The U.S. Supreme Court handed down three bankruptcy rulings to finish the Term ended in July 2024. The decisions address the validity of nonconsensual third-party releases in chapter 11 plans, the standing of insurance companies to object to "insurance neutral" chapter 11 plans, and the remedy for overpayment of administrative fees in chapter 11 cases to the Office of the U.S. Trustee. We discuss each of them below.

U.S. Supreme Court Bars Nonconsensual Third-Party Releases in Chapter 11 Plans

The Bankruptcy Code does not explicitly authorize the equitable remedy of "substantive consolidation"—i.e., treating the assets and liabilities of two or more related entities as if they belonged to a single, consolidated bankruptcy estate. However, it is well recognized that a bankruptcy court has the authority to order such relief under appropriate circumstances in the exercise of its broad equitable powers when each of the original entities are already debtors subject to the court's jurisdiction.

Since May 2023, the U.S. Supreme Court has issued three decisions addressing or potentially impacting issues of bankruptcy law. These included rulings concerning the abrogation of sovereign immunity for Native American tribes under the Bankruptcy Code, and for instrumentalities of Puerto Rico under a similar statute enacted in 2016 allowing the Commonwealth to restructure its debts. The Court also handed down an opinion concerning a homeowner's entitlement to the surplus proceeds of a real estate tax foreclosure sale.

To shield bankruptcy trustees and certain other entities from litigation arising from actions taken in their official capacity, the "Barton doctrine"—now more than a century old—provides that such litigation may be commenced only with the authority of the appointing court. The doctrine has certain exceptions, one of which—the "ultra vires exception"—was recently examined by the U.S. Court of Appeals for the Fifth Circuit as an apparent matter of first impression.

Exception from Discharge of Debts for Fraud Committed by Business Partner

On February 22, 2023, the U.S. Supreme Court handed down its ruling in Bartenwerfer v. Buckley, No. 21-908, 2023 WL 214441 (U.S. Feb. 22, 2023), where it resolved a circuit split in ruling that a debt based on fraud committed by, or a false representation made by, the debtor's partner or agent is nondischargeable in the debtor's bankruptcy case.

Nine Point Energy Holdings, Inc. and its affiliates (collectively, "Nine Point" or "Nine Point debtors") constituted an oil and gas production and exploration company that sought to reorganize in chapter 11 through a going concern sale of substantially all of their assets. To maximize value, Nine Point sought to sell those assets free and clear of its midstream services contracts, which included provisions that prevented Nine Point from acquiring midstream services from anyone other than its counterparty, Caliber North Dakota, LLC ("Caliber").

On January 14, 2021, the U.S. Supreme Court held in City of Chicago v. Fulton, 592 U.S. __ (2021), that a creditor in possession of a debtor's property does not violate the automatic stay, specifically section 362(a)(3) of the Bankruptcy Code, by retaining the property after the filing of a bankruptcy petition. The Court's decision provides important guidance to bankruptcy courts, practitioners, and parties on the scope of the automatic stay's requirements.

On January 14, 2021, the U.S. Supreme Court held in City of Chicago v. Fulton, 592 U.S. __ (2021), that a creditor in possession of a debtor's property does not violate the automatic stay, specifically section 362(a)(3) of the Bankruptcy Code, by retaining the property after the filing of a bankruptcy petition. The Court's decision provides important guidance to bankruptcy courts, practitioners, and parties on the scope of the automatic stay's requirements.

In Short

The Situation: Circuit courts were split on whether mere retention by a creditor of estate property violates the Bankruptcy Code's automatic stay, under 11 U.S.C. § 362(a)(3). The U.S. Supreme Court considered the question inCity of Chicago v. Fulton, in which the City of Chicago had refused to return debtors' vehicles after they filed Chapter 13 bankruptcy petitions.

In Short

The Situation. In Ritzen Group, Inc. v. Jackson Masonry, LLC, the U.S. Supreme Court considered whether bankruptcy court orders conclusively denying relief from the Bankruptcy Code's automatic stay are immediately appealable.

The Result. On January 14, 2020, the Court unanimously ruled that an order conclusively resolving a motion for relief from the automatic stay was immediately appealable, such that a later-filed appeal was untimely and must be dismissed.