By David R. Kuney

On June 11, 2026, the Supreme Court handed down its decision in Keathley v. Buddy Ayers Construction Inc. (Case No. 25-6). The decision was 9-0, reversing the Fifth Circuit which had applied the doctrine of judicial estoppel in a Chapter 13 bankruptcy case to bar a debtor from pursuing a tort claim because his bankruptcy schedules had initially omitted to list the claim. A copy of the decision is attached. See decision.

The ABI’s leading daily columnist, Bill Rochelle, has suggested that the Supreme Court “may have killed judicial estoppel in bankruptcy and everywhere.” Given this possibility, the decision and its factual background deserve close attention.^[1] Hopefully, the decision will preclude aggressive creditors from ambushing chapter 13 debtors who are confounded by the unduly complex Chapter 13 schedules and claiming they were misled. But, further, the Keathley case highlights the importance of the amicus brief in bankruptcy appeals and the critical role of former judges (and law professors) who lend their voice and wisdom to the outcome. See my prior Substack, On the Balcony. And, it showcases the vital work of the American Bankruptcy Institute in publishing reports and studies which contain thoughtful and rigorous analysis of issues that can be highly beneficial to the Supreme Court.

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The facts in Keathley well illustrate the inequity of using a Chapter 13 debtor’s bankruptcy schedules as a tool to seek a windfall or inequitable outcome. (Our amicus brief deals at length with this issue of the schedules’ complexity; see below). In this case, Keathley was in his fourth year of a five year Chapter 13 plan that paid his creditors 100%, (without interest) when he was hit by a truck driven by Buddy Ayers. He was badly injured. Keathley sued Ayers in a federal district court, but neglected at first to file an amended schedule in his bankruptcy proceeding listing the claim. After Keathley amended his schedules, no creditor sought to amend the plan and the bankruptcy court imposed no sanction for the delay in listing the claim. On Ayers’ motion, the district court dismissed the tort claim based on judicial estoppel; according to the court, Keathley’s failure to list the claim in his bankruptcy was inconsistent with his assertion of the claim in another court, even though Keathley had by then corrected his schedules to list the claim. Keathley appealed to the Fifth Circuit.

The Fifth Circuit’s stringent standard for judicial estoppel.

The Fifth Circuit handed down its per curiam decision on March 3, 2025. Keathley v. Buddy Ayers Construction Inc., No. 24-60025. 2025 WL 673434 (5th Cir. 2025).

In considering judicial estoppel for bankruptcy cases, the Fifth Circuit held that a debtor’s failure to satisfy its statutory disclosure duty is inadvertent only when, in general, the debtor either lacks knowledge of the undisclosed claims or has no motive for their concealment.” Id. at *5. Pet. App. 12a-13a.^[2] “As an initial matter, this court has held that ‘the controlling inquiry, with respect to inadvertence, is the knowing of facts giving rise to inconsistent positions.” Id. at * 5. Nailing the coffin shut, the Fifth Circuit concluded that “the motivation sub-element is almost always met if a debtor fails to disclose a claim or possible claim. Id. “Thus, we agree with the district court that Keathley stood to potentially benefit by concealing his personal injury case from the bankruptcy court.” Id. at *5. Because Keathley knew of his tort claim, he “cannot show that his failure to disclose his personal injury lawsuit was inadvertent.” Id.

Judge Haynes concurred in the result but criticized the application of the doctrine in this context. 2025 WL 673434 at * 7. “Here there was evidence that Keathley’s failure to disclose the personal injury was an honest mistake.” Id. at 8 (emphasis added). “Without citing to any evidence of an actual financial benefit that Keathley received, the defendant argued that his motive for concealment was ‘self-evident under Fifth Circuit precedent.’” Id. “This hypothetical motive was enough; the district court granted the motion, citing this circuit’s ‘stringent application of the judicial estoppel rules.’” Id. (emphasis added).

Keathley’s appeal to the Supreme Court

On June 27, 2025, Keathley filed his petition for a writ of certiorari. Cert petition. In his petition, he described the question presented as follows:

“The question presented in this appeal was whether the doctrine of judicial estoppel can be invoked to bar a debtor who fails to disclose a civil claim in a bankruptcy proceeding from pursuing that claim based only on a showing of a potentialmotive for nondisclosure of a claim, regardless of whether there is evidence that the plaintiff in fact acted in bad faith. Cert. Pet. i.

Further elaborating, Mr. Keathley’s opening brief stated:

The question in this case is what happens when a [chapter 13] debtor pursues an action against someone outside of bankruptcy but neglects to timely advise the bankruptcy court of his claim. In that situation, courts may invoke the doctrine of judicial estoppel to bar the suit—but only if they conclude that the debtor-plaintiff sought to mislead the bankruptcy court. That limitation reflects the doctrine’s core purpose: Judicial estoppel exists to prevent—and penalize—“deliberate[]” gamesmanship, but not to punish “inadvertence or mistake.” New Hampshire v. Maine, 532 U.S. 742, 749-50, 753 (2001).”

Brief for Petitioner, 1-2. The brief is attached here. Opening brief

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The legal standard for judicial estoppel. New Hampshire v. Maine

As noted, Keathley’s cert petition relied in part on the Supreme Court’s only prior case on judicial estoppel—New Hampshire v. Maine, 532 U.S. 742 (2001)—where the Supreme Court held that judicial estoppel may not be applied where the alleged inconsistency was the result of “inadvertence or mistake.”

[W]here a party assumes a certain position in a legal proceeding, and succeeds in maintaining that position, he may not thereafter, simply because his interests have changed, assume a contrary position, especially if it be to the prejudice of the party who has acquiesced in the position formerly taken by him. This rule, known as judicial estoppel, “generally prevents a party from prevailing in one phase of a case on an argument and then relying on a contradictory argument to prevail in another phase. 532 U.S. 742, 749.

The Court noted that “[t]he circumstances under which judicial estoppel may appropriately be invoked are probably not reducible to any general formulation of principle,” but that several factors typically inform the decision whether to apply the doctrine in a particular case. 532 U.S. 742, 750. These factors include whether the party’s later position was “clearly inconsistent” with its earlier position, whether the party has succeeded in persuading a court to accept the earlier position, and whether the party would derive an unfair advantage over the opposing party if he is not estopped. 532 U.S. 750-51.

To this general statement, the Court added the following critical qualification: “We do not question that it may be appropriate to resist application of judicial estoppel when a party’s prior position was based on inadvertence or mistake.” 532 U.S. 742, 753.

The role of the amicus brief and the ABI Commission on Consumer Bankruptcy

Mr. Keathley’s cert petition was supported by an amicus brief I authored on behalf of former bankruptcy judges Melanie Cyganowski, Joan Feeney, Judith Fitzgerald, Bruce Markell, Eugene Wedoff, and Professor Robert M. Lawless, a highly regarded legal scholar on consumer bankruptcy law and a Reporter for the ABI Commission on Consumer Bankruptcy Law. See Judges’ amicus brief and the ABI Consumer Comm. Rpt.

A key goal of the amicus brief was to bring to the Court’s attention the findings set forth in the ABI Commission on Consumer Bankruptcy.^[3] The ABI Commission Report was a multi-year study by leading judges and scholars in the bankruptcy community, including Professor Lawless and former Judges Wedoff and Markell. The Commission Report rejected the mechanical approach and recommended a standard consistent with the “totality of the circumstances” set forth in Slater v. United States Steel Corp., 871 F.3d 1174 (11th Cir). The Commission Report stated that “a debtor’s failure to disclose a cause of action is not alone grounds to apply judicial estoppel,” and that a court should consider the “totality of the circumstances.” ABI Comm. Rpt., 28. “The relevant inquiry should be about the debtor’s intent toward other parties. . . .” Id.

The amicus brief argued that given the complexity and difficulty of completing the schedules in a Chapter 13 case, the likelihood of inadvertence or mistake was high:

A chapter 13 case is commenced by the filing of a voluntary petition for individuals (Official Form 101), which includes Official Form 106E/F: creditors who have unsecured claims. These standardized form consist of 46 highly detailed pages, including calculation of income and expense and the calculation of the “commitment period” during which the debtors are required to make payments to creditors. See Official Form 122C-1, ECF 1, p. 36.^[4]

These forms and schedules are complex and even with counsel, are frequently misunderstood. The ABI Comm. Rpt. “reflects the reality that a consumer faces before a bankruptcy filing. . . . Even with the aid of an attorney, a consumer has a huge task to assemble the information to complete these forms. Moreover, a consumer might not appreciate that a potential lawsuit is an asset in the same way as a house or bank account.” Id. at 29.

This brief was part of my pro bono bankruptcy amicus practice, which mostly includes filing amicus briefs on behalf of former bankruptcy judges and leading academic scholars. You can see my briefs at https://www.bankruptcyadvocacy.net

This amicus brief was cited several times at oral argument to support the view that the chapter 13 forms are complex, and that a debtor might not have understood that a tort claim is an asset that requires amending schedules, especially before there is a verdict.

Oral argument: Does New Hampshire apply in the context of a bankruptcy case?

The case was argued on March 24, 2026, by Gregory G. Garre, a partner at Latham and Watkins, and a former U.S. Solicitor General, as well as Frederick Liu, Assistant to the Solicitor General, for the petitioner and William M. Jay, for the respondents.

Much of the oral argument with Mr. Garre focused on whether the Court’s only precedent, New Hampshire, could be applied in the bankruptcy context, or whether the Court should simply rule that the Fifth Circuit had deviated from New Hampshire and thus remand it with instructions to apply the correct legal standard.

At oral argument Justice Gorsuch observed that the Fifth Circuit, by adding a “gloss” to New Hampshire, essentially followed a different rule. Oral arg. 32.^[5] Justice Gorsuch asked Mr. Garre if he would “be content” with a ruling that said “inadvertence and mistake” is not a basis for judicial estoppel.

The Fifth Circuit glossed that rule with one of its own, a bright line rule that it’s never inadvertence and mistake when there’s a knowing omission and there’s a motive. Would it be enough to simply say we don’t need a further gloss on inadvertence and mistake, this is an equitable doctrine, go back and do it again, looking to what we said.” Oral arg. 31-32.

No other member of the Court appeared to take issue with Justice Gorsuch during oral argument.

Justice Sotomayor signaled her concern about applying New Hampshire in the context of an on-going bankruptcy case. “It should be the bankruptcy court that decides whether to impose a penalty because doing away with the personal injury suit deprives the creditors of a potential source of income for the bankruptcy.” “[T]hat’s a draconian effect.” Oral arg. 14.

Chief Justice Roberts suggested that the “primary basis” for the doctrine was the “impact on the judiciary, the judicial reputation. . .” Oral arg. 7. “You don’t want to put the courts in the position of acting on the basis of a counterfactual position that’s not true.” Significantly, Justice Sotomayor noted that the court’s integrity is undermined where parties seek to reap a windfall. This emphasis on “windfall” means courts need to look at the merits of the party seeking to use the doctrine, and not just the party who made the inconsistent statement.

Justice Kagan also noted suggested that “inadvertence” may not be dispositive, and that the key focus should be on “protecting the integrity of the courts, and that this question of intentionality may coincide with that principal purpose but in certain cases may not.” Oral arg. 45.

Supreme Court reverses the Fifth Circuit.

