## Facts

- Master Mortgage Investment Fund, Inc., a real estate investment fund, filed for Chapter 11 reorganization in 1992.
- Skopbank held the debtor’s largest claim (over $19 million), secured by mortgage-backed instruments and related guarantees.
- The debtor and Skopbank settled disputes after litigation over cash collateral and proposed postpetition financing; the settlement required the plan to include a permanent injunction barring creditor and equity-holder claims against Skopbank arising from transactions with the debtor.
- Skopbank’s settlement consideration included assignments of mortgage participation interests and other instruments that added significant value to the estate (nearly $4 million attributed to certain assignments).
- The debtor also entered settlements with non-debtor affiliates who:
  - Released liens on debtor property and claims (including claims connected to Skopbank),
  - Agreed to contribute a large portion of postpetition contract payments to the debtor to fund litigation resolution,
  - Received plan-based permanent injunction protection from certain creditor claims tied to their relationships with the debtor.
- The debtor’s Fourth Amended Chapter 11 plan incorporated these settlements and included permanent third-party injunctions for Skopbank and the affiliates.
- The plan proposed full payment of general unsecured claims over an extended period and received acceptance from most impaired creditor classes.
- The SEC objected to confirmation, arguing the plan’s non-debtor injunctions violated Bankruptcy Code § 524(e); another secured creditor was permitted additional time to submit a written objection.

## Issues

1. Whether a Chapter 11 plan may include permanent injunctions/release provisions protecting non-debtors from creditor and equity-holder claims, given § 524(e).
2. Whether § 105(a) permits approval of such injunctions when they are tied to settlements and asserted to be necessary to consummate a confirmable plan.
3. What factual showings are required to justify non-debtor injunctions as fair, necessary, and consistent with the Bankruptcy Code and due process.

## Decision

- The court confirmed the Chapter 11 plan.
- The court overruled the SEC’s objection to the permanent non-debtor injunctions.
- The court held that, on these facts, the plan’s third-party injunctions were permissible under § 105(a) and did not contravene § 524(e) as applied.
- The court found the injunctions were essential to preserve settlement value and prevent estate depletion through indemnity and related claims.
- The court concluded the process and scope were sufficient: parties received notice and an opportunity to be heard, and the injunctions were limited to claims arising from transactions with the debtor.

## Legal Principles

- Section 524(e) generally provides that a debtor’s discharge does not, by itself, alter the liability of non-debtors on the same debt; however, some courts permit non-debtor injunctions in limited circumstances as part of plan confirmation.
- Section 105(a) authorizes bankruptcy courts to enter orders necessary or appropriate to carry out the Bankruptcy Code, which may support non-debtor injunctions when justified by case-specific findings.
- Permanent non-debtor injunctions may be approved when supported by factors commonly distilled from the court’s analysis, including:
  - A close identity of interests between the debtor and the protected non-debtor (including indemnity or contribution exposure that would drain estate assets if third-party litigation proceeds),
  - Substantial consideration or value contributed by the protected non-debtor to the reorganization,
  - A showing that the injunction is essential to the plan and that the settlement would fail without it,
  - Strong support for the plan from affected creditor constituencies,
  - Treatment of affected claims that is fair in light of the reorganization’s benefits and the consideration exchanged.
- Due process concerns require meaningful notice and an opportunity to object, and the injunction must be tied to the plan’s restructuring purpose and limited to the covered transactional nexus.

## Conclusion

The bankruptcy court confirmed a Chapter 11 plan containing permanent injunctions protecting a major secured creditor and non-debtor affiliates from certain third-party claims, finding that indemnity-driven identity of interests, substantial settlement contributions, plan necessity, creditor support, and fairness justified the relief under § 105(a) notwithstanding § 524(e).


In re Master Mortg. Inv. Fund, Inc., 168 B.R. 930 (Bankr. W.D. Mo. 1994)