Bankruptcy Judge Meredith S. Grabill of New Orleans agrees with New York’s Bankruptcy Judge John P. Mastando, III: A Subchapter V plan may contain a preliminary injunction barring suits against a nondebtor for the life of the plan, whether it be three or five years.

The corporate debtor in Judge Grabill’s court was an operator of fast-food restaurants. The debtor closed some locations, sold some assets, renegotiated several leases and filed a plan to continue operating nine locations. (No, this is not a story about how a franchisor can kill a reorganization by objecting to assumption of franchise agreements.)

The debtor satisfied all objections to the plan except for an objection from the holder of an unsecured note for about $800,000. The plan called for amortization of the note on a seven-year schedule at 5% interest, with a balloon payment of some $500,000 at the end of the three-year plan.

Neither the balloon payment nor the 5% interest rate rubbed the noteholder the wrong way. Rather, the noteholder objected to a three-year injunction in the plan barring the noteholder from suing the debtor’s principal, who had guaranteed the note.

In her May 13 opinion, Judge Grabill described the plan this way:

[I]f a creditor’s claim is treated through the Plan, that creditor is prohibited from pursuing satisfaction of that claim from any other person, but only for the three-year term of the Plan or the date the Debtor defaults on Plan payments and fails to cure the default timely, whichever is first.

As Judge Grabill said, the U.S. Trustee and the noteholder objected to confirmation “solely on the assertion that [Harrington v. Purdue Pharma L.P. (In re Purdue Pharma), 603 U.S. 204, 227 (2024)] and [Highland Capital Management Fund Advisors, L.P. v. Highland Capital Management, L.P. (In re Highland Capital Management, L.P.), 132 F.4th 353 (5th Cir. 2025)] prohibit the inclusion of temporary, non-consensual, non-debtor injunctions in a confirmed plan of reorganization.” To read ABI’s reports on Purdue and Highland Capital, click here and here.

Not leaving the reader in doubt, Judge Grabill said that she “agrees with [the decision by Judge Mastando in In re Hal Luftig Co., 667 B.R. 638 (Bankr. S.D.N.Y. 2025)] that an ‘argument that Purdue Pharma prohibits bankruptcy courts from, as part of a plan, temporarily enjoining creditors’ collection efforts against non-debtors is without merit.’ Id. at 663.” To read ABI’s report on Hal Luftig, click here.

Distinguishing Highland Capital

Sitting in the Fifth Circuit, Judge Grabill was bound by Highland Capital. She explained how the Highland Capital “court went to lengths to clarify why its holding in [the prior decision, NexPoint Advisors, L.P. v. Highland Capital Mgmt., L.P. (In re Highland Capital Mgmt., L.P.), 48 F.4th 419 (5th Cir. 2022)] narrowed both the exculpation clause in the plan as well the gatekeeper provision of the plan in the same manner.”

Highland Capital, Judge Grabill said, “was not asked to and did not address temporary, non-consensual, non-debtor injunctions entered at confirmation to facilitate successful implementation of a plan.”

Zale Still Obtains

Judge Grabill said that “nothing in [Highland Capital] appears to have disturbed the Fifth Circuit’s recognition of the use of temporary, non-consensual, non-debtor injunctions found in Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746 (5th Cir. 1995), a seminal case in the Fifth Circuit relied upon by numerous panels to date to foreclose non-consensual, non-debtor releases and permanent injunctions.”

At greater length, Judge Grabill explained:

Thus, although dicta, the Zale Corp. court clearly recognized that circumstances may arise in a bankruptcy case justifying the issuance of a temporary injunction of non-debtor actions through the plan confirmation process. This Court finds that Zale Corp. continues to be a valid legal proposition.

Judge Grabill overruled objections to the plan by the U.S. Trustee and the noteholder “to the extent they assert that the holdings in Purdue Pharma or [Highland Capital] ban outright temporary, non-consensual, non-debtor injunctions entered at confirmation to facilitate the successful implementation of a plan.”

Unusual Circumstances Exist

Judge Grabill then turned to the question of whether the debtor had shown the facts required by Zale, which held that temporary injunctions are permissible when there are “unusual circumstances.” Zale, supra, at 62 F.3d 761.

Judge Grabill found that the debtor and its principal had an “identity of interest” in that a suit against the principal was “essentially a suit against the Debtor.” In addition, she said that the services of the debtor’s principal were “vital to the Debtor’s successful reorganization” and that a lawsuit on the guaranty “would divert the time, attention, and resources of the Debtor’s executive and manager from effecting the Debtor’s reorganization efforts.”

Therefore, Judge Grabill found that “the Debtor has satisfied the Zale Corp. ‘unusual circumstances’ test warranting the issuance of a temporary, non-debtor injunction to facilitate the successful implementation of the Plan.”

To close the loop, Judge Grabill found that the debtor also had satisfied the four-factor test for issuance of a preliminary injunction. Among other things, she said that the harm to the noteholders was “minimal” when compared to the debtor, who might “forfeit[] its ability to reorganize” if there were no injunction barring suit on the guaranty.

Judge Grabill overruled the objections and held that the injunction in the plan was “properly issued pursuant to 11 U.S.C. §§ 105(a) and 1123(b)(6).”