Wed 12/14/2022 15:06 PM
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Relevant Documents:

Hearing Agenda
Proposed Confirmation Order (Blackline)
First Amended Plan Supplement
Nokali Supplemental Declaration

Judge Karen Owens ruled today that she was not willing to approve the GT Real Estate debtor’s modified plan to the extent it includes nonconsensual third-party releases and a channeling injunction, finding “nothing sufficiently extraordinary” to justify the releases and sustaining in part the U.S. Trustee’s objection to the plan. However, Judge Owens did find that, absent the nonconsensual third-party releases and channeling injunction, the modified plan otherwise meets the requirements for confirmation. The UST is the only plan objector.

The plan contemplates nonconsensual third-party releases in favor of the debtor’s construction manager Mascaro/Barton Malow and its related parties, plan sponsor DT Sports Holding, the DIP lender, the independent managers, the chief restructuring officer, Tepper Sports Holding, Appaloosa Management and each of their related parties and debtor’s related parties.

The ruling came at the debtor’s confirmation hearing, which the court adjourned to allow the parties to “digest” her ruling to today at 4 p.m. ET.

The plan is based upon various agreements reached by the debtor with plan sponsor DT Sports, the debtor’s construction manager Mascaro/Barton Malow, the city of Rock Hill and York County in South Carolina, and various subcontractors that resolved pending litigations and issues arising from the now-abandoned Carolina Panthers headquarters and training facility.

While commending the parties on the “hard fought” settlements with key constituents that led to a largely consensual plan, Judge Ownens found that there was no evidence to support that the nonconsensual third-party releases were necessary under the Third Circuit precedent. As to the channeling injunction, Judge Owens said the “mere statement” that there may be unknown creditors does not meet the requirements for a channeling injunction (which are most often seen in mass tort cases).

Regarding the proposed debtor releases, Judge Owens sustained the UST’s objection, saying she was unwilling to approve the “broadly worded” releases of related parties because they are nonconsensual in nature and trying to “bind” parties who are “outside the room.” The court did leave open the possibility for the parties to modify the plan to provide for mutual releases between the released parties.

The court overruled the UST’s objection regarding the exclusion of a carve-out from the debtor releases for fraud, gross negligence and wilful misconduct, finding that the debtor met its burden to include those as part of the release. William Guerrieri of White & Case, counsel for the debtor, argued that the exclusion of a carve-out from the releases is appropriate given the consensual nature of the plan and the contributions made by the parties. After conducting an investigation, debtor’s counsel said that he is unaware of any claims for fraud, gross negligence or willful misconduct and, even if any claim existed, it would not increase the recoveries under the plan.

Separately, the court approved the settlement with York County, under which DT Sports would make an approximately $21.2 million payment to the county in exchange for mutual releases, the county’s plan support and the dismissal of all litigation. Debtor’s counsel emphasized that the debtor is receiving all the benefits of the deal without having to make any payment since the plan sponsor is responsible for the settlement payment under the agreement.

At today’s hearing, counsel for the UST argued that the proposed channeling injunction and the broad third-party releases extinguish direct claims against nondebtors held by all claimholders and their related parties without their consent and does not provide an opt-out mechanism. The UST argued that the plan supporters have not met the “high threshold” necessary to justify nonconsensual third-party releases for each of the nondebtor parties.

As to the channeling injunction, the UST explained that such injunctions are typically reserved for mass tort cases, specifically asbestos cases, where there is a “vast” and “unknown” amount of claims, which the UST argued is not the situation in this case. The UST argued the plan supporters’ “weak claim” that there may be some potential subcontractor with a claim is insufficient to support such injunction.

Lawyers speaking for the debtor, MBM and DT Sports all argued that the proposed nonconsensual third-party releases were necessary as a precursor to the substantial contributions being made by the parties as part of the plan’s settlements. Guerrieri, for the debtors, argued that it is the debtor’s view that DT Sports and MBM are making contributions on behalf of themselves and their affiliates to support the granting of releases and that, even if the contributions are not being made on a “direct basis,” the “overall magnitude” of the cotnributions support the releases.

Dan Fliman of Paul Hastings, counsel for prepetition equityholder and plan sponsor DT Sports, an affiliate of Panthers owner David Tepper, said that the plan “hinges” on the plan sponsor’s contributions and that the releases were “necessary” as part of the agreement and to achieve “absolute peace and finality.” Without the concessions and contributions of DT Sports, Fliman argued that there would be no consensus on the plan or funding to make distributions, which supports a determination that the contributions are “fair.”

Guerrieri, for the debtors, said that it is important that the plan is “clear” that the “sole source” of recovery would be against the settlement fund under the channeling injunction, attempting to distinguish from mass tort cases.

Michael J. Roeschenthaler of Whiteford Taylor & Preston, counsel for MBM, urged the court to “not let perfection be the enemy of good,” admitting that the plan is “not perfect” but that the plan embodies agreement with numerous parties that is “overwhelmingly” supported by the claimants and prevents “irreparable harm” to smaller creditors. Roeschenthaler also argued that there is an identity of interest to support the granting of the releases, citing MBM’s role as the general contractor for the project and the various subcontractors that may have claims against both the debtor and MBM. On this last point, Judge Owens pushed back, saying that the case law makes clear that identity of interest does not support the releases itself and that there needs to also be a showing that they are necessary.

More broadly, as discussed above, Judge Owens found that the circumstances of the case do not satisfy the “extraordinary” requirements for nonconsensual third-party releases.
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