## Facts

- Genesis Health Ventures, Inc. (“Genesis”) and Multicare AMC, Inc. filed Chapter 11 petitions on June 22, 2000.
- Genesis had roughly $1.3 billion in senior debt (about half held by Goldman, Sachs & Co. and related lenders) and about $205 million in subordinated debentures held by the plaintiff investors; the debentures were contractually subordinated to the senior debt.
- Genesis filed a joint plan of reorganization on July 6, 2001.
- After extensive discovery and a contested confirmation process, the Bankruptcy Court confirmed the plan on September 20, 2001, and issued a detailed confirmation opinion addressing valuation and plan treatment. The plan was later consummated.
- In January 2004, approximately 275 subordinated debenture holders (including Richard Haskell) filed a post-confirmation adversary proceeding against Genesis, Goldman Sachs, Mellon Bank, and other senior lenders and related parties.
- Plaintiffs alleged that defendants caused Genesis’s financial performance—especially EBITDA—to be understated during the bankruptcy, which depressed the enterprise valuation used in plan negotiations and confirmation, leaving subordinated debenture holders with little or no recovery.
- The complaint asserted state-law tort theories (including fraud and related claims such as conspiracy and aiding-and-abetting-type allegations) and sought about $200 million in damages; plaintiffs argued they were not seeking to revoke or modify the confirmed plan.
- Defendants moved to dismiss, arguing the suit was, in substance, a late attack on the confirmation order barred by 11 U.S.C. § 1144 and by confirmation finality and claim preclusion, and also that several claims failed to meet Rule 9(b) and Rule 12(b)(6) standards (as applied through Bankruptcy Rules 7009 and 7012).

## Issues

1. Whether the claims against Genesis, though styled as damages claims, were in substance an attempt to revoke or undo the confirmed plan and therefore time-barred under 11 U.S.C. § 1144.
2. Whether confirmation finality and res judicata barred claims that depended on re-litigating enterprise valuation, allocation of value, or plan distributions that were decided (or could have been litigated) at confirmation.
3. Whether, and to what extent, claims against non-debtor senior lenders and related parties could proceed as independent tort claims without disturbing the confirmed plan or requiring redistribution under the plan.
4. Whether the fraud-based counts were pleaded with sufficient particularity under Rule 9(b), and whether other counts stated a claim under Rule 12(b)(6).

## Decision

- The court granted the motion to dismiss in substantial part as to Genesis, holding that the complaint’s damages demand against the debtor functioned as a late effort to obtain a different plan outcome and was “tantamount” to revocation of the confirmation order, which § 1144 permits only within 180 days of confirmation.
- The court dismissed additional portions of the complaint on confirmation preclusion grounds where the asserted injury and requested relief rested on re-litigating valuation and distribution questions addressed (or available to be addressed) during confirmation.
- The court denied the motion to dismiss in part as to certain non-debtor defendants, concluding that not every third-party claim was automatically barred where plaintiffs sought recovery from non-debtor assets and the claim, as pleaded, did not necessarily require changing plan terms or reallocating estate value.
- The court also evaluated pleading sufficiency, dismissing some fraud-related allegations for lack of Rule 9(b) detail and allowing only those counts that plausibly alleged fraud and related misconduct with adequate specificity to proceed past the pleading stage.

## Legal Principles

- 11 U.S.C. § 1144 provides the exclusive mechanism to revoke a Chapter 11 confirmation order for fraud, and it must be invoked within 180 days after entry of the confirmation order.
- A post-confirmation lawsuit against the reorganized debtor may be barred when the requested damages would effectively rewrite the confirmed bargain by re-valuing the debtor or re-allocating distributions that the plan fixed.
- Confirmation orders carry strong finality; res judicata can bar later claims that were litigated at confirmation or that could have been raised in the confirmation process, including challenges tied to valuation and plan treatment of creditor classes.
- Claims against non-debtor parties are not automatically barred after confirmation; they may proceed if they are genuinely independent of the plan’s implementation and can be satisfied from non-debtor assets without altering plan distributions or requiring plan revocation.
- Fraud claims must satisfy Rule 9(b)’s particularity requirement (the “who, what, when, where, and how”), and all claims must meet Rule 12(b)(6) plausibility standards.

## Conclusion

In this post-confirmation adversary proceeding, the Bankruptcy Court held that the subordinated debenture holders’ attempt to recover damages from Genesis based on alleged fraud affecting valuation and plan negotiations was, in substance, a late attack on the confirmed plan and therefore barred by § 1144 and confirmation preclusion doctrines; however, the court allowed certain properly pleaded, independent damages claims against non-debtor senior lenders and related parties to continue, while dismissing other counts that were precluded or inadequately pleaded.


Haskell v. Goldman, Sachs & Co. (In re Genesis Health Ventures, Inc.), 324 B.R. 510 (Bankr. D. Del. 2005)