Justice Jackson wrote for the majority. The Court rejected the approach of the Fifth Circuit which had held that the omission of a statement in a bankruptcy case will only be considered inadvertent or a mistake in only two circumstances: (1) when the debtor was unaware of the underlying facts of his claim, or (2) when there was no hypothetical motive to conceal the claim. Slip op. 2.

The Court noted that the rule in New Hampshire has never been applied in the bankruptcy context.” Slip op. 7. The Court went to say, “For purposes of this opinion, we assume without deciding that judicial estoppel can apply in the bankruptcy context, and that “inadvertence or mistake” can function as an exception to that application.” Slip op. 7

The Court rejected the Fifth Circuit’s bright line test that a failure to disclose a claim “almost always” shows an improper intent to mislead the court. The Fifth Circuit’s rule allowed a court to consider only two circumstances when assessing inadvertence of mistake: “That rigidity is out of step with equity.” Slip op. 8. The Fifth Circuit’s rule was not only overly rigid, it was overly broad. Id. This because the decision was a “one-size-fits-all test and would require courts to view as purposeful (and not inadvertent) “nearly every bankruptcy omission.” Id. at 8.

The Court also emphasized that the doctrine is equitable in nature, and that the correct approach is a “case-by-case” analysis considering all relevant facts and circumstances. Slip op. 7. As Chief Justice Roberts noted at oral argument, “It does seem. . . a little much that the one person who’s getting off is the one who—whose truck hit the other guy, right.” Oral arg. 58.

The Court was also concerned about the finding of judicial estoppel being made by a court other than the court to whom the purportedly inconsistent statement was made.

Justice Thomas, joined by Justice Gorsuch wrote a concurring opinion. “I write separately to express doubt about the foundation of the doctrine of judicial estoppel. . . In future cases we should reexamine it.” Slip op., 1. Significantly he wrote that the doctrine of judicial estoppel reaches much further than the older doctrines of equitable estoppel. “Despite the widespread modern adoption of judicial estoppel, its foundation remains questionable. . . the doctrine appears to have no basis in any statute, any Federal Rule of Civil Procedure, or any traditional inherent power of federal courts. . . In a future case, this doctrine merits a closer look.” Slip op. 3 and 6.

Justice Sotomayor wrote a separate concurrence. “I write to address why it may not ever make sense to apply judicial estoppel when bankruptcy proceedings are pending, and why, in any context, judicial estoppel should always turn on the totality of the circumstances.” Slip op. 1 (Sotomayor, J., concurring). “It is difficult to see how using judicial estoppel to bar the debtor from pursuing a separate claim which only harms creditors, is either needed or wanted.” Id. at 3. Further, the doctrine “undermines the integrity of both court systems when it becomes a ‘tool in the arsenal of potentially bad actors to reap a windfall” and secure that advantage at creditors’ detriment.” Id. at 4.

What does the decision mean: the asymmetry of consumer and commercial bankruptcy

Bill Rochelle’s comment that the Supreme Cort may have killed judicial estoppel in bankruptcy tracks in spirit much of the concurrence of Justices Thomas and Sotomayor--especially in the context of a consumer bankruptcy. Chapter 13 schedules are complex and difficult, as made clear by the ABI Commission Report. Further, the Chapter 13 discharge is contingent on performance of a plan that can cover five years or more. The notion that every change in a debtor’s assets or claims during a five year period must result in an immediate amendment to the schedules seems unrealistic. Aggressive creditors can readily find “inconsistencies.” And Justice Sotomayor’s observations that applying the doctrine is highly questionable while the case is still open could further weaken or doom the doctrine.

Lastly, the harshness of the Fifth Circuit’s decision in this context of a consumer bankruptcy case reflects the asymmetry of consumer cases compared to commercial cases. Cases such as Purdue Pharma illustrate that the debtor’s alleged malfeasance, even on a national scale, can still lead to efforts to obtain a complete discharge, even for non-debtor third parties. But woe unto a consumer who delays in amending a schedule, and then is faced with a motion to dismiss a potentially valid claim for omitting the claim from his schedules.

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Please see my website with a list of prior amicus briefs.

https://www.bankruptcyadvocacy.net

.

^[1] William Rochelle, Supreme Court May Have Killed Judicial Estoppel in Bankruptcy and Everywhere Else, ABI Bankruptcy Brief, June 11, 2026.

^[2] References to the Petitioner’s appendix (Pet. App.) refer to the appendix filed in the Supreme Court with the petition for certiorari. A copy of the appendix is available on the Court’s website.

^[3] Final Report of the abi commission on Consumer Bankruptcy (2017-2019).The report is available at https://consumercommission.abi.org/

^[4] All references to “ECF” pertain to the Keathley’s bankruptcy case filed in the eastern district of Arkansas, Case no. 2:19-bk-16848.

^[5] References to the oral argument (Oral. Arg.) refer to the argument before the Supreme Court on March 24, 2026. A copy of the transcript is available on the Court’s website.

Introduction:

A recently filed appeal in Rebecca Love v. Red River Talc, LLC, Case No. 26-1448 (Third Circuit) addresses a critically important question left unanswered by the various bankruptcy cases which involve the use of the Texas Two-Step divisive merger statute.^[1]

The issue is what happens to the mass-tort victims in cases such as LTL (and possibly Bestwall) if they prevail in having a bankruptcy case dismissed for bad faith, and in subsequent legal proceedings seek compensation for the tort claims, and also seek to avoid some of the corporate transfers which are said to be permitted under the Texas Two-Step. The need to avoid these transfers is key, because otherwise the tort defendants may be essentially judgment proof if the valuable corporate assets were transferred to entities that either no longer exist or which supposedly are not liable under the Texas Two-Step.

The problem is this: the Love plaintiffs are some of the tort victims in the three LTL bankruptcy cases, all of which have now been dismissed. They have filed a suit to avoid under state law several key transfers by LTL under the Texas Two-Step. However, LTL and Red River convinced a district court to dismiss the complaints filed by the tort victims on the grounds of standing, preemption and estoppel. See Memorandum Opinion, No. 3:24-cv-06320-MAS-RLS, Love v. Red River Talc, LLC, f/k/a LLT Mgm’t, (D.N.J. Jan. 29, 2026), ECF No. 95 (slip op.) The district court decision is now the subject of the recently filed appeal. Rebecca Love v. Red River Talc LLC, Case No. 26-1448.

It is critically important to tort victims in pending mass-tort bankruptcy cases that the Third Circuit in the Love appeal reject any notion that tort victims subjected to the Texas Two-Step statute can be blocked in state or federal courts by the kinds of arguments made in the district court in Love. Unless these arguments are squarely rejected by the Third Circuit, tortfeasors, whose bankruptcy cases are dismissed, would still have gained a release or immunity from judgment. What may be beneficial, however, is if the Third Circuit uses this appeal to both reject the arguments on standing, and to suggest, via dicta or otherwise, its skepticism about the use of the Texas Two-Step.

The broader issue, however, goes to the overall fairness and justness of the bankruptcy system. The notion that ultra wealthy entities may utilize bankruptcy to manage mass-tort claims, including those for causing cancer and sexual abuse of children, is deeply troubling.

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Where it began: the first LTL bankruptcy case.

The Love appeal is best understood in the context of the three LTL bankruptcy cases, and the findings of bad faith by LTL, as well as the courts’ statements concerning the Texas Two-Step as involving transfers of assets which put great corporate wealth potentially beyond the reach of tort victims.

The first LTL bankruptcy, as with the other two, ended in dismissal of the bankruptcy cases for “cause.” In 2023, Judge Ambro, writing for the Third Circuit, in LTL Mgmt. dismissed the bankruptcy case of LTL based on the debtor’s lack of financial distress. He stated the core ruling of the case.

We start, and stay, with good faith. Good intentions—such as to protect the J&J brand or comprehensively resolve litigation—do not suffice alone. What counts to access the Bankruptcy Code’s safe harbor is to meet its intended purposes. Only a putative debtor in financial distress can do so. LTL was not. Thus, we dismiss its petition.

In re LTL Mgmt., LLC, 64 F.4th 84, 93 (3d Cir. 2023).^[2]

The decision by the Third Circuit in LTL did not squarely address whether the use of the Texas Two-Step was a fraudulent transfer. Nevertheless, in the first LTL bankruptcy the court, and sometimes LTL itself, made key observations and statements that tie directly to the elements of a fraudulent transfer. For example, there was no dispute that the Texas Two-Step strategy began with an intentional plan to isolate assets from the bankruptcy process in response to a “tidal wave” of litigation. “J&J’s stated goal was to isolate the talc liabilities in a new subsidiary so that entity could file for Chapter 11 without subjecting Old Consumer’s entire operating enterprise to bankruptcy proceedings.” In re LTL Mgmt., 64 F.4th 84, 93 (3d Cir. 2023).

Second, the Third Circuit stated that the restructuring was an allocation or passing of assets and liabilities. “No one doubts that the state-law divisional merger passed talc liabilities to LTL.” LTL Mgmt., LLC, 64 F.4th 84, 105, (see also, id. at 96), a phrase which reflects a transfer of assets and liabilities. See Michael Francus, Texas Two-Stepping Out of Bankruptcy, 120 Mich. L. Rev. Online 38, 5 (2022) (noting that the Texas act states that the divisive merger occurs “without … any transfer or assignment having occurred.”). I doubt that the statement in the Texas act that the merger is not a transfer will stand up in future litigation. The Texas legislature, in adopting the Texas Two-Step declared that nothing in the act is intended to limit the rights of creditors.^[3]

Thus, the LTL court recognized an intentional transfer of assets in the face of pending litigation, and in an effort to isolate the assets from the legal process of bankruptcy, and the creditor body. These statements appear to track the elements of a state law fraudulent conveyance.

Professor Francus concludes that the use of the Texas Two Step is likely a fraudulent transfer: “If the Texas Two-Step sounds like a fraudulent transfer, that’s because it fits the textbook definition of one.” He notes that the few scholars to examine the two-step have analyzed it through a fraudulent-transfer lends. Adam Levitin calls the Texas Two-Step the ‘latest fad in fraudulent transfers.’ Samir Parikh likewise writes that the maneuver ‘should be viewed as a fraudulent transfer.’” ^[4]

Congress is considering legislation that may limit the use of the Texas Two-Step. See Consumer Protection and Corporate Accountability in Bankruptcy Act of 2026, S. 4346, H.R. 8393, 119th Cong. (2026). The stated purpose is to make the filing of a petition for relief under Chapter 11 that is objectively futile or in subjective bad faith a cause for dismissal of the case, and for other purposes.

My assessment as of this date is this: much of what the courts had to say in the three LTL bankruptcies establishes a solid foundation for the assertion of valid state law fraudulent conveyance claims. Further, the granting of the motion to dismiss the plaintiffs’ claims lacks merit, in my opinion. Indeed, it is not unlikely that the Third Circuit will both reverse the district court holding and indicate with some specificity that the claims have merit, even though the dismissal was not based on a merits determination.

In this new post I lay out some of the arguments made in the briefing. The Love case should not become the road map for other wealthy entities to immunize themselves from legal challenges to the Texas Two-Step if and when their bankruptcy case are dismissed.

