILLIAM T. NEARY UNITED STATES TRUSTEE /s/ Meredyth A. Kippes Meredyth A. Kippes Trial Attorney Texas State Bar No. 24007882 Office of the United States Trustee 1100 Commerce Street, Room 976 Dallas, Texas 75242 (214) 767-1079 meredyth.a.kippes@usdoj.gov Certificate of Service There undersigned hereby certifies that on January 29, 2021, a copy of the foregoing pleading was served via ECF to parties requesting notice via ECF. /s Meredyth A. Kippes Meredyth A. Kippes