On September 1, 2021, Judge Robert Drain issued a much-anticipated oral ruling approving Purdue Pharma L.P.’s plan of reorganization. The plan, which has garnered significant attention from the media, legislators, academics, and practitioners, releases current and future members of the Sackler family and many of their associates and affiliated companies – none of whom filed for bankruptcy themselves – from liability in connection with any possible harm caused by OxyContin and other opioids that Purdue Pharma manufactured and distributed. In return for the liability releases, the Sacklers will, over a nine-year period, contribute up to $4.325 billion to a settlement fund from which payments will be made primarily to compensate victims and to fund initiatives to abate the opioid epidemic.

Continue Reading SDNY Bankruptcy Court OKs Purdue Pharma’s Plan of Reorganization Featuring Third-Party Releases for Sacklers in Exchange for Contributing $4.325 Billion to Opioid Victim Settlement Fund

On Friday, March 19, 2021, Congressional lawmakers introduced a bill that would amend the U.S. Bankruptcy Code to prohibit bankruptcy judges from permanently enjoining or releasing legal claims of states, tribes, municipalities or the U.S. government against non-debtors.

According to media reports, the bill, which is named the “SACKLER Act,” (i.e., the “Stop Shielding Assets from Corporate Known Liability by Eliminating Non-Debtor Releases Act”) is specifically designed to prevent members of the Sackler family, who own OxyContin-maker Purdue Pharma LP, from using the bankruptcy process to obtain legal releases from government lawsuits.  Purdue Pharma LP filed for bankruptcy in September 2019, but none of the members of the Sackler family have filed for bankruptcy as individuals.  Nevertheless, the Sacklers have offered to contribute roughly $4.28 billion as part of a proposed bankruptcy plan to fund payouts to victims who suffered injuries linked to Purdue Pharma’s opioids over the next decade in exchange for legal releases that would enjoin claims against the Sackler family.  If approved, those legal releases would shield the Sackler family from further liability related to the opioid crisis, something that many state attorneys general have ardently opposed.  Continue Reading Wither Non-Debtor Releases? Purdue Pharma and the Proposed SACKLER Act

Two recent decisions from Delaware illustrate somewhat divergent views from the bankruptcy bench on the proper procedures for obtaining non-debtor releases in confirmed plans of reorganization. In both In re Emerge Energy Services LP, et al.1 and In re Cloud Peak Energy Inc., et al.2 the debtors’ initial, and then certain subsequent, efforts at plan confirmation were stymied by proposed opt-out procedures. Ultimately, both debtors were able to confirm their plans after adjusting the applicable release provisions, as described below. Collectively, these decisions demonstrate how closely many courts will scrutinize non-debtor releases and the importance of designing procedures for obtaining consent to such releases that demonstrate that they are procedurally fair.

Continue Reading Recent Delaware Decisions Show Divergent Views on Third-Party Release Procedures

On December 19, 2019, the US Court of Appeals for the Third Circuit held in In re Millennium Lab Holdings II, LLC1 that bankruptcy courts have the constitutional authority, well within the constraints of Stern v. Marshall,2 to confirm Chapter 11 reorganization plans containing nonconsensual third-party releases. This decision is notable not only because it is the first federal circuit court of appeals decision addressing (and overruling) a Stern challenge to a bankruptcy court’s authority to approve such releases but also because it was issued in a circuit where the ability of a plan to otherwise provide for nonconsensual releases of third-party claims is already generally recognized.3

Continue Reading Third Circuit Holds Bankruptcy Courts May Constitutionally Confirm a Chapter 11 Plan Containing Nonconsensual Third-Party Releases

The question of whether a debtor’s plan of reorganization can include non-consensual releases for non-debtor parties has been hotly contested for several years, with circuit courts oftentimes split.  In his recent decision on the topic in the Aegean case,  New York Southern District Bankruptcy Judge Michael E. Wiles explored the limitations on such releases even in permissive jurisdictions such as the Second Circuit.

Specifically, as discussed further in this article by Mayer Brown attorneys Barbara Goodstein, Joaquin C De Baca, and Anastasia Kaup, Judge Wiles emphasized that such releases “are not a merit badge that someone gets in return for making a positive contribution to a restructuring … not a participation trophy, … not a gold star for doing a good job.”  Instead, permissible non-consensual, third-party releases must among other things, be tailored to particular claims and must be tied to specific actions taken by the third party as part of a debtor’s restructuring.

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.

In a somewhat unexpected development given his recent appointment to a second 14-year term a mere 5 years ago, Bankruptcy Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York announced that he intends to retire as of June 30, 2022.  Judge Drain has presided over many large, high-profile chapter 11 cases, most recently the Purdue Pharma bankruptcy proceedings, in which he confirmed  the debtors’ proposed chapter 11 plan, including releases of non-debtor Sackler family members, over the objections of the U.S. Trustee and numerous other stakeholders.  Other major cases that Judge Drain has presided over include Momentive, Sears, Frontier Airlines, Windstream, and Frontier Communications.  Among other things, Judge Drain was well known for his willingness to confirm prepackaged chapter 11 plans of reorganization sometimes within days or even hours of case filing, provided the debtor could establish that creditors would not be harmed by the speed of the proceedings.   It will be up to the U.S. Court of Appeals for the Second Circuit to select a new bankruptcy judge to fill the vacancy left by Judge Drain’s departure.

