On October 10, 2021, Judge Colleen McMahon of the U.S. District Court for the Southern District of New York entered a temporary restraining order, delaying implementation of Purdue Pharma’s plan of reorganization, which was confirmed by Bankruptcy Judge Robert Drain on September 17th, pending argument on the U.S. Trustee’s motion for a stay pending appeal (our prior post on Judge Drain’s confirmation order is available here). The temporary restraining order will remain effective until October 12, 2021, when Judge McMahon has scheduled argument on the U.S. Trustee’s motion.
Federal Rule of Bankruptcy Procedure 3020(e) provides for a 14-day automatic stay of plan confirmation orders, unless the court orders otherwise. Given that Purdue Pharma’s plan was confirmed on September 17th, this stay was therefore set to expire on October 1, 2021. In advance of that deadline, the U.S. Trustee filed a motion for a stay pending appeal before Judge Drain in the Bankruptcy Court as it seeks to appeal Judge Drain’s confirmation order to either the District Court and/or the Second Circuit Court of Appeals. Despite the impending October 1st deadline, however, Judge Drain did not schedule a hearing on the U.S. Trustee’s motion until November 9th, indicating at a status conference on September 30th that an earlier hearing was “unnecessary.”
Concerned as to what might happen in the interim period between the expiration of the automatic stay of plan confirmation on October 1st and Judge Drain’s hearing on a stay pending appeal on November 9th, and in particular the potential for the debtors to implement their plan in the interim and argue that any future appeals were “equitably moot,” the U.S. Trustee filed a second motion for a stay pending appeal, this time on an emergency basis before the District Court. Acknowledging that the same request was still pending before Judge Drain at the Bankruptcy Court, the U.S. Trustee nonetheless claimed an ability to simultaneously move before the District Court based on Federal Rule of Bankruptcy Procedure 8007(b)(2)(B), which provides that parties can move for a stay from the District Court if a similar motion is first made before the Bankruptcy Court and “the court has not yet ruled on the motion.”
While not yet having heard argument on that motion, on Sunday, October 10th, Judge McMahon entered a temporary restraining order, preventing any implementation of Purdue Pharma’s confirmed plan until she had a chance to consider the U.S. Trustee’s request for a stay pending appeal, emphasizing that she had “no intention of allowing the critically important issues on appeal to be ‘equitably mooted.’” Judge McMahon also confirmed that she would hear argument on the U.S. Trustee’s motion for a stay pending appeal on Tuesday, October 12th, and that she “fully” intended to grant that motion so long as she had jurisdiction to do so. Judge McMahon also emphasized that the stay would be conditioned on an expedited briefing schedule in the appeal.
Separately, the U.S. Trustee, along with several other objecting parties, have asked the Bankruptcy Court to certify their appeal directly to the Second Circuit Court of Appeals, bypassing the District Court, noting, among other things, that no matter how the District Court rules a further appeal by the losing party is certain.
Stay tuned to the Real Bankruptcy Intel blog for continued updates.