Whether a bankruptcy court may exculpate third-party misconduct that falls short of gross negligence

QUESTIONS PRESENTED Section 524(e) of the Bankruptcy Code provides that the “discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.” 11 U.S.C. §524(e). Consistent with that provision, the Fifth Circuit held below that the Bankruptcy Code generally prohibits courts from exculpating third parties from liability. Nonetheless, the court approved provisions in a reorganization plan that exculpated the debtor’s “Independent Directors” for any misconduct short of gross negligence, on the theory that those provisions merely tracked the common-law immunity of bankruptcy trustees. Other circuits have adopted different standards for common-law immunity, with some allowing claims for ordinary negligence and others limiting liability to intentional misconduct. The Fifth Circuit in this case also approved provisions exculpating both the debtor and other parties from ordinary business liabilities arising after confirmation of the reorganization plan, contrary to the holdings of other courts of appeals. The questions presented are: 1. Whether a bankruptcy court may exculpate thirdparty misconduct that falls short of gross negligence, on the theory that bankruptcy trustees have common-law immunity for such misconduct. 2. Whether a bankruptcy court may exculpate parties from ordinary post-bankruptcy business liabilities. (i)