A Third Party Release In A Confirmed Plan Shields Against Unknown And Nonexistent Claims

Bankruptcy law and business expectations converged in the Residential Capital ("ResCap") proceeding when the Bankruptcy Court confirmed that the third party release contained in ResCap's plan of reorganization protected ResCap's non-debtor parent from claims that were not known and did not exist at the time the plan was confirmed. The Bankruptcy Court reasoned that Section 502(h) of the Bankruptcy Code permitted the third party release to shield the parent even though the claim was contingent on the outcome of an adversary proceeding filed after the plan's confirmation. This aligned with the business expectation of the plan's financial sponsor, Ally Financial Inc. ("AFI"), the non-debtor parent that had contributed $2.1 billion to the reorganizing debtor to facilitate confirmation.