Deutsche Bank v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.)

Metromedia Fiber Network, Inc. (Metromedia) (debtor) filed for bankruptcy and proposed a reorganization plan (plan). The plan settled the claims of the Kluge Trust (Kluge) (creditor) against Metromedia. Kluge forgave $150 million in unsecured claims and converted $15.7 million in senior secured claims into equity in reorganized entities to be created by the plan (reorganized debtors). Kluge agreed to invest about $12 million in the reorganized debtors and to buy up to $25 million of the reorganized debtors’ stock. Kluge was to receive about 11 percent of the reorganized debtors’ common stock. Also, the bankruptcy court was asked to enjoin all claims against Kluge arising from its dealings with Metromedia (release). In March 2003, the bankruptcy court granted the release, stating that Kluge had made a material contribution to the plan, and confirmed the plan. In March 2004, a United States district court affirmed the bankruptcy court’s order. Deutsche Bank London Branch (DB) (creditor) and Bear, Stearns & Company, Inc. (Bear Stearns) (creditor) appealed, arguing that the United States Bankruptcy Code did not empower the bankruptcy court to release Kluge. DB and Bear Stearns did not ask that the reorganization be stayed or expedite their appeal. Before the appeal was heard, many transactions contemplated by the plan were completed, including the issue of the reorganized debtors’ stock, the estate’s receipt of Kluge’s contribution, and the entry of a reorganized debtor firm into contracts necessary for its operations. On appeal, DB and Bear Stearns argued that the appellate court could create a remedy without disrupting the plan by allowing their claims against Kluge despite the release.