In Harrington v. Purdue Pharma, the Supreme Court held that chapter 11 bankruptcy plans may not afford permanent injunctive relief to non-debtor parties in the form of non-consensual releases of third-party claims. However, that decision did not address whether courts may grant temporary injunctive relief to a non-debtor. Recent cases have held that, if the standards for a preliminary injunction are met, temporary injunctive relief halting lawsuits and collection efforts against a non-debtor (sometimes characterized as an “extension of the automatic stay” to the non-debtor) is still available.
To meet the standard for granting a preliminary injunction, the party seeking the injunction must show (1) there is a likelihood of success on the merits of the case, and (2) the movant will likely suffer irreparable loss unless the injunction is issued. Prior to Purdue Pharma, the “likelihood of success” element could be met by showing that the court was likely to confirm a plan including non-consensual releases. The temporary injunction would therefore be appropriate to preserve the status quo until the plan, which would function as a permanent injunction, was confirmed. Now, because permanent, non-consensual third-party release are prohibited, “likelihood of success on the merits” clearly cannot be premised on the likelihood of confirming a plan that includes such a release.
So, what does “success on the merits” look like in the post-Purdue landscape? Courts have somewhat blurred the distinction between the first element, likelihood of success, and the second element, harm to the debtor, in conducting the preliminary injunction analysis. The outcome has been that courts will generally approve temporary third-party injunctive relief if refusing to do so would frustrate the reorganization efforts of the debtor. Specifically, courts have indicated their willingness to approve temporary injunctions in the following circumstances: the non-debtor is a potential source of funding for the reorganization, and litigation against the non-debtor will prevent them from contributing funds; the non-debtor’s efforts are necessary for reorganization, and the distraction of litigation will hinder the non-debtor’s ability to aid in the reorganization; the action against the non-debtor is essentially an action against the debtor such that a judgment against the non-debtor would reduce the debtor’s property to the detriment of creditors; and/or it appears likely that a plan will be confirmed that provides for a consensual resolution of the litigation against the non-debtor. If a debtor shows that one of these circumstances applies, courts will generally grant a temporary injunction, extending the protection of the automatic stay to a non-debtor.
As for the length of such an injunction, courts in recent cases have confirmed chapter 11 plans that extended injunctions over the life of the plan. See In re Miracle Restaurant Group LLC, 24-11158 (Bankr. E.D. La. May 13, 2025); In re Hal Luftig Co., 667 B.R. 638 (Bankr. S.D.N.Y. 2025). Those courts reasoned that, just as a debtor may need “breathing room” during plan negotiations, the need for breathing room may continue throughout the duration of the plan.