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Rebecca Love v. Red River Talc LLC: The Texas Two-Step as fraudulent transfer

On May 12, 2025, the plaintiffs filed an Amended Class Action Complaint in the U.S. District Court for the district of New Jersey. Case 3:24-cv-06320-MAS-RLS. The plaintiffs in the Red River class action suit are creditors who hold talc-related ovarian cancer claims arising from the use of products sold by J&J and its past and present corporate affiliates. The defendants include Red River along with LTL. Red River is essentially the successor to LTL. According to the Amended Compliant, “J&J caused these [tort] liabilities to be purportedly allocated to Red River upon its formulation in August 2024.” Amend. Comp. p. 2.

The amended complaint asserts that the plaintiffs suffered concrete wrongs from various state law fraudulent conveyances, including the use of the Texas Two-Step as well as various transfers of corporate assets by and among non-debtor parties. The claims are based on both Texas and New Jersey fraudulent conveyance acts (see below).

A separate count argues that the termination of the “Funding Agreement” was also a voidable transfer. At the outset of the first LTL bankruptcy, LTL obtained a nationwide injunction from the bankruptcy court that barred the victims from pursuing their claims against both LTL and numerous non-debtor parties for many years. This injunction was obtained through representations to the bankruptcy court that there was no irreparable harm to the victims because a Funding Agreement would “ensure” that the victims were paid.^[5] The Funding Agreement was supposedly to provide funding “at any time when there is no bankruptcy case” and “in the event of a chapter 11 filing.” See Declaration of John K. Kim in Support of First Day Pleadings, In re LTL Mgm’t., LLC, No. 21-30589-JCW (Bankr. WD.N.C. Oct. 14, 2021) ECF No. 5 (Kim Dec.) at ¶ 27.

However, on the same day as the Third Circuit dismissed the first LTL bankruptcy, LTL filed its second bankruptcy case. In this second case, LTL and J&J now argued that the Funding Agreement was “void or voidable.” See Declaration of John K. Kim in Support of First Day Pleadings, No. 23-12825-MBK, In re LTL Management LLC, (Bankr. D.N.J. April 4, 2023), ECF No. 4 (stating there was a “material risk that the 2021 Funding Agreement was no longer enforceable because it had become void or voidable”). ¶ 78. LTL and J&J entered into an agreement “by which the 2021 Funding Agreement” was “terminated.” Id. at ¶ 79.^[6] The amended complaint alleges that the purported termination of the Funding Agreement was an actual fraudulent conveyance. ¶ 88.^[7]

The district court dismissal of the Love’s complaint

The district court dismissed the complaint, finding that the state law claims were preempted by the bankruptcy code, and that the plaintiffs lacked standing to bring the fraudulent conveyance claims. SeeMemorandum Opinion, No. 3:24-cv-06320-MAS-RLS, Love v. Red River Talc, LLC, f/k/a LLT Mgm’t, (D.N.J. Jan. 29, 2026), ECF No. 95 (slip op.)

The Love’s filed their appeal brief on April 28, 2026. The Love appeal may be the first post-dismissal case addressing the remedies available to mass tort victims harmed when defendant/tortfeasors transfer valuable assets beyond the reach of creditors under the cloak of the Texas Two-Step statute, and then, subject victims to a prolonged bad faith bankruptcy filing that blocks all legal efforts to obtain compensation for such wrongs.

I filed an amicus brief in support of Rebecca Love and the other plaintiffs. My students in the Bankruptcy Advocacy Practicum at Georgetown law school provided critical research and writing.

The preemption issue.

The district court stated that the plaintiff’s theory of injury was incompatible with the structure and purpose of the Bankruptcy Code and would “circumvent” the “carefully calibrated regulatory scheme governing bankruptcy proceedings.” Slip op. 10. The only case the district court cited in support was Bednar v. Pierce & Assocs., P.C. 220 F. Supp. 3d 680 (N.D. Ill 2016), a case that did not address the issue of preemption in terms of state and federal fraudulent conveyance laws. It also failed to address the cases which discuss whether on dismissal, the creditors and tort victims then had the right to pursue such claims.

I argued in my amicus brief that the Third Circuit should disregard the preemption argument. The bankruptcy code expressly provides for the opposite of preemption, namely—the preservation of such claims. Section 544 of the bankruptcy code provides that a debtor or trustee may pursue either state or federal fraudulent conveyance claims—thus preserving the state law claim. However, upon abandonment or dismissal, § 349 provides that the state law causes of action revert to the creditors. The effect of dismissal under § 349 is to restore the parties to the rights they had immediately prior to the bankruptcy. As the Supreme Court has noted, dismissal of a bankruptcy case typically “revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case”—in other words, it aims to return to the prepetition financial status quo. § 349(b)(3).” Czyzewski v. Jevic Holding Corp., 580 U.S. 451, 456 (2024).

The standing issue.

The district court also dismissed the Love complaint, holding that that complaint did not set forth a “cognizable injury” for the purposes of Article III standing, in part because the court viewed the complaint as being based on the “delay in litigation” caused by the bankruptcy stay.” Love, slip op. at 8–10.The decision also claimed that the harm was “contingent” on plaintiffs first prevailing in the related talc litigation and thus the claims were “entirely hypothetical.” Id. at 9. The district court noted the absence of a judgment in favor of the plaintiffs.

Michael Shenkman, of Bailey & Glasser, LLP, filed the appellant’s opening brief which explains in highly persuasive detail why the ruling on standing was incorrect. As he notes the key test was succinctly summarized by Justice Antonin Scalia who “famously summarized the law of standing as manifesting the question of “What’s it to you” (citing TransUnion LLC v. Ramirez, below). He correctly argues that the answer is that this case represents the classic “pocketbook harms” which have been uniformly recognized as the valid basis for standing. See Plaintiffs-Appellants’ Opening Brief, Case 26-1448, ECF 19, p.17.

In my amicus brief I argue that well established law from the Supreme Court, as well as state and federal law, have long held that creditors have standing to assert fraudulent conveyance claims even if they hold “contingent or unliquidated claims” and that such claims invariably satisfy the required test for “concreteness.”

State law is the starting point. Standing to avoid a fraudulent transfer is vested with “creditors.” Under New Jersey law, a “creditor” is “a person who has a claim.” N.J. Stat. § 25:2-21. The term “claim” is further defined as “a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.”

Texas law follows the same approach as New Jersey when defining “claim” and “creditor” under the Texas Uniform Fraudulent Transfer Acts. The TUFTA defines a “creditor” as “a person . . . who has a claim,” and a “claim” as a “right to payment or property, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” Tex. Bus. & Com. Code § 24.002(3)–(4).

By its terms, the statute turns solely on whether the plaintiff holds any right to payment or property, however contingent or disputed. Texas courts apply these definitions in its plain text. In Sargeant v. Al Saleh, the court held that “[t]o be entitled to recovery under TUFTA, a plaintiff must establish that he is a ‘creditor,’” and confirmed that a “creditor” includes “any person who has a claim,” with “claim” defined broadly to include even unliquidated and contingent rights. 512 S.W.3d 399, 412 (Tex. App. 2016). That formulation tracks the statutory text and underscores that a plaintiff need not reduce a claim to judgment before making a claim under TUFTA.

The violation of either the Texas or New Jersey fraudulent conveyance law creates standing for those creditors who hold “claims.” The statutory foundation is sufficient for standing under Article III as long as the injury is “concrete.” That test is more than adequately satisfied in the Love case. I believe it is likely that the Third Circuit will reject the standing arguments, and it is important for future cases that it do so.

Supreme Court theory of standing based on “invasion” of protected right created by statute.

In Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) the Supreme Court addressed whether the violation of a statutory right (the Fair Credit Reporting Act of 1970) was sufficient by itself to confer Article III standing. The Supreme Court reversed the ruling of the Ninth Circuit and held that the plaintiff could not satisfy the standard of a “concrete” harm by merely alleging a “bare procedural violation” of a federal statute, and thus it reversed and remanded for the Ninth Circuit to address the concreteness issue, without deciding the issue itself. 136 S. Ct. 1550.

Nevertheless, Justice Thomas’s concurrence drew a fundamental distinction between public rights, owed to the whole community, and private rights belonging to individuals as individuals, including “rights of personal security… property rights, and contractual rights.” Id. at 1551.

While public rights require a showing of individualized damages to confer standing, courts historically presumed that a plaintiff suffered a de facto injury merely from having a personal, legal right invaded. See id. “A plaintiff seeking to vindicate a statutorily created private right need not allege actual harm beyond the invasion of that right.” Id. at 1553.

In TransUnion v. Ramirez, 141 S. Ct. 2190 (2021) the Supreme Court again addressed the issue of standing in the context of whether the violation of a federal statute gives rise to standing. Justice Kavanaugh answered the question of “what makes a harm concrete” by stating that as a general matter, “history and tradition offer a meaningful guide to the types of cases that Article III empowers federal courts to consider.” Id. at 2204. Citing Spokeo with approval, the majority stated that with respect to the concreteness element the courts should assess “whether the alleged injury to the plaintiff has a ‘close relationships’ to a harm ‘traditionally recognized’ as a providing a basis for a lawsuit in American courts.” Id. at 2204.

TransUnion is fully consistent with the distinction Justice Thomas drew in Spokeo. The majority’s history and tradition test similarly asks whether the alleged harm has a close relationship to one that courts have traditionally recognized as actionable. Fraudulent conveyance law has always treated the invasion of a creditor’s right to an undiminished recovery fund as a present, actionable injury, without requiring proof of additional financial loss.

The definition of a protected claimant, one that does not require a prior judgment, was carried directly into American law from English law, and codified in the leading nineteenth century treatise on fraudulent conveyances, where Orlando Bump clarified that the protection of fraudulent conveyance law was never tethered to the technicality of a judgment. Orlando Bump, Fraudulent Conveyances: A Treatise upon Conveyances Made to Defraud Creditors (3d ed 1882) codified the principle that, “[t]he character of the claim, if it is just and lawful, is immaterial. It need not be due, for although the holder cannot maintain an action until it is due, he, nevertheless, has an interest in the property as a fund out of which the demand ought to be paid. A contingent claim is as fully protected as one that is absolute.” Bump at 485.^[8]

The district court’s ruling deviated from centuries of statutory law and judicial precedent on whether creditors have standing to assert a fraudulent conveyance claim if they hold contingent and unliquidated claims. Article III standing requires that a plaintiff must demonstrate a concrete and particularized injury in fact. The plaintiffs in the Love case were the targeted victims of what was alleged to be a corporate strategy to transfer assets beyond the reach of creditors; their harm is monetary, private, concrete and particularized. The harm arose at the time of transfers. That the claims remain unliquidated and have not yet been reduced to judgment is immaterial. Neither state nor federal law require such a showing, and neither does Article III.

Injury to the bankruptcy system

If the consequences of the bad faith filing by entities who use the Texas Two-Step is that their bankruptcy cases may be dismissed, but that they are immune from meaningful challenge to avoidance of the fraudulent transfers, then this abusive strategy has no offsetting legal mechanism to place tort victims in the position they had before such strategies were implemented. The so-called “allocation” of tort liabilities to non-operating entities will leave the plaintiffs with no adequate remedy. In short, without reversal of the district court decision, the defendants would have obtained the very kind of “release” that the Supreme Court invalidated under Harrington v. Purdue Pharma LLC, 144 S. Ct. 2071 (2024).

