The U.S. Trustee Program’s appeal from confirmation of the chapter 11 plan for Gol Linhas Aéreas is evidently a test case to find out what qualifies as a “consensual,” nondebtor release following Purdue. Does the ability to opt out constitute consent, or does consent require an affirmative action by a creditor, such as opting in?

Denying a motion for a stay pending appeal, District Judge Denise Cote of New York didn’t throw cold water on the U.S. Trustee. To the contrary, she did say in her opinion that the consent question “raises a sufficiently serious legal issue that deserves resolution.”

This writer doesn’t put much stock in Judge Cote’s June 5 opinion in terms of discerning which way the wind blows on opt in or opt out, because the debtor and the official creditors’ committee agreed not to argue that confirmation was equitably moot as to the nondebtor releases. Also, there are issues afoot about nondebtor releases beyond those raised in the instant appeal.

The Opt-Out Releases

The debtor was a large Brazilian airline with about $4 billion in funded debt. The chapter 11 plan included nondebtor releases in favor of the creditors’ committee and its members, along with creditors and groups of creditors who were engaged in financing and negotiating the plan.

The plan also had an exculpation for the released parties and a broadly worded injunction barring creditors and “parties in interest” from taking action to interfere with implementation of the plan. Judge Cote said that the releases were linked “to the bankruptcy proceeding, the Debtors, and financial transactions related to the bankruptcy.”

The plan gave creditors the option of opting out by checking a box on the ballot. Judge Cote said that about 400 creditors opted out of granting the releases.

Over objection from the U.S. Trustee, Bankruptcy Judge Martin Glenn confirmed the plan in an opinion on May 22. In re GOL Linhas Aéreas Inteligentes SA, 24-10118, 2025 BL 177061 (Bankr. S.D.N.Y. May 22, 2025). To read ABI’s report, click here. The U.S. Trustee immediately filed a notice of appeal and a motion for a stay pending appeal, appealing only the nondebtor releases.

While the stay motion was pending in bankruptcy court, Judge Cote said that the debtors and the committee “agreed that they would not argue to the Bankruptcy Court or any future court with respect to [the U.S. Trustee’s] appeal that the appeal was equitably moot.” When Judge Glenn denied the motion for a stay, the U.S. Trustee sought a stay pending appeal from Judge Cote.

Judge Cote imposed an interim stay while the parties submitted briefs. After holding a hearing, she vacated the interim stay and denied the motion for a stay.

Serious Issues About Nondebtor Releases

For a stay pending appeal under Bankruptcy Rule 8007, Judge Cote said that the two “most critical” issues are the likelihood of success on appeal and irreparable injury.

Regarding the merits and the likelihood of success on appeal, Judge Cote referred to how Judge Glenn had “held that third-party releases can be a part of chapter 11 plans pursuant to § 1123(b)(6) of the Code, even after Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024).”

On opt in versus opt out, the U.S. Trustee argued that consent requires “explicit consent” and that silence does not constitute consent under New York contract law. Judge Cote referred to how Judge Glenn had “observed that applying state contract law ‘would lead to chaos.’”

Judge Cote quoted Judge Glenn as having said that the question of implied consent “‘is a serious one’ that has generated a split among courts and that deserve[s] a decision from reviewing courts.” Following “Judge Glenn’s lead” on the merits, she said that the “appeal raises a sufficiently serious legal issue that deserves resolution.”

Although she didn’t say so explicitly, Judge Cote appears to have decided that the U.S. Trustee satisfied the first requirement for a stay pending appeal by demonstrating a serious issue about the merits.

Irreparable Injury and the Equities

The demonstration of irreparable injury is where the U.S. Trustee came short. Because the debtor agreed not to raise equitable mootness in defense of an appeal on nondebtor releases, Judge Cote found that the U.S. Trustee “has therefore failed to carry its burden to show irreparable harm, which is essential to its success on this motion.”

Judge Cote also found that the balance of the equities “tips decidedly against a stay,” because bankruptcy financing was expiring and creditors “will also be significantly harmed.” She denied the stay pending appeal.

Observations

Stay tuned for the main event: Judge Cote’s decision on the merits. Because it’s New York where nondebtor stays are in the DNA, this writer is not expecting a reversal either by Judge Cote or the Second Circuit.

On the Gol appeal, the U.S. Trustee apparently is not contending that the bankruptcy court lacks statutory power or authority to issue nondebtor releases. Although not raised on this appeal, the question is whether Section 1123(b)(6) grants the bankruptcy court power to impose releases on nondebtors. In terms of statutory authority, does it matter whether the claim against a nondebtor would be a direct claim or a derivative claim? Perhaps it does matter.

The question of power or authority is another issue worthy of review in some court sometime, but personal jurisdiction is another issue that was not raised in the Gol appeal.

Does the bankruptcy court have personal jurisdiction over creditors to grant releases in favor of released parties? Is it sufficient that the bankruptcy court had in rem jurisdiction over the debtor’s property to impose releases on nondebtors who have neither filed claims nor appeared in the bankruptcy case? Does filing a claim equal consent to personal jurisdiction for imposition of a release in favor of a nondebtor?

There is another issue, too: Does the bankruptcy court have constitutional authority to issue a final order with a nondebtor release, or must the bankruptcy court issue a report and recommendation? Again, does it matter whether the claims are direct or derivative?

This writer believes that the ultimate fate of nondebtor opt-out releases may turn on whether the claims being barred are direct or derivative.