July 22, 2025
Plan Drafters Beware - Delaware Bankruptcy Court Denies Post-Confirmation Bankruptcy Jurisdiction
By: Ashly Riches
The Delaware Bankruptcy Court’s recent opinion on June 5, 2025, issued in Nu Ride Inc. v. Certain Underwriters at Lloyd’s, London (In re: Nu Ride Inc.), established that the Court did not have subject matter jurisdiction over an insurance coverage dispute post-confirmation despite the inclusion of a retention of jurisdiction provision in the plan that references claims related to insurance policies.
Specifically, the Reorganized Debtors brought the adversary proceeding post-effective date, alleging that the Defendants were obligated to provide defense coverage and costs incurred in connection with certain lawsuits brought against the Debtors that occurred pre-petition. The Defendants filed a motion to dismiss the complaint on the basis that the Court lacked subject matter jurisdiction.
A bankruptcy court’s jurisdiction includes both “core” and “related to” matters. Post-confirmation, the test for whether a bankruptcy court can hear a “related to” matter is very stringent, and a bankruptcy court will only exercise jurisdiction where the matter has “a close nexus to the bankruptcy plan or proceeding” and the matter “affects the interpretation, implementation, consummations, execution, or administration of a confirmed plan.”
Here, the Reorganized Debtors argued that the adversary matter met the stringent “related to” jurisdictional test because (i) they had expressly retained jurisdiction over this action pursuant to provisions of the Plan, and (ii) the matter had a close nexus to the estate because it was critical to recovery for creditors.
The Debtors’ Schedule of Retained Causes of Action contained in the Plan Supplement included a general retention of jurisdiction provision which provided that the Debtors “expressly reserve all Causes of Action based in whole or in part upon any and all insurance contracts, insurance policies, occurrence and claims made policies, occurrence and claims made contracts, and similar agreements.”
However, the Court found that the retention of jurisdiction provision (even if it explicitly described the litigation) was not sufficient to establish a substantial nexus to the Plan and the estate. There must also be “evidence that [the action] has a substantial nexus to the Plan and estate.” Therefore, the Court determined that the express retention of jurisdiction in the Plan standing alone was insufficient to confer subject matter jurisdiction on the Court.
Further, the Court did not find a close nexus between the adversary proceeding and the Plan. The matter at issue did not affect the interpretation of the Plan. Rather, the Reorganized Debtors’ main argument – that creditors would get additional recoveries – was an insufficient nexus. Additionally, although the claims asserted in the adversary proceeding were retained in the Plan, there was no evidence to support that the adversary was crucial to the success of the Plan; indeed, it was only one of many insurance-based disputes. The Court noted that if the matter were truly important, it would have had a more prominent place and description in the Plan.
Overall, the Court held that: (i) the inclusion of a general retention of jurisdiction provision in a Plan is insufficient to confer jurisdiction without further evidence of a close nexus; and (ii) the court can find a close nexus if the matter is a “lynchpin” of the debtors’ plan, which is evidenced by its prominent place and description. Although the Debtors in this case did have a general retention of jurisdiction provision, the Plan did not indicate that the adversary proceeding was essential. Consequently, the Court found that it did not have subject matter jurisdiction over the adversary proceeding and advised the parties to seek resolution in another court.
This case represents a potential complication for future debtors’ counsel when drafting plans. The Court’s decision diminishes the effectiveness of retention of jurisdiction provisions. However, the Court also provides important guidance for ensuring that jurisdiction is preserved for critical claims. Ultimately, this case emphasizes the importance of carefully drafting the provisions of a plan and assessing litigation pre-confirmation.
The Delaware Bankruptcy Court’s recent opinion on June 5, 2025, issued in Nu Ride Inc. v. Certain Underwriters at Lloyd’s, London (In re: Nu Ride Inc.), established that the Court did not have subject matter jurisdiction over an insurance coverage dispute post-confirmation despite the inclusion of a retention of jurisdiction provision in the plan that references claims related to insurance policies.
Specifically, the Reorganized Debtors brought the adversary proceeding post-effective date, alleging that the Defendants were obligated to provide defense coverage and costs incurred in connection with certain lawsuits brought against the Debtors that occurred pre-petition. The Defendants filed a motion to dismiss the complaint on the basis that the Court lacked subject matter jurisdiction.
A bankruptcy court’s jurisdiction includes both “core” and “related to” matters. Post-confirmation, the test for whether a bankruptcy court can hear a “related to” matter is very stringent, and a bankruptcy court will only exercise jurisdiction where the matter has “a close nexus to the bankruptcy plan or proceeding” and the matter “affects the interpretation, implementation, consummations, execution, or administration of a confirmed plan.”
Here, the Reorganized Debtors argued that the adversary matter met the stringent “related to” jurisdictional test because (i) they had expressly retained jurisdiction over this action pursuant to provisions of the Plan, and (ii) the matter had a close nexus to the estate because it was critical to recovery for creditors.
The Debtors’ Schedule of Retained Causes of Action contained in the Plan Supplement included a general retention of jurisdiction provision which provided that the Debtors “expressly reserve all Causes of Action based in whole or in part upon any and all insurance contracts, insurance policies, occurrence and claims made policies, occurrence and claims made contracts, and similar agreements.”
However, the Court found that the retention of jurisdiction provision (even if it explicitly described the litigation) was not sufficient to establish a substantial nexus to the Plan and the estate. There must also be “evidence that [the action] has a substantial nexus to the Plan and estate.” Therefore, the Court determined that the express retention of jurisdiction in the Plan standing alone was insufficient to confer subject matter jurisdiction on the Court.
Further, the Court did not find a close nexus between the adversary proceeding and the Plan. The matter at issue did not affect the interpretation of the Plan. Rather, the Reorganized Debtors’ main argument – that creditors would get additional recoveries – was an insufficient nexus. Additionally, although the claims asserted in the adversary proceeding were retained in the Plan, there was no evidence to support that the adversary was crucial to the success of the Plan; indeed, it was only one of many insurance-based disputes. The Court noted that if the matter were truly important, it would have had a more prominent place and description in the Plan.
Overall, the Court held that: (i) the inclusion of a general retention of jurisdiction provision in a Plan is insufficient to confer jurisdiction without further evidence of a close nexus; and (ii) the court can find a close nexus if the matter is a “lynchpin” of the debtors’ plan, which is evidenced by its prominent place and description. Although the Debtors in this case did have a general retention of jurisdiction provision, the Plan did not indicate that the adversary proceeding was essential. Consequently, the Court found that it did not have subject matter jurisdiction over the adversary proceeding and advised the parties to seek resolution in another court.
This case represents a potential complication for future debtors’ counsel when drafting plans. The Court’s decision diminishes the effectiveness of retention of jurisdiction provisions. However, the Court also provides important guidance for ensuring that jurisdiction is preserved for critical claims. Ultimately, this case emphasizes the importance of carefully drafting the provisions of a plan and assessing litigation pre-confirmation.