It is time to face the issue of the Texas Two-Step head on. An important benefit from reversal of the district court, is that it may permit the Third Circuit to squarely address whether the use of the Texas Two-Step is properly viewed as a potentially fraudulent conveyance under both state and federal law. The Third Circuit could also signal its discomfort with such techniques in ruling on this appeal.

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You can see all of my earlier amicus brief at

https://www.bankruptcyadvocacy.net.

Many of these briefs are prepared in connection with the course I teach at Georgetown University Law Center entitled the Bankruptcy Advocacy Practicum.

^[1] Tex. Bus. Orgs. Code Ann. § 10.008 (West).

^[2] “Old Consumer was a highly valuable enterprise, estimated by LTL to be worth $61.5 billion (excluding future talc liabilities), with many profitable products and brands.” LTL Mgmt., LLC, 64 F.4th 84, 95.

^[3] “This code does not affect, nullify, or repeal the antitrust laws or abridge any right or rights of any creditor under existing laws.” Tex. Bus. Orgs. Code Ann. § 10.901 (West).

^[4] Francus cites Samir D. Parikh, Mass Exploitation, 170 U. Penn. L. Rev. Online (2021) (forthcoming); Adam Levitin, The Texas Two-Step, The Latest Fad in Fraudulent Transfers, Credit Slips (July 19, 2021) https://creditslips.org/2021/07/19/the-texas-two-step/.

^[5] See, e.g., Debtors Complaint for Declaratory and Injunctive Relief, No. 21-03032, LTL Mgm’t. v. Those Parties Listed on Appendix A, (Bankr. W.D.N.C., Oct. 21, 2021) ECF No. 1, at ¶ 62.

^[6] See Termination and Substitution Agreement, No. 23-12825-MBK, In re LTL Mgm’t LLC (Bankr. D.N.J. Oct. 4, 2024) ECF No. 4-4.

^[7] Abandonment or surrendering an asset is a transfer. See, e.g., the definition of a “transfer” under the bankruptcy code means “each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing or parting with property or an interest in property.” 11 U.S.C. § 101(54).

^[8] See also Seward v. Jackson ex dem. Van Wyck, 8 Cow. 406 (N.Y. Ct. Err. 1826).

The need for bankruptcy amicus briefs

By David R. Kuney

I am an adjunct professor at Georgetown University Law Center where, for the past 12 years, I have taught the Bankruptcy Advocacy Practicum. As part of my teaching, and separately as well, I prepare and file amicus briefs at the Supreme Court, or the Courts of Appeal, in bankruptcy cases. My amici clients are usually bankruptcy law professors and retired bankruptcy judges. It has been an honor to work with them. You can see my amicus briefs at Bankruptcy Advocacy Net.

One reason I started this Substack was to give added visibility to the academic scholarship that is often used to support amicus briefs in connection with bankruptcy appeals. Another reason is to encourage other law professors to consider participating in these amici briefs. Equally important, my goal is to inform bankruptcy practitioners about key appeals and how they may change their bankruptcy strategy, practice or understanding.

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There are many vital issues at stake in matters which are at the Court, or on the way. As noted in my earlier posts, the Bestwall case may prompt the Supreme Court to weigh in on the meaning of the “subject of Bankruptcies” in the Constitution, and whether certain current aggressive strategies, such as the use of the Texas Two-Step as a pre-filing device warrants dismissal for lack of the requisite financial distress.

Law professors are in a good position to add considerable wisdom to the dispute’s resolution. The parties’ briefing, no matter how good, is not fully sufficient to inform the Court as to what is at stake, and how the resolution may alter bankruptcy practice and then, how bankruptcy outcomes may have macro-economic consequences for the financial world and for consumers. Professors should step up and make their views known—go out on the balcony of the public square.

I am sometimes asked, “does anyone read the amicus briefs?” Of course, they do, and there is good evidence to support this statement. Further, the need for scholars and former bankruptcy judges to participate in the bankruptcy amicus process is important, both to practitioners and to the development of bankruptcy law.

Evidence of the importance of amicus briefs was recently demonstrated when the amicus brief by Georgetown Law Professor Martin Lederman contained the unique and compelling argument that governed the Supreme Court’s decision on Presidential war powers. You can read it here.

Another example is Purdue Pharma—the well-known Supreme Court case which held that in most cases a Chapter 11 plan may not contain nonconsensual third-party releases. Academics and scholars filed over 16 amicus briefs. Justice Kavanaugh, in his dissent, cited extensively to the amicus brief filed by the Boy Scouts of America (“BSA”). See BSA Amicus brief. Although not an academic brief, this brief argued that whatever the Court ultimately held, its ruling should exclude chapter 11 confirmation plans that provided for “full pay” to the abuse victims, or that contained consensual third-party releases and/or those cases in which the plan had been substantially consummated. The Court apparently read the brief and included in its majority decision a final paragraph that specifically identified issues the Court was not deciding, including those the BSA amicus brief had identified.

I authored an amicus brief on the other side on behalf of a group of law professors. We presented arguments explaining why the use of such third-party releases deviated from foundational concepts in bankruptcy law—a view which the majority accepted, even if the brief was not explicitly mentioned. See Law Professors’ Brief. So did Professor Adam Levitin from Georgetown, see Prof. Levitin amicus brief, as well as Professors Jonathan Lipson, Pamela Foohey and Jonathan Seifert on behalf of a another group of law professors. See Lipson Amicus brief. All of the Purdue Pharma briefs are now available in a consolidated and searchable publication by the American Bankruptcy Institute (the “ABI”) called “The Purdue Papers.”

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There is even broader evidence on the importance of amicus briefs. Professor Adam Feldman, also of the Georgetown Law School, has gathered the data on amicus briefs submitted by both former judges and law professors. The data is compelling. He writes as follows in The Rise of Scholars Amicus Briefs:

This intensive marshaling of academic expertise in Dobbs exemplifies a broader transformation in Supreme Court practice. The Justices increasingly turn to scholar briefs not merely for doctrinal synthesis—a traditional function of academic amici—but for empirical claims, historical reconstruction, and comparative constitutional analysis that shapes the Court’s understanding of fundamental legal questions. These submissions occupy a distinctive rhetorical space. Unlike party briefs, which advance partisan positions within adversarial constraints, scholar briefs purport to offer disinterested expertise. As Paul Collins observes, they “allow professors to make their views known to judges and provide expert knowledge and commentary from (ostensibly) neutral legal experts.” This neutrality—whether genuine or performed—confers epistemic authority that practicing attorneys cannot easily replicate. A multisignatory historians’ brief carries intellectual weight beyond its legal argumentation precisely because it appears to represent scholarly consensus rather than litigation strategy.

Professor Feldman also writes as follows in his article Predicting Supreme Court Certiorari Grants:

Recent empirical analysis has shed new light on this secretive process. The patterns revealed through systematic data collection show that certain factors consistently predict whether a petition will be granted. While the Court rarely explains its cert decisions, the data speaks clearly: relists correlate with higher grant rates, specialist attorneys dramatically increase odds of success, and amicus briefs signal case importance to the Justices. Understanding these patterns matters not just for academic interest, but for practitioners seeking to maximize their chances of obtaining Supreme Court review—or, conversely, for respondents hoping to keep cases out of the Court.

See also When Amicus Briefs Write the Law where Professor Feldman shows how exact phrases from amicus briefs were key parts of the Court’s decisions in various cases.

Professor Feldman’s research makes the point. So do does my 12 years’ experience in authoring amicus briefs at the Supreme Court. The academic community needs to be “out on the balcony” of the public square and share its wisdom and point of view. Your scholarship belongs in amicus briefs as well as academic journals. Hopefully, my Substack will encourage increased amicus participation in bankruptcy appeals. After all, isn’t that why academics write in the first place—to share their wisdom and learning and then to see it become part of the legal advocacy that shapes the law?

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Of particular note, is the Bestwall case, which as reported in my last post, involves the “titanic” issue of the meaning of the Constitution’s bankruptcy clause, Article I, § 8, cl. 4. Also, Bestwall raises the issue of whether the doctrine of “good faith” requires that a debtor must be experiencing financial distress as a condition to filing for bankruptcy. See below for more.

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Also notable is In re Whittaker, Clark and Daniels, Case No. 24-02210, which involves the issue of whether claims for successor liability belong to the estate. See below.

Denials of petitions for certiorari

Lujan Claimants v. Boy Scouts of America, Supreme Court case no. 25-490. On appeal from the Third Circuit. Question presented: Whether the mootness provision of § 363(m) pertains to a plan with an unlawful third-party release if there is an “integral” sale appended to the plan. And,

Whether equitable mootness is constitutionally or statutorily infirm.

See my amicus brief in support of petition--Amicus brief of Eugene Wedoff.

In my last Substack post I wrote extensively about the Boy Scout case, and continue to believe the use of § 363(b) sales as barrier to appellate review of plans has not gone away, and that we will see more examples in the future. Indicative of the long-standing problem of the over-use of sales in chapter 11 is the substantial discussion of this issue in the newly released textbook authored by Daniel J. Bussel, David A. Skeel, Jr. and Judge Michaelle M. Harner, Bankruptcy. Twelfth edition, Foundation Press, 2025, p. 912-917, “Critiquing the Sale Alternative.”

Hertz Corp. v. Wells Fargo. Supreme Court case No. 24-1062. The question presented: Whether the pre-Code absolute priority rule supersedes the unambiguous text of the Code and requires a solvent debtor to pay its creditors unmatured interest. Paul Clement is counsel for petitioner?

Ovation Fund Management, II LLC v. Nossaman, LLP. Supreme Court case 24-1192. The question presented: “Whether a federal court overseeing an equity receivership has the power to enjoin and extinguish claims that belong to non-receivership third parties without the claimants’ consent?

Pending assignment of oral argument.

Thomas Keathley v. Buddy Ayers Const. Co., Supreme Court Case No. 25-6. On appeal from the Fifth Circuit. Question presented: Whether the doctrine of judicial estoppel can be invoked to bar a plaintiff who fails to disclose a civil claim in bankruptcy filings from pursuing that claim simply because there is a potential motive for nondisclosure, regardless of whether there is evidence that the plaintiff in fact acted in bad faith?” The Court has granted the cert. petition, and the matter may be argued this Spring.

See my Amicus brief.

Note: A similar decision was recently handed by the Fifth Circuit in the context of a chapter 11 consensual plan. My thanks to Bill Rochelle who alerted me to this decision. See discussion below on Royal American Construction, Inc.

Pending response from the Solicitor General

Highland Capital Management LP v. NexPoint Advisors, Supreme Court Case No. 25-119. The question presented is whether a bankruptcy court can act as a gatekeeper to screen noncolorable lawsuits against nondebtor bankruptcy participants.

Roy Englert is counsel for the petitioner, and his brief was supported by an amicus brief authored by Professor Anthony Csaey. His brief supports what he calls “the proper understanding and salutary use of exculpation and gatekeeper provisions in effecting successful Chapter 11 reorganizations.”

Requests submitted for extension of time to file cert petition

Official Committee of Asbestos Claimants of Bestwall, LLC v. Bestwall, LLC, Supreme Court docket 25A__. “This case presents the exceptionally important question whether an entity with a conceded ability to timely and fully pay all current and anticipated liabilities can invoke bankruptcy.” Application, p. 2. The Application argues that bankruptcy courts can dismiss Chapter 11 petitions for lack of good faith under 11 U.S.C. § 1112(b)(1), and that “good faith necessarily requires some degree of financial distress. Second, the Application argues that the Bankruptcy Clause of the Constitution authorizes Congress to establish “uniform Laws on the subject of Bankruptcies” and that this clause “limits the use of bankruptcy’s unique debt adjustment remedies to debtors that actually are bankrupt—i.e. debtors unable to pay their debts.”

