October 25, 2021

Stay and Direct Appeal Requests Denied in Purdue Pharma; District Court Commits to Shielding Case from Equitable Mootness Concerns


Partially walking back her prior pronouncements suggesting that she would rule to the contrary (which we previously wrote about here), on October 13, 2021, District Court Judge Colleen McMahon denied the U.S. Trustee’s request for an emergency stay pending appeal of the Purdue Pharma confirmation order.  In a related order issued three days earlier, Judge McMahon had noted that she “fully” intended to grant the stay request so long as she had jurisdiction to do so.  In the end, however, the District Court was persuaded to deny the request based on the debtors’ agreement not to raise equitable mootness as a defense to the appeal and by the debtors’ commitment to provide 14 days’ advance notice of the plan going fully effective.  The U.S. Trustee had argued that a stay was still required, notwithstanding these conditions, given the weightiness of the issues at stake and the potential for later equitable mootness-related issues.  While sympathizing with this position, the District Court ultimately found that the U.S. Trustee had not shown a sufficient likelihood of any “concrete harm” that could arise between the date of the District Court’s ruling and the next-scheduled hearing on the nearly identical stay motion back in the Bankruptcy Court.  The District Court nonetheless emphasized that it would “not allow this appeal to be equitably mooted” and if, at any time, “it appears that imminent action might lead to that result,” the movants were invited to “knock on [Judge McMahon’s] door.”

In a related development, on October 14, 2021, Bankruptcy Judge Robert Drain, who previously confirmed the Purdue Pharma reorganization plan that is now being appealed, denied motions by the U.S. Trustee and several objecting states that sought to bypass the District Court and argue those appeals directly to the Second Circuit Court of Appeals.  In particular, Judge Drain rejected the U.S. Trustee’s and objecting states’ arguments that no “controlling decision” governed his confirmation order, finding instead that his order, and in particular his order’s approval of releases for non-debtor members of the Sackler family, were based on existing Second Circuit precedent.

The hearing in the Bankruptcy Court on the above-referenced emergency stay order (which seems likely to be denied given Judge McMahon’s ruling) is currently scheduled for November 9.  Following that, the District Court appeal will be briefed and heard on an expedited basis.  And a second appeal, to the Second Circuit, is then also expected.

Stay tuned for further developments…

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