U.S. Supreme Court Bankruptcy Roundup
The Court heard argument in the case on December 4, 2023.
Third-Party Releases in Chapter 11 Plans
On August 10, 2023, the Supreme Court granted a stay of the mandate as well as an informal petition for a writ of certiorari with respect to the ruling of the U.S. Court of Appeals for the Second Circuit affirming the bankruptcy court order that confirmed the chapter 11 plan of Purdue Pharma. See Harrington v. Purdue Pharma L.P., No. 23-124 (U.S. Aug. 10, 2023). In its decision, the Second Circuit reversed a district court decision finding that the bankruptcy court lacked the power to approve a plan provision releasing the founding Sackler family from liabilities arising from Purdue's sale of opioids. See In re Purdue Pharma L.P., 69 F.4th 45 (2d Cir. 2023), mandate stayed and cert. granted sub nom. Harrington v. Purdue Pharma L.P., No. 23-124 (U.S. Aug. 10, 2023). In the Supreme Court's order, Justice Sotomayor stated as follows:
Applicant suggested this Court treat the application as a petition for a writ of certiorari; doing so, the petition is granted. The parties are directed to brief and argue the following question: Whether the Bankruptcy Code authorizes a court to approve, as part of a plan of reorganization under Chapter 11 of the Bankruptcy Code, a release that extinguishes claims held by nondebtors against nondebtor third parties, without the claimants' consent.
The order also directed the Clerk of the Court to establish a briefing schedule that will allow the case to be argued in the December 2023 argument session.
Jones Day filed three amicus briefs in the case in support of the respondents (those defending Purdue's chapter 11 plan).
Remedy for Overpayment of U.S. Trustee Fees in Chapter 11 Cases
On September 29, 2023, the Supreme Court granted the U.S. Solicitor General's petition for a writ of certiorari in Office of the U.S. Trustee v. John Q. Hammons Fall 2006 LLC, 22-1238 (U.S. Sept. 29, 2023), where it will have an opportunity to decide whether chapter 11 debtors are entitled to refunds for overpayment of fees to the U.S. Trustee System. In Siegel v. Fitzgerald, 142 S. Ct. 1770 (Sup. Ct. June 6, 2022), the Court unanimously held that the 2018 increase in fees paid by chapter 11 debtors to the U.S. Trustee System was unconstitutional because it was not immediately applicable in the two states with Bankruptcy Administrators rather than U.S. Trustees. The Court in Siegel explicitly left open the question of remedy.
Since Siegel was handed down, all four federal circuit courts of appeals that have reached the issue have, without any dissents, decided that refunds are owed to the debtors in U.S. Trustee districts who paid those excess fees. See USA Sales, Inc. v. Off. of United States Tr., 76 F.4th 1248 (9th Cir. 2023); U.S. Trustee Region 21 v. Bast Amron LLP (In re Mosaic Management Inc.), 71 F.4th 1341 (11th Cir. 2023) (petition for cert. filed Sept. 22, 2023); In re Clinton Nurseries, Inc., 53 F.4th 15 (2d Cir. 2022) (petition for cert. filed July 17, 2023); In re John Q. Hammons Fall 2006, LLC, 2022 WL 3354682 (10th Cir. Aug. 15, 2022), cert. granted sub nom. United States Tr. v. Fall, No. 22-1238 (U.S. Sept. 29, 2023).
Standing in Bankruptcy Cases
On October 13, 2023, the Supreme Court granted a petition for a writ of certiorari in Truck Insurance Exchange v. Kaiser Gypsum Co. Inc., No. 22-1079 (U.S. Oct. 13, 2023), where it agreed to review a ruling by the U.S. Court of Appeals for the Fourth Circuit that a chapter 11 debtor's insurer lacked standing under section 1109(b) of the Bankruptcy Code and Article III of the U.S. Constitution to object to the debtor's chapter 11 plan, which created a trust for the payment of the uninsured claims of asbestos injury plaintiffs, because the insurer had no financial stake underpinning its objection. See Truck Insurance Exchange v. Kaiser Gypsum Co. (In re Kaiser Gypsum Co.), 60 F.4th 73 (4th Cir. Feb. 14, 2023), cert. granted, No. 22-1079 (Oct. 13, 2023). According to the Fourth Circuit, the insurer had no standing to object as a "party in interest" under section 1109(b) because the chapter 11 plan was "insurance neutral," and the insurer lacked constitutional standing as a creditor to object to other aspects of the plan.
The Court agreed to review the ruling to resolve a claimed split among the federal circuit courts of appeals concerning the interplay of section 1109(b) and Article III in bankruptcy cases. See In re Global Industrial Technologies, Inc., 645 F.3d 201, 211 (3d Cir. 2011) (concluding that section 1109(b), by its plain text, simply codifies the right of any party with Article III standing to appear and be heard in a chapter 11 case); In re Tower Park Properties, LLC, 803 F.3d 450, 457 n.6 (9th Cir. 2015) (determining that Article III and section 1109(b) are not "coextensive"); In re Thorpe Insulation Co., 677 F.3d 869, 885 (9th Cir. 2012) (looking to "the real-world impacts of the [chapter 11] plan to see if it increases insurance exposure and likely liabilities of [the insurers]," and ruling that an insurer would have standing to object to the plan provided there were "a substantial economic impact" on the insurer); In re James Wilson Associates, 965 F.2d 160, 169 (7th Cir. 1992) (holding that section 1109(b) silently preserves certain "other" pre-Bankruptcy Code "limitations on standing, such as that the claimant be within the class of intended beneficiaries of the statute that he is relying on for his claim").
Justice Alito took no part in considering the petition for certiorari, suggesting that he will not participate in the ruling on the merits.
Jones Day represents Kaiser Gypsum Company, Inc. in connection with the litigation.