The Application seeks an extension to file a cert. petition until and including February 20, 2026.

MFN Partners, L.P. v. Central States, Southeast and Southwest Areas Pension Funds, et al., Supreme Court docket 25A680. Question presented: Whether federal funds awarded to pension plans under the American Recue Plan Act should count as “plan assets” for purposes of calculating the plans unfunded vested benefits and thus for determining a debtor’s withdrawal liability. The Court has granted an extension to file a cert petition until February 13, 2026.

Other cases to watch:

In re Whittaker, Clark and Daniels, Case No. 24-02210, Third Circuit. Pending a decision on a petition for en banc review of decision rendered on September 10, 2025. Question presented is whether the debtor properly filed for bankruptcy and does the court have subject matter jurisdiction. Also, are successor liability claims property of the estate?

Note: Elizabeth Prelogar, formerly of the Solicitor General’s office is counsel for the Committee of Talc Claimants. Paul Clement represents appellees.

The District of Columbia and various states argue that successor claims are not property of the estate.

Phillips v. Goldman, Case No. 24-2249, Ninth Circuit. Question presented is whether a chapter 7 trustee is entitled to qualified immunity? Oral argument on petition for en banc review was heard on January 13, 2026.

Royal American Const., Inc. v. Roofing Designs by JR, LLC, Case No. 25-20048, Fifth Circuit. This case, like Keathley, holds that a Chapter 11 debtor can be barred from pursuing a claim against a third party for allegedly not making full disclosure of the nature or the amount of its claim during the course of its bankruptcy. This case involved a claim initiated by the debtor prior to filing for bankruptcy. The Fifth Circuit held that the failure to disclose cannot be considered inadvertent when “there is any potential motivation for concealing a claim” and that this element is “almost always met if a debtor fails to disclose a claim or a possible claim to the bankruptcy court.”

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On January 12, 2026, the Supreme Court denied the petition for writ of certiorari filed by the Lujan Claimants, thus leaving in place the Third Circuit dismissal of the appeal. The petition for certiorari was filed by the Lujan Claimants, a group of victims of alleged sexual abuse. The appeal challenged the use of nonconsensual third-party releases. The Third Circuit dismissed the appeal as statutorily moot under 11 U.S.C. § 363(m). In re Boy Scouts of America, 137 F.4th 126 (3d Cir. 2025).

The problem with the decision in Boy Scouts has not gone away. Despite the denial of certiorari, what is at stake in this petition is whether appellate review of Chapter 11 plans will be “illusory”—that is, rendered moot—whenever a Chapter 11 plan tethers itself to an underlying sale of assets which the debtor claims is “integral” to its financial restructuring.

The Boy Scout decision will have a mixed legacy. It’s important to note what the Third Circuit held and what it did not hold. The Third Circuit appeared to take pains to limit the precedential value of its ruling. The Third Circuit twice acknowledged that the Boy Scout’s plan was not lawful. “If proposed today, the Plan would be unconfirmable in the wake of Purdue and the Lujan and D&V Claimants could not have their claims released without consent.”^[1] Further, “[s]o were the Plan proposed today, we harbor little doubt that the Bankruptcy Court would neither authorize the Insurance Policy BuyBack nor confirm the Plan with its impermissible releases.” ^[2]

Nevertheless, a split panel of Third Circuit decided that § 363(m) could still pertain to limit the appeal of a chapter 11 plan that had an embedded sale that was somehow “integral” to the plan, with Judge Rendell concurring, but dissenting from the use of § 363(m). I remain concerned that subsequent cases will use this part of the decision to integrate sales into a chapter 11 plan—such as insurance buybacks—but where the plan contains some other deviation from the Code—such as an alteration of the priority system among creditors or a violation of the absolute priority rule. It seems clear to me that the Supreme Court said it would not permit deviations from the confirmation standards just because the restructuring was nestled in a sale or a settlement. Isn’t this what Jevic was about? ^[3] In my view, the Third Circuit should have accepted this as a reason to reverse the confirmation order and the reason why the Supreme Court should have granted certiorari.

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A deeper look at the Third Circuit decision

The Boy Scouts (“BSA”) argued that the sale of its insurance policies, which was authorized by the plan confirmation order, was “integral” to the plan, and that plan and sale constituted a “single integrated transaction.” To this it then added the precatory language in the plan that all of the plan provisions—including the nonconsensual third-party releases are protected by section 363(m) in the plan—as if recitals could alter the most fundamental protections of bankruptcy law.

This language appears to reflect an effort to track the logic of In re Energy Future Holdings Corp, 949 F.3d 806, 820 (3d Cir. 2020). The decision in Energy Futures reflected a disinclination by the Third Circuit to disaggregate the plan and sale, and examine whether the unlawfulness of the restructuring tainted the sale—as opposed to whether the mootness of the sale protected the unlawfulness in the plan.

Here is the passage that has worried me:

Appellants next contend that § 363(m) does not apply because the specific provision of the Confirmation Order with which they take issue—the discharge of latent claims and provision for post-confirmation relief—does not authorize the sale. . . . [D]issecting the Confirmation Order in this fashion seems particularly inappropriate where that order expressly provides that every “term and provision of the Plan” and of “the Merger Agreement” was “nonseverable and mutually dependent. . . . Because Appellants challenge a provision of the Confirmation Order that was both formally and practically bound up with the sale authorization, we will follow our general rule that “any reasonably close question about the applicability of § 363(m) should be answered in favor of applicability.” In re Pursuit Capital Mgmt., LLC, 874 F.3d 124, 134 (3d Cir. 2017), and conclude that Appellants do appeal an “authorization ... of a sale.”

In re Energy Future Holdings Corp, 949 F.3d 806, 820 (3d Cir. 2020).

This is a dangerous “general rule” and one that is not even fully consistent with other rulings from the Third Circuit. The Third Circuit and at least one district court have at times been willing to “dissect” the sale order and thus limit the application of § 363(m):

The Third Circuit has rejected arguments asserting that § 363(m) applies to every challenge of a sale order; rather, § 363(m) “stamps out only those challenges that would claw back the sale from a good-faith purchaser.” In re Pursuit Cap. Mgmt., LLC, 874 F.3d at 140 (emphasis added) (quoting ICL Holding, 802 F.3d at 554). Section 363(m) does not moot “every term that might be included in a sale agreement, even if each is technically integral to that transaction.” ICL Holding, 802 F.3d at 554 (internal quotes omitted).

In re CCX, Inc., 654 B.R. 680, 692–93 (D. Del. 2023).

Judge Rendell’s concurrence: Jevic resurrected

Judge Rendell’s concurring opinion went on at some length to argue that the Third Circuit was effectively doing what Jevic said should not be done. Thus, she said the Court was wrong to rely on § 363(m) and should have relied on equitable mootness. My guess is that the court did not do so because reliance on equitable mootness would have given the victims a much stronger chance of obtaining review by the Supreme Court. But future cases should note that Judge Rendell saw the decision as being a Jevic problem. Here is part of what she said:

While I agree with the majority that this is not a case in which a pre-confirmation sale made up a “sub rosa” plan, I see it as just as problematic, for nearly identical reasons. As the majority acknowledges, the sub rosa doctrine recognizes that “[t]he court may not ... in the guise of authorizing a transaction out of the ordinary course of business [under § 363] in a chapter 11 case, authorize a transaction that is so extensive as to be tantamount to a plan.” 3 Collier on Bankruptcy ¶ 363.02 (16th ed. 2025); compare In re Boy Scouts of Am. & Delaware BSA, LLC, 642 B.R. 504, 562 (Bankr. D. Del. 2022) (“Without these settlements, there is no Plan.”). Accordingly, the sub rosa cases are concerned with § 363 being used to skirt Chapter 11’s requirements and effectively insulate plans from review. See In re Braniff Airways, Inc., 700 F.2d 935, 940 (5th Cir. 1983); In re Lionel, 722 F.2d at 1069. By using a § 363 sale to establish the terms of a plan sub rosa, a debtor can avoid Chapter 11’s requirements and ensure that “appellate review would effectively be precluded.” In re Lionel, 722 F.2d at 1069. Likewise, where, as here, a sufficiently important facet of the plan makes up “consideration” for a portion of the debtors’ property, a § 363 sale allows debtors to avoid complying with Chapter 11 (here, 11 U.S.C. § 1126(b)(6)) and insulates the plan from appellate review. Employing § 363(m) to remove this category of confirmed plans from judicial review is too sweeping and radical. We needn’t and shouldn’t go there, for a number of reasons.

In re Boy Scouts of Am., 137 F.4th 126, 171 (3d Cir. 2025).

The ABI Commission

This is not a new problem, which is why it is important that the Supreme Court provide some additional guidance. The ABI Commission to Study the Reform of Chapter 11 (“ABI Report ”) noted this issue in its report. A fair read of the ABI Report is that § 363(b) and (m) cannot be seen as “independent” of the plan confirmation standards. The ABI Report contains numerous citations to leading academic discussion on the problem of § 363 sales.

The ABI Commission studied in detail the growing use of § 363(b) for the sale of all or substantially all of a debtor’s assets, or what it termed as a “section 363x sale.” ABI Comm. Rpt. at 201-206. While the Boy Scouts were not necessarily seeking to sell “substantially” all of its assets, its disposition of its insurance policies was certainly a disposition of a major portion of its assets, and the disposition which was, in its words, the “cornerstone” of the funding for its plan. (Please see my earlier post on whether an insurance buyback is actually the kind of sale that § 363(b) authorizes, as opposed to a settlement of an existing liability).

Given the restructuring impact of the sale, the key question is whether the minimal standards of § 363(b) should pertain, or whether creditors are entitled to the protections of the confirmation standards, including more robust appellate rights. The ABI Commission believed the answer was that § 363(b) is not adequate. “The Commissioners reflected on the meaningful differences between 363x sales process and the chapter 11 plan process,” noting the “arguably lower standard [for the sale process] that that applied to confirmation of a chapter 11 plan in the cramdown context.” Id. at 205. For this reason, “the Commission ultimately determined that creditors should be afforded at least the same level of protection in the section 363x sale process and in the chapter 11 process.” Id. at 206.

That is, the Commission decided the exact opposite of what Boy Scouts sought, namely, that a sale should not be “independent” of the confirmation standards.

Recommendations

But what if another plan in another jurisdiction uses the “integral sales” argument, and proposes a plan that contains a deviation from some other confirmation standard—say a violation of the absolute priority rule, or unfairly discriminates? Did the Third Circuit leave in place a ruling that the embedded or integral sale entitles the plan to have the mootness benefit of § 363(m).

The current state of uncertainty is not good for the bankruptcy bar. The better rule, as I see it, is that once a sale is part of a plan, than the entire transaction is governed by the standards set forth in the Code provisions pertaining to a plan confirmation—and that § 363(m) has no applicability in such a context. I believe this is what Jevic held.

