About the 2021–2022 Competition
This year marks the 97th anniversary of the Harlan Fiske Stone Moot Court, founded at Columbia Law School in 1925 by the Story Inn, a chapter of the legal fraternity Phi Delta Phi. The competition is named in honor of Harlan Fiske Stone 1898, who was a member of the Story Inn while a student at the Law School. Stone was named dean of Columbia Law School in 1910. He served in that capacity until 1924, when President Calvin Coolidge appointed him attorney general of the United States. He was named to the Supreme Court of the United States the following year and was elevated to chief justice in 1941.
The finals of this year’s competition will be Monday, April 18.
A. Does a bankruptcy judge have authority consistent with Article III of the Constitution to confirm a plan of reorganization that grants a non-consensual release of a non-debtor from state law claims asserted by a third party?
B. Does the U.S. Bankruptcy Code permit the confirmation of a Chapter 11 reorganization plan that includes a non-consensual third-party release, and if so, which test should the 8th Circuit adopt to apply to the facts at hand? Under whichever test the 8th Circuit adopts, do the facts of this case allow for such a release?
Better Future Housing Company (“BFH”) is a Delaware Public Benefit Corporation that builds affordable housing across the United States but is now in bankruptcy. Entrepreneur David Hasseldorf founded BFH in 2014 and also created a proprietary computer program that is central to BFH’s business model. Hasseldorf’s program can analyze local rental markets to find prime locations for new affordable housing. For five years, BFH successfully relied on Hasseldorf’s program to identify locations where (1) new affordable housing would be commercially successful, and (2) building new affordable housing would create enough price competition to drive down housing costs in the surrounding community.
When founding BFH, Hasseldorf retained personal ownership over his proprietary computer program. In 2015, Hasseldorf sold all his shares in BFH to a partner and exited the business. Hasseldorf continued to allow BFH to use his computer program but began charging the company for each use of the program. In 2019, a group of landlords sued BFH and Hasseldorf in multiple jurisdictions, arguing that BFH was improperly attempting to reduce rental costs in the surrounding market, thereby lowering property values. BFH eventually faced billions of dollars in potential damages. BFH’s leadership determined that while the tort litigation was based on a dubious legal theory, the company could not afford to wait for the cases to be resolved. BFH filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Iowa.
Although Hasseldorf was not a formal party in the bankruptcy, he remained a central figure in developing the plan of reorganization. Hasseldorf offered to help BFH reorganize by giving significant sums of money to pay unsecured creditors, including the tort creditors. He also offered to give his proprietary computer program to the BFH estate, meaning that BFH would no longer need to pay each time it used his program. However, all of these offers came with a price: Since Hasseldorf was also named as a defendant in the tort litigation against BFH, he would only make these contributions if the tort claimants released all of their claims against him in his personal capacity. Conversely, Hasseldorf said that if the tort claimants did not release their claims against him, he would derail any plan of reorganization by refusing to allow BFH to use his computer program, undermining BFH’s business model.
Recognizing that Hasseldorf’s contributions would make it possible for BFH to successfully reorganize—and that Hasseldorf would otherwise make reorganization impossible—the ultimate plan of reorganization followed along the lines that Hasseldorf proposed, including the release of the tort claims against Hasseldorf in his personal capacity. When BFH’s creditors voted on wether to approve the plan, the largest tort creditors voted against it, but it still passed with the approval of the other creditors, including the smaller tort creditors. The plan of reorganization then moved to a confirmation hearing, where the large tort creditors continued to oppose it. They argued that the plan would improperly force the tort creditors to give up their claims against Hasseldorf in a non-consensual third-party release. They argued further that the bankruptcy court did not have the constitutional power to approve the release of the tort claims against Hasseldorf, a nondebtor, and that the release also violated the U.S. Bankruptcy Code.
The U.S. Bankruptcy Court for the Southern District of Iowa approved the plan, finding that a bankruptcy court does have the constitutional power to approve non-consensual third-party releases, and that the releases did not violate the U.S. Bankruptcy Code. The tort creditors appealed to the District Court, and their appeal was certified to the 8th Circuit.