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Enjoining Actions Against Non-Debtors

By Todd L. Padnos and Matt Klinger
June 01, 2016

In bankruptcy cases, debtors often believe that enjoining a third party's action against a non-debtor can help preserve or rehabilitate the estate. But debtors rarely seek to enjoin actions against non-debtors, even though bankruptcy courts have the power to grant such injunctions under 11 U.S.C. ' 105(a). Many debtors likely avoid the tactic because enjoining such an action has generally required navigating a variation of the fact-driven, multi-part standard for preliminary injunctions or some other stringent test.

A recent decision by the U.S. Court of Appeals for the Seventh Circuit, however, appears to change the playing field in debtors' favor. In re Caesars Entm't Operating Co., 808 F.3d 1186 (7th Cir. 2015) established a two-part test that appears far more favorable to debtors than the previous standards applied to such injunctions. Caesars, written by one of the country's most well-respected and cited jurists, Judge Richard Posner, merely requires that a debtor show: 1) the injunction will enhance the debtor's prospects in the bankruptcy proceeding; and 2) the failure to enjoin the action would endanger the proceeding's success.

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