Where 363(m) is held to apply then, as I suggested in my first post, the federal mootness standard of Chafin should govern. “A case becomes moot only when it is impossible for a court to grant any effectual relief whatever to the prevailing party.” Chafin v. Chafin, 568 U.S. 165, 172, 133 S. Ct. 1017, 1023, (2013).

Further, appellate courts should look with skepticism on arguments about consummation, given how easily consummation can be effectuated and/or manufactured. Stays should be granted and appeals expedited.

^[1] In re Boy Scouts of America, 137 F.4th 126 (3d Cir. 2025).

^[2] Boy Scouts, 137 F.4th at 158, n. 19.

^[3] “There [In re Lionel Corp., 722 F.2d 1063 (2d Cir. 1983) ] the court rejected a pre-plan § 363(b) sale of the debtor’s most important asset that effectively “swallow[ed] up Chapter 11’s safeguards.” Id. at 1069; cf. Czyzewski v. Jevic Holding Corp., 580 U.S. 451, 468, 137 S. Ct. 973, 197 L.Ed.2d 398 (2017) (holding that the Bankruptcy Code does not permit structured dismissals, which deviate from the absolute priority rule and “circumvent the Code’s procedural safeguards”).

In re Boy Scouts of Am., 137 F.4th 126, 156 (3d Cir. 2025).

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What’s in store for bankruptcy law at the Supreme Court for the first half of 2026? This post contains a brief discussion concerning the seven bankruptcy cases that are currently at the Supreme Court or likely to arrive there soon.

January 9, 2026, may be a key date for the bankruptcy bar. At least three bankruptcy cases are scheduled for conference on January 9. One case is awaiting oral argument, and one case is awaiting a response from the Solicitor General. We should know the results of the conference on Monday, January 12, 2026.

In the coming weeks/months, I hope to discuss these cases in more detail. But here is a short preview.

The Bestwall case: the titanic case of 2026?

Perhaps the most important case that has the potential to be the subject of a petition for certiorari is Bestwall LLC v. Official Comm. of Asbestos Claimants, 148 F.4th 233 (2025).

Bestwall is not yet at the Supreme Court. The Bestwall decision from the Fourth Circuit is still within the 90 day window for the time to file a petition for certiorari. The petitioners could be the Official Committee of Asbestos Claimants who would be seeking to reverse the decision of a bankruptcy court which declined to dismiss the bankruptcy for both statutory and constitutional grounds.

Simply stated, the Bestwall case asks whether there is any requirement that a debtor be experiencing some level of financial distress in order to file for bankruptcy. But the larger issue is the proper understanding of the Constitution’s Bankruptcy Clause which permits Congress to enact uniform laws on the “subject of Bankruptcies.” The question is whether there are any meaningful limits on what constitutes a valid use of the bankruptcy system. Hence—titanic. If Purdue Pharma mostly ended nonconsensual third-party releases, and if Bestwall endorses the notion that a debtor must be experiencing some level of financial distress, (which could end or limit the use of the Texas Two-Step divisive merger), or defines the meaning of the Bankruptcy Clause, then perhaps some of the more aggressive strategies of the last ten years or so will no longer be available.

At the Fourth Circuit the Official Committee of Asbestos Claimants argued that the bankruptcy case should have been dismissed because neither Bestwall nor Georgia Pacific were experiencing any financial distress, and thus the bankruptcy court lacked subject matter jurisdiction. The Committee argued that the Constitution’s Bankruptcy Clause circumscribes the scope of a proper bankruptcy. Art. I, § 8, cl 4. “The history of the Bankruptcy Clause, as well as subsequent interpretations by both courts and Congress, confirms that “bankruptcy is reserved for actually bankrupt debtors.”^[1]

The Fourth Circuit reframed the issue as one of “standing” or eligibility. The Fourth Circuit stated that the Committee’s challenge “really is about Congress’s power under Article I of the Constitution to make parties eligible for bankruptcy protection. It’s not a question of subject matter jurisdiction.” “Challenges about a debtor’s eligibility for bankruptcy protection are not jurisdictional, even when those challenges are constitutional.” Bestwall, 148 F.4th at 241.

Progressive liberalization. Judge Agee concurred. “From the beginning, the tendency of legislation and of judicial interpretation has been uniformly in the direction of progressive liberalization in respect of the operation of the bankruptcy power.” Bestwall, 148 F. 4th at 244 (citing Cont’l Ill. Nat. Bank & Tr. Co. of Chi. v. Chi., Rock Island & P. Ry. Co., 294 U.S. 648, 668).

Originalism. Judge King’s dissent shows the depth of the dispute. Judge King looked instead to the meaning of the Bankrputcy Clause as understood by the Founders. “At the time of the Founding, ‘bankruptcy’ had a specific and well-understood legal meaning” which was that it applied to “merchants and traders who were unable or unwilling to pay their debts.” 148 F.4th at 251. “What emerges from this relevant history is a consistent and constitutionally significant principle: Bankruptcy as the Founders understood it, was meant for the financially distressed.” 148 F.4th at 255.

If the Committee does file a petition for certiorari, I will have more analysis of what is at stake and how this case was argued at both the bankruptcy court and the Fourth Circuit.

Below is a chart that I will update periodically on some of the pending cases. I have attached links to the key briefs.

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Pending Oral Argument

In re Thomas Keathley: The meaning of judicial esoppel.

The Supreme Court has already granted certiorari in In re Keathley. This case may be argued in March or April. Keathley involved a Chapter 13 debtor who was injured in a truck accident after his Chapter 13 case was filed, and during the five-year period of plan performance. The debtor sued the owner of the vehicle that injured him. The debtor did not immediately amend his schedules to reflect the possibility of a recovery from the tort. The defendant in the law suit argued that the state law claim should be dismissed on the grounds of judicial estoppel because the claim had not been listed on the schedules. The Fifth Circuit agreed and endorsed a very strict reading of judicial estoppel.

I wrote an amicus brief on behalf of Professor Robert Lawless, and a group of former bankruptcy judges—the Honorable Melanie Cyganowski (ret); the Hon. Joan Feeney (ret.) the Hon. Judith Fitzgerald (ret.) the Hon. Bruce Markell (ret.), and the Hon. Eugen Wedoff. Professor Lawless was the reporter for the ABI Report on Consumer Bankruptcy. The Commission had urged the courts to follow a more holistic test for when to apply judicial estoppel—a test that looked to all of the facts and circumstances, including the complexity of the schedules, the lack of sophistication by many chapter 13 debtors, and whether the bankruptcy court or the Chapter 13 trustee had felt the need to impose any sanction (it had not).

The Fifth Circuit’s decision is out of step with both the ABI Commission and the majority of courts. I believe there is a good chance the Supreme Court will reverse the Fifth Circuit. I will review this case in more detail in a later post.

2026 cases: Seven key bankruptcy cases.

Here is a list of the seven pending bankruptcy cases. I’ve attached links to some of the key pleadings.

1. Lujan Claimants v. Boy Scouts of America. Supreme Court Case 25-490.

Question presented: Whether the mootness provision of § 363(m) pertains to a plan with an unlawful third-party release if there is an “integral” sale appended to the plan and whether equitable mootness is constitutionally or statutorily infirm.

Set for conference on January 9, 2026.

The Boy Scout case is of particular importance, as noted in my first two posts on this Substack. It raises key questions concerning statutory mootness and the use of the Bankruptcy Code’s sales provision found in § 363(b) and 363(m) to argue that an appeal from a confirmation order is moot. The petition also asks the Court to consider and reject the doctrine of equitable mootness. My next Substack will offer additional views on the importance of this case.

Counsel for Petitioner: Mahesha Subbaraman

Counsel for Respondent: Michael Huston

Petition: Lujan cert petition

Opposition: Boy Scout’s brief.

Amicus brief: Wedoff amicus brief.

2. Hertz Corp. v. Wells Fargo Bank, N.A., Supreme Court case no. 24-1062, on petition from the Third Circuit.

Scheduled for conference on January 9, 2026.

Question presented: Whether the pre-Code absolute priority rule supersedes the unambiguous text of the Code and requires a solvent debtor to pay its creditors unmatured interest. The Solicitor General was invited to file a response.

Counsel for petitioner: Paul D. Clement

Counsel for Respondent: Christopher May Mason

Cert petition: Hertz cert. petition

Opposition: Wells Fargo opposition to cert.

Solicitor General Solicitor General Brief

3. Highland Capital Mgmt. v. NexPoint Advisors, L.P., Sup. Ct. Case No. 25-119. Originally scheduled for conference on Nov. 10, 2025. Subsequently, the Court has called for the views of the Solicitor General.

A conference date has not yet been scheduled.

Question Presented: Whether a bankruptcy court can act as a gatekeeper to screen noncolorable lawsuits against nondebtor bankruptcy participants. Whether a bankruptcy court can to a limited degree exculpate nondebtor bankruptcy participants from liability for conduct arising from the bankruptcy process.

Counsel for petitioner: Roy T. Englert, Jr.

Counsel for Respondent: Michael James Edney

Cert petition: Highland cert petition

Opposition: NexPoint Opposition

Amicus Brief: Prof. Anthony Casey amicus brief

4. Ovation Fund Mgmt. v. Nossaman, L.P., Sup. Ct. Case 24-1192.

Conference set for January 9, 2026.

Question Presented: “Whether a federal court overseeing an equity receivership has the power to enjoin and extinguish claims that belong to non-receivership third parties without the claimants’ consent.”

Counsel for Petitioner: Daniel Nathan Csillag

Counsel for Respondent: Joshua Andrew del Castillo

Cert petition: Ovation cert. petition

Opposition: Freigtag brief in opposition

SEC: SEC Brief

5. Kim H. Peterson v. Krista Freitag, Receiver for ANI Development Co., Supreme Court Case No. 25-151. Joint briefs filed with Ovation fund, case 24-1192.

Set for Conference on January 9, 2026.

Question Presented: Whether a federal court overseeing an equity

receivership has equitable authority to dispose of claims that belong to a third-party against non- receivership entities without the claimants’ consent.

Counsel for Petitioner: Rupa Gupta Singh

Counsel for Respondent: Joshua Andrew dl Castillo

Cert. petition: Peterson cert petition

Opposition: Frietag Oppositon

SEC SEC Response

6. Thomas Keathley v. Buddy Ayers, Supreme Court Case No. 25-6. Cert. granted.

Pending oral argument, Spring 2026.

Question Presented: “Whether the doctrine of judicial estoppel can be invoked to bar a plaintiff who fails to disclose a civil claim in bankruptcy filings from pursuing that claim simply because there is a potential motive for nondisclosure, regardless of whether there is evidence that the plaintiff in fact acted in bad faith.”

Counsel for Petitioner: Gregory George Garre

Counsel for Respondent: William McGinley Jay

Cert Petition: Keathley petition

Opposition: Buddy Ayers Response

Merits brief: Keathley merits brief

Amicus brief: Judge Cyganowski amicus brief

7. Official Committee of Asbestos Claimants v. Bestwall, Fourth Circuit Case No. 24-1493.

This Bestwall case is a possible candidate for a petition for a writ of certiorari. The Fourth Circuit affirmed the decision of the bankruptcy court for the western district of North Carolina that had declined to dismiss the Bestwall bankruptcy based on the allegations that the bankruptcy court lacked subject matter jurisdiction based on the lack of financial distress. The Fourth Circuit denied a request for en banc review on October 30, 2025. A cert. petition is due approximately January 30, 2026, subject to a possible request for an extension.

