S e l e C T e D T o P I C The Ninth Circuit’s Yellowstone Bruce Nathan, Esq. Decision Increases Protection for Creditors’ Committee Members An unsecured creditors’ committee plays a major role in Chapter 11 cases. Tie committee actively participates in M a r c h 2 0 1 7 N AT I O N A L A S S O C I AT I O N O F C R E D I T M A N A G E M E N T many matters that could signifjcantly infmuence the case’s direction and the recovery to general unsecured creditors. Tiat is why trade creditors with large unse- cured claims ofuen want to join a creditors’ committee. Recently, the benefjts of committee membership were stepped up a notch to protect committee members from certain lawsuits. Tie U.S. Court of Appeals for the Ninth Circuit, in the THE PUBLICATION FOR CREDIT & FINANCE PROFESSIONALS $9.00 Yellowstone Mountain Club Chapter 11 case, recently held that members of a creditors’ committee enjoy the tors that the United States trustee convenes, or based on same protection as bankruptcy trustees in any litigation responses by the debtor’s largest creditors to the United arising out of claims based on the performance of their States trustee’s questionnaire sent to solicit their interest duties. Tie Ninth Circuit’s Yellowstone decision requires to join the committee. Tie committee’s duties include: a plaintifg to obtain bankruptcy court approval prior to overseeing the debtor’s business; investigating the debt- suing committee members in another court for actions or’s assets, liabilities and business operations; investigat- taken in their offjcial capacities. Tiis afgords committee ing and, if grounds exist, prosecuting claims against members the additional comfort of the bankruptcy third parties; negotiating the terms of a Chapter 11 plan court acting as a gatekeeper in deciding which court that governs the treatment of creditors’ claims; and oth- should hear and decide claims arising out of their com- erwise advocating for its unsecured creditor constitu- mittee service: the more-likely sympathetic bankruptcy ents. Debtors frequently provide creditors’ committees court where the case is pending or another less-knowl- with confjdential nonpublic information about their edgeable and possibly less-sympathetic court. business to facilitate the committee’s performance of its duties, and ofuen require that a committee and its mem- The Court held that members of a creditors’ bers sign confjdentiality agreements. committee enjoy the same protection as A creditors’ committee represents the interests of all of the debtor’s general unsecured creditors. As a result, bankruptcy trustees in any litigation arising out of committee members owe a fjduciary duty to all of the debtor’s unsecured creditors. Tiat means acting in the claims based on the performance of their duties. best interests of all unsecured creditors and not using their committee membership to further their own self- interest at the expense of the unsecured creditor body. The Role of an Offjcial Unsecured Any member that breaches its fjduciary duty is at risk Creditors’ Committee of being sued. According to Section 1102 of the Bankruptcy Code, the U.S. trustee has the authority to appoint an offjcial unse- Fortunately, committee members enjoy a limited immu- cured creditor’s committee in a Chapter 11 case. A cred- nity for their actions within the scope of the committee’s itors’ committee usually consists of the debtor’s largest authority and any not constituting willful misconduct. unsecured creditors. Committee members might be Which court, the bankruptcy court where the case is from difgerent creditor constituencies, such as trade pending or another court, ultimately tries and decides creditors, bondholders, unions, the Pension Benefjt any litigation against a committee member that might Guaranty Corporation, landlords, and tort or personal greatly impact the outcome of that litigation. injury claimants. The Barton Doctrine Tie U.S. trustee selects a creditors’ committee either at Back in 1881, the U.S. Supreme Court adopted the Bar- an organizational meeting of the debtor’s largest credi- ton doctrine that requires a plaintifg asserting claims 1 BusiNEss CrEdit maRCh 2017
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