The Future Viability of 105(a) Injunctions Following the Supreme Court's Decision In 'Purdue Pharma'

The U.S. Supreme Court's recent decision in Purdue Pharma has put an end to the use of permanent plan injunctions in the form of nonconsensual third-party releases as a reorganizational tool in Chapter 11, at least for now. What was not addressed by the Supreme Court in Purdue Pharma is the propriety of temporary injunctions that halt third-party litigation pending formulation of a Chapter 11 plan (typically a plan that would contain nonconsensual third-party releases). At the outset of a Chapter 11 case, debtors often seek entry of a preliminary injunction pursuant to Section 105(a) of the Bankruptcy Code extending the automatic stay to and temporarily enjoining litigation against nondebtors. Commonly referred to by bankruptcy practitioners and courts as a "105(a) injunction", this relief is particularly prevalent in cases, like Purdue Pharma, involving multi-party, mass tort litigation where the debtor and certain nondebtors may be co-defendants in prepetition litigation with shared insurance, defenses, evidence and liability.