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^[1] Brief for Appellant, In re Bestwall LLC., Case No. 24-1493 (4th Cir. August 30, 2024), ECF 32, at 1.

And—my best wishes to all for a Happy Holiday Season and New Year!

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For those of you who may have missed my first post, this is the second post on Lujan Claimants v. Boy Scouts of America, Supreme Court case no. 25-490. The pending petition for certiorari was filed by a group of victims of alleged sexual abuse. The appeal challenges the use of nonconsensual third-party releases. The Third Circuit dismissed the appeal as statutorily moot under 11 U.S.C. § 363(m). In re Boy Scouts of America, 137 F.4th 126 (3d Cir. 2025).

The petition for certiorari is now fully briefed, and the Court may schedule this petition for one of its three January conferences and decide its fate. I note that SCOTUSBlog (not related to this blog) has not listed the Boy Scouts case as a case “They are watching,” nor a case in which there was a Call for Views of the Solicitor General (“CVSG”).

Regardless of whether the Supreme Court grants certiorari, the Boy Scout case has outsized importance, and will continue to be examined in future cases. As noted in my first post, what is at stake in this petition is whether appellate review of Chapter 11 plans will be “illusory”—that is, rendered moot—whenever a Chapter 11 plan tethers itself to an underlying sale of assets which the debtor claims is “integral” to its financial restructuring.

In my first post I examined the problem of “illusory appellate review,” a problem in the bankruptcy field now well noted by leading academic scholars. As Professor Adam Levitin has written, “The U.S. legal system is based on the assumption of the general availability of appellate review. Judges are fallible, and appellate review is critical both as a check on judicial mistake and bias and as a mechanism for ensuring consistency among lower courts. . . . Appellate rights, however, are often illusory in bankruptcy. As Professor Melissa Jacoby has noted, the limited nature of appellate review bankruptcy “reduces public oversight in Chapter 11 and intensifies the authority of bankruptcy courts.” Adam J. Levitin, Purdue’s Poison Pill: The Breakdown of Chapter 11’s Checks and Balances, 100 Tex. L. Rev. 1079, 1121–22 (2022) (citing Melissa B. Jacoby, Corporate Bankruptcy Hybridity, 166 U. PA. L. REV. 1715, 1733 (2018.).

The Boy Scout’s case evidences a strategy of “building mootness into a plan.” Debtors negotiate a transaction which is labelled a “sale” well in advance of plan confirmation. The sale is then “authorized” by the plan (there was no separate sale motion). Debtors may then argue that the sale within the plan is “integral” to the plan, and that plan and sale constitute a “single integrated transaction.” To this is then added precatory language in the plan that all of the plan provisions—including the nonconsensual third-party releases are protected by section 363(m) in the plan—as if recitals could alter the most fundamental protections of bankruptcy law. This language appears to reflect an effort to track the logic In re Energy Future Holdings Corp, 949 F.3d 806, 820 (3d Cir. 2020).

My first post argued that § 363(m) should not be engrafted on to the plan process. Motions to dismiss an appeal challenging the validity of a plan should be guided by the principle set forth in Chafin v. Chafin, 568 U.S. 165, 172 (2013), which requires that a court first determine whether there is any effective relief possible.^[1] (A “case becomes moot only when it is impossible for a court to grant any effectual relief whatever to the prevailing party.”)

The insurance buyback as a supposed “sale” under § 363(b).

What makes the Boy Scouts case particularly troublesome is the nature of the underlying transaction or sale which was utilized to block appellate review. The notion that an insurance buyback is a bona fide § 363(b) sale remains open to debate—especially if this then becomes the foundation to argue that the sale and plan are subject to the limits on appellate review in § 363(m).

This issue is important because the use of insurance buybacks has now become more wide spread. One recent case described the “often” used device of “insurance buy backs” as follows:

Insurers and their insureds who have filed chapter 11 cases because of mass tort claims often enter into settlement agreements characterized as “buyback” transactions to obtain funds to pay claimants. In a buyback, the transaction is considered a “sale” of the policy by the debtor back to the insurer, accompanied by the termination of the policy. Chapter 11 debtors seek approval of insurance buyback agreements pursuant to § 363(b) and (f), as sales free and clear of other interests, and/or pursuant to Bankruptcy Rule 9019 as settlements. See, e.g., In re Chemtura Corp., No. 09-11233 (REG), 2009 WL 10806754 (Bankr. S.D.N.Y. Oct. 29, 2009). Buybacks have been approved in recent mass tort cases including Boy Scouts of Am. and Delaware BSA, LLC, 642 B.R. 504, 569-70 (Bankr. D. Del. 2022) (supplemented by Case No. 20-10343 (LSS), 2022 WL 20541782 (Bankr. D. Del. Sept. 8, 2022)), and In re USA Gymnastics, No. 18-09108-RLM-11, Doc. No. 1776 at 16 (Bankr. S.D. Ind. Dec. 16, 2021) (plan confirmation order).

In re Hopeman Bros., Inc., 667 B.R. 101, 106 (Bankr. E.D. Va. 2025)

The theory underlying this is presumably that the insurance policies are property of the estate, and as such can be sold like any other asset.

Courts agree that a debtor owns its liability insurance contracts. See, e.g., First Fid. Bank v. McAteer, 985 F.2d 114, 117 (3d Cir.1993). Since insurance policies are property of a debtor’s estate, they may be sold with court approval under § 363. See, e.g., MacArthur Co. v. Johns-Manville Corp. (In re Johns-Manville Corp.), 837 F.2d 89, 92-93 (2d Cir. 1988) (court authorized settlement of debtor’s insurance coverage claims pursuant to the court’s authority to approve the sale of the debtor’s property).

Hopeman Bros., Inc., 667 B.R. 101, 106.

Third Circuit’s doubts about the use of insurance buybacks:

There is reason to question whether an insurance buyback is the kind of sale that triggers § 363(b) or 363(m), despite Hopeman Bros. At oral argument before the Third Circuit, Judge Rendell expressed skepticism that the insurance buy-back was the kind of sale that was authorized under § 363(b). “This isn’t your class 363—the classic situation that 363 addressed. . . . This is an insurance buyback. It’s not a sale to—this is not Boeing deciding to sell its assets to Lockheed Martin. This is, kind of inside the lodge, calling it a sale when it really isn’t.” Nov. 6, 2024, Trans. of Oral arg., p. 61.

Even more emphatically, Judge Rendell stated,

But when it’s a plan, I can’t imagine that Congress would say, if there’s a—if there’s a sale that’s as part of plan, we can’t review the confirmation order, which is what we have. We have a confirmation order that is on appeal. And the fact that there’s a sale that is a but for, I have real problems with saying, Congress intended that no Article III court can look at a plan that contains a sale. . . .I just have a real problem with that.

Trans. Oral Arg., p. 73.

The Third Circuit decision likewise expressed doubt about the use of insurance buy-backs. “If proposed today, the Plan would be unconfirmable in the wake of Purdue and the Lujan and D&V Claimants could not have their claims released without consent.”^[2] Further, “[s]o were the Plan proposed today, we harbor little doubt that the Bankruptcy Court would neither authorize the Insurance Policy BuyBack nor confirm the Plan with its impermissible releases.” ^[3]

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Arguments which challenge the use of insurance buybacks as sales under §363(b).

My students in the Bankruptcy Advocacy Practicum, at Georgetown Law School shared the view that the insurance buyback was not a bona fide § 363(b) sale. In class we discussed other reasons why insurance buybacks are not properly viewed as sales under § 363(b). These included the notion that the claims of the victims were effectively being used as consideration used by the Boy Scouts in exchange for a promise to fund the Settlement Trust. That is, if the otherwise invalid third-party “releases” were the “cornerstone” of the integrated sale and plan, then in that sense, non-estate property was being used as “consideration” by the debtor to obtain funding. But § 363(b), by its express terms only pertains to a sale of “property of the estate.” See 11 U.S.C. § 363(b)(1).

One student, Nick Lopez, worked on a potential section for our amicus briefing on why the insurance buy-backs are not sales under § 363(m). Here are key portions of what Nick wrote:

The insurance settlements in this case do not qualify as § 363(m) sales for at least five key reasons. First, Claimants’ tort claims are not “property of the estate” because they belong to individual survivors, not the debtor, and do not satisfy the Third Circuit’s test for estate property. Second, the transaction is not a “sale or lease” of property under § 363 because it merely extinguishes legal rights rather than transferring them. Third, bankruptcy law cannot override state law restrictions to convert inalienable tort claims into transferable assets. Fourth, BSA’s insurance buybacks function as settlements of disputed liabilities, not asset sales, fundamentally placing them outside the scope of requiring § 363(m) protections. Finally, only executory contracts, which require ongoing material obligations from both parties, may be included in the bankruptcy estate and are governed by § 365, not § 363(m).

Insurance buybacks cannot constitute a “sale or lease” of property under § 363 because they merely cancel or release contractual rights rather than transferring them to a buyer. Courts have long held that cancellation or release of a contract right does not transfer the rights to the transferee-payor and thus is not a “sale.”^[4] As the Second Circuit stated in Starr Bros., 204 F.2d at 674:

What the taxpayer gave in return for the cash payment was a release of United’s contract obligations, chief of which was its promise not to sell its products to other dealers in New London. Such release not only ended the promisor’s previously existing duty but also destroyed the promisee’s rights. They were not transferred to the promisor; they merely came to an end and vanished.

Similarly, the insurance buybacks here did not transfer any legal rights; instead, they terminated the Settling Insurers’ coverage obligations and extinguished Claimants’ Tort Claims against nondebtor third parties. These tort and contract rights came to an end and vanished. Since no property was purchased—only liabilities extinguished—the transaction functioned as a settlement, not a sale.

Courts in other jurisdictions, including the First Circuit, have also recognized that settlements and sales are fundamentally distinct. In re Healthco Int’l, Inc., 136 F.3d 45, 49 (1st Cir. 1998). As the court correctly noted in Healthco, “[b]y its very nature a settlement resolves adversarial claims prior to their definitive determination by the court. In contrast, a ‘sale’ effects a ‘[t]ransfer of [“the title . . . “] [to] property for [a] consideration.”” 136 F3d 45, 49 (1st Cir 1998). Accordingly, without the conveyance of legal rights, the transaction here cannot be deemed a sale under § 363(m), making its statutory protections inapplicable.

BSA’s insurance buybacks function as settlements of disputed liabilities rather than asset sales. As a result, they fall outside the statutory scope of § 363(m) and cannot not be shielded from appellate review. Here, the object and purpose of § 363(m) is to protect the finality of legitimate asset sales. In re Pursuit Capital Management, LLC, 874 F.3d 124, 133-134 (3d Cir. 2017). A true § 363 sale involves the transfer of estate assets through a competitive, market-driven process designed to maximize returns for creditors. The mootness provision ensures that good-faith purchasers are not deterred by the risk of post-sale litigation, which could undermine bidding and depress estate value. See In re Abbotts Dairies of Pennsylvania, Inc, 788 F2d 143, 150 (3d Cir. 1986) (noting that one purpose of § 363(m) is to provide “finality of the bankruptcy court’s judgments under section 363(b)(1)”).

