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United States District Court for the Eastern District of Virginia, Richmond Division
January 13, 2022, Decided; January 13, 2022, Filed
Civil No. 3:21cv167(DJN)
This case arises out of the bankruptcy cases commenced by Mahwah Bergen Retail Group, Inc. (f/k/a Ascena Retail Group, Inc.) ("Mahwah" or "Ascena") and sixty-three of its affiliates (collectively, the "Debtors"). The United States Bankruptcy Court for the Eastern District of Virginia ("Bankruptcy Court") confirmed the reorganization plan ("the Plan") set forth by the parties in interest, and Joel Patterson and Michaella Corporation ("Securities Litigation Lead Plaintiffs") filed notices of appeal to this Court. Likewise, the United States Trustee ("Trustee") filed a notice of appeal of the confirmation to this Court.1 The appeals were consolidated into this action.2 In these appeals, Appellants challenge third-party (non-debtor) releases, as well as an exculpation provision, contained in the Plan.
This appeal implicates the most fundamental right guaranteed by the due process clause in our judicial system: the right to be heard before the loss of one's rights. "For more than a century the central meaning of procedural due process has been clear: 'Parties whose rights are to be affected are [*3] entitled to be heard; and in order that they may enjoy that right they must first be notified.'" Fuentes v. Shevin, 407 U.S. 67, 80, 92 S. Ct. 1983, 32 L. Ed. 2d 556 (1972) (quoting Baldwin v. Hale, 68 U.S. 223, 233, 17 L. Ed. 531 (1863)). "And, the Supreme Court has explained that the particular constitutional protection afforded by access to the courts is 'the right conservative of all other rights, and lies at the foundation of orderly government.'" Cromer v. Kraft Foods N. Am., Inc., 390 F.3d 812, 817 (4th Cir. 2004) (quoting Chambers v. Baltimore & O. R. Co., 207 U.S. 142, 148, 28 S. Ct. 34, 52 L. Ed. 143, 6 Ohio L. Rep. 498 (1907)). Furthermore, "[t]his right... has little reality or worth unless one is informed that the matter is pending and can choose for himself whether to appear or default, acquiesce or contest." Schroeder v. City of New York, 371 U.S. 208, 212, 83 S. Ct. 279, 9 L. Ed. 2d 255 (1962) (quoting Mullane v. Cent. Hanover Bank & Tr. Co., 339 U.S. 306, 314, 70 S. Ct. 652, 94 L. Ed. 865 (1950)). Relatedly, "parties who choose to resolve litigation through settlement may not dispose of the claims of a third party, and a fortiori may not impose duties or obligations on a third party, without that party's agreement." Loc. No. 93, Int'l Ass'n of Firefighters AFL-CIO C.L.C v. City of Cleveland, 478 U.S. 501, 529, 106 S. Ct. 3063, 92 L. Ed. 2d 405 (1986). This is so, because the general rule provides "that a person cannot be deprived of his legal rights in a proceeding to which he is not a party." Martin v. Wilks, 490 U.S. 755, 759, 109 S. Ct. 2180, 104 L. Ed. 2d 835 (1989); see also id. at 762 ("A judgment or decree among parties to a lawsuit resolves issues as among them, but it does not conclude the rights of strangers to those proceedings.").
These fundamental principles resonate with force in this appeal from the Bankruptcy Court, as third-party releases strike at [*4] the heart of these foundational rights. The United States Trustee — a statutory watchdog over bankruptcy proceedings — and the Securities Litigation Lead Plaintiffs, as designated by a United States District Judge in a putative class action alleging securities fraud, challenge the approval by the Bankruptcy Court3 of exceedingly broad third-party (non-debtor) releases, as well as an exculpation provision, contained in the Plan submitted by Debtors.
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2022 U.S. Dist. LEXIS 7431 *; 2022 WL 135398
JOEL PATTERSON, et al., Appellants, v. MAHWAH BERGEN RETAIL GROUP, INC., Appellee.
Prior History: Patterson v. Mahwah Bergen Retail Grp., Inc., 2021 U.S. Dist. LEXIS 120793, 2021 WL 2653732 (E.D. Va., June 28, 2021)
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