Bloomberg Law discusses pending petitions for certiorari seeking the U.S. Supreme Court’s review of lower courts’ application of the “equitable mootness” doctrine, which places significant limits on dissenting parties ability to appeal from orders confirming Chapter 11 plans of reorganization.   One such petition arises out of the Nuverra Environmental Solutions case, which we previously discussed here.  The Bloomberg article, which quotes Mayer Brown Restructuring partner and Real Bankruptcy Intel editor Aaron Gavant, notes that equitable mootness is a judge-made doctrine that, as a practical matter, tends to preclude any meaningful appellate review of an already-confirmed plan.  The article also predicts that the doctrine may come into play in the context of the Purdue Pharma reorganization plan in the event that the plan is not stayed pending forthcoming appeals. [Bloomberg Law; September 27, 2021]

Reuters reports on the U.S. Federal Reserve’s plans to begin tapering its $120 billion in monthly bond purchases.  The reduction will depend in part on another month of strong jobs data, according to Fed Chair Powell and Governor Brainard. However, Fed Governor Brainard has also warned that August’s slower-than-expected jobs growth and the prevalence of the COVID Delta variant make it difficult to predict when the economy will be strong enough for the Fed’s taper plans to proceed. [Reuters; September 27, 2021]

Law360 notes that a bipartisan group of U.S. Senators have reintroduced a bill designed to make it more difficult for corporate debtors to select what they perceive to be friendly bankruptcy courts for their bankruptcy filings.  The Bankruptcy Venue Reform Act of 2021, which is nearly identical to a similar act that was proposed in 2018, was reintroduced in the Senate last week, and would amend the provisions of Judiciary Code governing venue to limit the options that businesses filing for bankruptcy have.  The article notes that the National Rifle Association attempted to use the current permissive bankruptcy venue statute to file in Houston, Texas, despite being incorporated in New York and headquartered in Virginia; likewise Purdue Pharma was able to select “the specific judge it wanted to hear its case by selecting the White Plains division” of the Southern District of New York.  The 2018 efforts to pass bankruptcy venue reform stalled in Congress and it is not clear whether this newest attempt will fare any differently.  [Law360; September 24, 2021]

In a case of art meets life meets bankruptcy, an entity owned by South Park creators Matt Stone and Trey Parker is seeking to purchase Denver’s Casa Bonita restaurant out of the chapter 11 proceedings of its owner, Summit Family Restaurants Inc. Despite being a local Colorado institution since 1974, and having its fame supercharged by a 2003 South Park episode, Casa Bonita, like so many other businesses in the hospitality industry, was unable to weather the COVID-19 pandemic.  According to court filings, the $3.1 million purchase price for Casa Bonita, if the sale is approved, will be sufficient to more than satisfy all claims filed in Summit’s bankruptcy case.  [Canon City Daily Record; September 27, 2021]

A New York judge denied a motion by Trimark USA and certain of its lenders to dismiss claims brought by minority lenders alleging that certain new debt issued by the company violated the terms of the preexisting credit agreements and improperly allowed majority lenders to take priority over minority lenders.  The lawsuit has been tracked closely by the industry as another example of lender-on-lender violence. The case is Audax Credit Opportunities Offshore Ltd. v. TMK Hawk Parent Corp., 565123/2020, New York State Supreme Court, New York County. Stay tuned for a more fulsome analysis of the court’s decision in an upcoming post… [Bloomberg; August 17, 2021]


Per SCOTUSblog, on Friday, August 20, property owners and real estate groups asked the Supreme Court to halt the Biden administration’s new eviction moratorium after a federal appeals court let it stay in effect. The realtors argue that the Biden administration ignored an earlier Supreme Court decision signaling that the Centers for Disease Control and Prevention did not have authority to impose the latest ban on August 3. The Biden administration issued the new moratorium anyway indicating its hope that, even if the moratorium was eventually struck down, while the issue was being litigated, additional rent relief could be distributed. [SCOTUSblog; August 20, 2021]


Back in July, Federal Reserve officials indicated they were on track to begin tapering some of their stimulus programs later this year, despite lingering differences over when exactly to pull back support. The WSJ followed up and reported that minutes of the Fed’s July 27-28 meeting, which were released last week, revealed an emerging consensus to support scaling back at one of the the Fed’s three remaining policy meetings this year. The Fed’s next meeting is on September 21-22, and several Fed officials have said they would argue in favor of beginning to taper bond purchases shortly after that meeting if the recent run of strong hiring continues. But the July minutes don’t necessarily indicate that such a step will happen in September, and the WSJ suggests a reduction is more likely come after the Fed’s November 2-3 meeting. [WSJ; August 18, 2021]

In its August 5th, 2021 VeroBlue Farms decision,[1] the Eighth Circuit lent its voice to a growing body of criticism of the equitable mootness doctrine contending that its use to bar challenges to confirmed reorganization plans should be circumscribed.  Laying out a new investigation that must be undertaken before using the doctrine to bar confirmation order appeals, the Eighth Circuit emphasized that reviewing courts must: (1) make “at least a preliminary review of the merits” of an appeal to determine the strength of the claims at issue; (2) assess the “amount of time that would likely be required” to resolve the merits of such claims on an expedited basis; and (3) consider the potential equitable remedies that might still be available even after a plan’s implementation, should the appeal prove successful, which would not undermine the plan or harm third parties.

Continue Reading Mootness Muted? – Eighth Circuit Circumscribes Use of Equitable Mootness Doctrine to Bar Bankruptcy Plan Appeals