BSA’s insurance buybacks, however, do not fit this statutory framework. Rather than selling estate property to a third-party buyer, these agreements resolve disputed insurance coverage obligations between BSA, its insurers, and other stakeholders. The insurance settlements establish insurer contributions to the Settlement Trust through negotiation, not auction. Accordingly, §363(m)’s core function—to provide finality and encourage competitive bidding—is irrelevant in the context of BSA’s insurance settlements, and the application of §363(m) to the BSA insurance buybacks here lacks a legal or practical basis.

Section 363(m) was enacted to protect good-faith purchasers in asset sales. It is not a loophole meant to strip survivors of their legal rights simply because their abusers benefited from a bankruptcy proceeding. Expanding § 363(m) to bar challenges to nonconsensual third-party releases invites strategic manipulation by plan proponents, allowing them to structure transactions in a way that artificially triggers statutory mootness and evades judicial scrutiny.

The Third Circuit had little doubt that future courts would neither authorize the Insurance Policy BuyBack nor confirm the Plan with its impermissible releases.” ^[5] But there remains the risk that the holding that § 363(b) applies may still lead to similar arguments in future cases. I plan on addressing that in the third and final post on the Boy Scouts case.

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^[1] “Sometimes, the court’s exercise of power may not accomplish all the appellant wishes, because the reversal or modification of a covered authorization may not “affect the validity of a sale or lease under such authorization” to a good-faith purchaser or lessee under certain prescribed circumstances.§ 363(m). Thus, the provision consists of a caveated constraint on the effect of a reversal or modification.” MOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. 288, 299 (2023).

^[2] In re Boy Scouts of America, 137 F.4th 126 (3d Cir. 2025).

^[3] Boy Scouts, 137 F.4th at 158, n. 19.

^[4] Billy Rose’s Diamond Horseshoe, Inc. v. United States, 448 F.2d 549 (2d Cir. 1971); Pittston Co. v. Commissioner of Internal Revenue, 252 F.2d 344 (2d Cir.), cert. denied, 357 U.S. 919, 78 S.Ct. 1360, 2 L.Ed.2d 1364 (1958) (cancellation of exclusive right to purchase coal output); General Artists Corp. v. Commissioner of Internal Revenue, 205 F.2d 360 (2d Cir.), cert. denied, 346 U.S. 866, 74 S. Ct. 105, 98 L. Ed. 376 (1953) (release of singer under exclusive booking agency); and Commissioner of Internal Revenue v. Starr Bros., Inc., 204 F.2d 673 (2d Cir. 1953) (cancellation of distributorship agreement).

^[5] Boy Scouts, 137 F.4th at 158, n. 19.

Pending before the U.S. Supreme Court is the petition for certiorari filed in Lujan Claimants v. Boy Scouts of America, Supreme Court case no. 25-490.

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What is at stake in this petition is whether appellate review of Chapter 11 plans will be “illusory”—that is, rendered moot—whenever a Chapter 11 plan tethers itself to an underlying sale of assets which the debtor claims is “integral” to its financial restructuring.

The Boy Scout’s plan contained nonconsensual third-party releases which the Supreme Court had declared were not authorized by the Code. Harrington v. Purdue Pharma, L.P., 603 U.S. 204, 218 (2024).^[1] The Third Circuit twice acknowledged that the Boy Scout’s plan was not lawful. “If proposed today, the Plan would be unconfirmable in the wake of Purdue and the Lujan and D&V Claimants could not have their claims released without consent.”^[2] Further, “[s]o were the Plan proposed today, we harbor little doubt that the Bankruptcy Court would neither authorize the Insurance Policy BuyBack nor confirm the Plan with its impermissible releases.” ^[3]

The Bankruptcy Court in In re Smallwood, Inc., 665 B.R. 704, 709 (Bankr. D. Del. 2024) stated that non-consensual releases are now “per se unlawful.”

Despite being confronted with a plan that was “unconfirmable,” the Third Circuit permitted the order granting confirmation to stand. It did so because it held that the appeal was “moot.” It did so because it held that the Code provision which limits appeals in connection with sales—11 U.S.C. § 363(m) can likewise limit appellate review when a chapter 11 plan contains a sales transaction that is somehow “integral” to the plan’s financial restructuring.

Section 363(m) states that “[t]he reversal or modification on appeal of an authorization under subsection (b)… does not affect the validity of a sale or lease under such subsection to an entity that purchased … in good faith … unless such authorization and such sale or lease were stayed pending appeal.” Under § 363(m) appellate review is constrained. Stays are rarely granted, and findings of lack of good faith are equally rare.

However, there is no similar provision that limits appeals from an order confirming a Chapter 11 plan—nor should the courts engraft one from the provisions dealing with sales. A rule that § 363(m) applies to plans that contain “integral” sales” means that such plans may be immunized from full review of the merits. What this means, as in the Boy Scouts appeal, is that a plan which the Third Circuit said could not be confirmed today, was nevertheless allowed to stand. Given the ubiquitous use of sales under 11 U.S.C. § 363 as a business restructuring device, the potential implications of this case will likely be widespread.

This outcome should not become the norm. Effective appellate review is one of the key safeguards of the judicial system—be it bankruptcy or other civil law. Appellate review helps keeps the bankruptcy system just, which in part arises from the essential ingredient of the separation of powers. Chief Justice Roberts in Wellness referred to the separation of powers as “sacred.” “[I]f there is a principle in our Constitution ... more sacred than another,” James Madison said on the floor of the First Congress, “it is that which separates the Legislative, Executive, and Judicial powers.” 1 Annals of Cong. 581 (1789). A strong word, “sacred.” Madison was the principal drafter of the Constitution, and he knew what he was talking about.” Wellness Int’l Network, Ltd. v. Sharif, 575 U.S. 665, 695 (2015) (Roberts, C.J., dissenting).

Appellate review in the bankruptcy system is what ensures that an Article III judge will have the last word on whether bankruptcy plans can withstand appellate challenge—the last word on whether the plan is lawful or not. The Supreme Court has long held that what makes the jurisdiction of the bankruptcy courts constitutionally valid is the control and supervision by Article III courts. “Because ‘the entire process takes place under the district court’s total control and jurisdiction,’” there is no danger of a “congressional attemp[t] ‘to transfer jurisdiction [to non-Article III tribunals] for the purpose of emasculating’ constitutional courts.’” Wellness, 575 U.S. 665, 677.

Yet, application of § 363(m) to bar or constrain appellate review of Chapter 11 plans impairs the very notion of jurisdiction with respect to one of the most important judicial acts of a bankruptcy court—entering an order confirming a plan of reorganization.

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Resurrecting sub rosa plans.

This is not a new battle. The use of § 363 to avoid compliance with the Code’s confirmation standards has a long history. There is even more at stake in the Boy Scout case—namely, the resurrection of a discredited strategy known as “sub rosa” plans which permitted debtors to use § 363 to restructure, and to avoid the confirmation standards in the Code. In Czyzewski v. Jevic Holding Corp., 580 U.S. 451, 468-69 (2017) the Supreme Court cited with approval cases that prohibit an attempt to “short circuit the requirements of Chapter 11 for confirmation of a reorganization plan by establishing the terms of the plan sub rosa in connection with a sale of assets.” (citing In re Lionel Corp., 722 F.2d 1063, 1069 (2d Cir. 1983) (reversing a Bankruptcy Court’s approval of an asset sale after holding that § 363 does not “gran[t] the bankruptcy judge carte blanche ” or “swallo[w] up Chapter 11’s safeguards”).

The better approach: application of the federal standard of mootness.

The Third Circuit was apparently aware of its dilemma. The Boy Scouts had permitted consummation to proceed during the appeal, and had resisted all requests for a stay. This will likely be the common strategy in future cases. What are the courts to do short of applying either equitable mootness or statutory mootness? What should happen when an unconfirmable plan has progressed during the appellate process?

This issue was the subject of a recent article in the ABI Institute Journal. See Patricia Redmond and Ashley D. Champion, Two Roads to Dismissal Diverged in a Bankruptcy Appeal, Amer. Bankr. Inst. J., Dec. 2025, p.32. The ABI article discusses the “two roads” that courts use to assess mootness—these being statutory mootness and equitable mootness.

I suggest that neither is correct in the context of appeals from plan confirmation. Equitable mootness already has ample critics, although the Supreme Court has thus far declined to address it. Likewise, § 363(m) should not be engrafted on to the plan process.

Motions to dismiss an appeal challenging the validity of a plan should be guided by the principle set forth in Chafin v. Chafin which requires that a court first determine whether there is any effective relief possible.^[4] A case “becomes moot only when it is impossible for a court to grant any effectual relief whatever to the prevailing party.” “As long as the parties have a concrete interest, however small, in the outcome of the litigation, the case is not moot.” Chafin v. Chafin, 568 U.S. 165, 172, (2013).

Citing Chafin, the Supreme Court in MOAC Mall, not only held that § 363(m) was not jurisdictional, but more broadly and philosophically stated, “Our cases disfavor these kinds of mootness arguments.” MOAC Mall Holdings LLC v. Transform Holdco LLC, 598 U.S. 288, 295, 143 S. Ct. 927 (2023). The phrase “these kinds of mootness arguments” signals a broad disfavor with expansive views of mootness, and yet, in the end, the Boy Scouts decision permitted exactly what the Court said it disfavored.

Effective relief was possible. The Boy Scouts have argued that if Lujan is given relief the sky will fall, and the Boy Scouts may cease to exist. None of this is plausible. Courts have excised unlawful plan provisions without the kind of major disruption some predict. As Purdue demonstrates, when a court declares a provision to be unauthorized, the parties find a way to negotiate a resolution within the bounds of the Code.

Status of the Supreme Court case: lawyers and key dates

Date of Petition: October 14, 2025

Response from the Boy Scouts: December 4, 2025. The brief is here.

Next Supreme Court conference date: December 12, 2025.

No oral arguments until January 12-13-14.

Counsel of record for the petitioners is Mahesha P. Subbaraman of Subbaraman, PLC, and Delia Lujan Wolff.

Counsel of record for the respondents is Michael Robert Huston of Perkins Coie, LLP.

Counsel of record for the Amici Curiae Joy Claimants and Garrison Claimants is John M. Reeves of Reeves Law LLC. The amici brief is here.

Counsel of record for Amici Curiae Eugene Wedoff, et al. is David R Kuney. The amici are the Honorable Eugene Wedoff (ret.) and law professors Ralph Brubaker, Diane Lourdes Dick, Pamela Foohey, Candice Kline, George Kuney, David Kuney, Johnathan Lipson, Stephen Lubben and Nancy Rapoport.

My amicus brief can be read here.

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^[1] “[W]e do not think paragraph [1123(b)(6)] affords a bankruptcy court the authority the plan proponents suppose.” Harrington v. Purdue Pharma L. P., 603 U.S. 204, 218 (2024).

^[2] In re Boy Scouts of America, 137 F.4th 126 (3d Cir. 2025).

^[3] Boy Scouts, 137 F.4th at 158, n. 19.

^[4] “Sometimes, the court’s exercise of power may not accomplish all the appellant wishes, because the reversal or modification of a covered authorization may not “affect the validity of a sale or lease under such authorization” to a good-faith purchaser or lessee under certain prescribed circumstances.§ 363(m). Thus, the provision consists of a caveated constraint on the effect of a reversal or modification.”MOAC Mall 598 U.S. 288, 299.

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