On June 27, 2025, the U.S. Supreme Court issued its decision in Trump v. CASA, Inc.,[1] which materially limited the ability of federal courts to issue so-called “universal” or “nationwide” injunctions. Injunctions are common in bankruptcy cases, sometimes at the outset and nearly always as a part of a debtor’s proposed plan to reorganize or liquidate. Does the CASA decision restrict bankruptcy courts from approving a (i) preliminary injunction early in the bankruptcy case and/or (ii) plan that includes an injunction barring third parties from litigating against non-debtor parties (i.e., a third-party release)? Based on the Supreme Court’s analysis, CASA may present an opportunity for a party to present a novel argument that preliminary injunctions and/or plan releases, consensual or nonconsensual, are impermissible.
Trump v. CASA
The CASA litigation arose from Executive Order 14160, which, at a high level, sought to redefine the scope of birthright citizenship under the 14th Amendment by declaring that individuals born in the U.S. to immigrant parents were not “subject to the jurisdiction” of the United States and thus not entitled to citizenship. In response, three federal district courts enjoined EO 14160 on a nationwide basis. The federal government sought partial stays, arguing that universal injunctions exceeded the courts’ equitable authority. The U.S. Supreme Court opted to not reach the merits of the constitutional challenge to the executive order and instead considered the scope of equitable relief available to federal courts.
Justice Barrett, writing for the majority, held that federal courts lack the authority to issue universal injunctions under the Judiciary Act of 1789. The Supreme Court stressed that this statute authorizes only equitable remedies traditionally available in the English Court of Chancery at the time of the founding. Considering that the English equity practice recognized only party-specific remedies, the Supreme Court concluded that nationwide injunctions (i) lack a statutory basis and (ii) are impermissible unless necessary and appropriate to fully redress a plaintiff’s injury. In support for this holding, the Supreme Court held that the English equity practice of a “bill of peace” has “evolved into the modern class action, which is governed in federal court by Rule 23 of the Federal Rules of Civil Procedure.” Specifically, on page 14 of the opinion, the Supreme Court notes the following:
Rule 23’s limits on class actions underscore a significant problem with universal injunctions. A “properly conducted class action,” we have said, “can come about in federal courts in just one way — through the procedure set out in Rule 23.” [citations omitted] . . . . Why bother with a Rule 23 class action when the quick fix of a universal injunction is on the table . . . ? The principal dissent’s suggestion that these suits could have satisfied Rule 23’s requirements simply proves that universal injunctions are a class-action workaround.
On page 26 of the opinion, the Supreme Court further notes that preliminary injunctions may be issued only to the extent necessary and appropriate to provide complete relief to the plaintiff before the court.
Bankruptcy Injunctions
During a bankruptcy case, a debtor may request a preliminary injunction and/or a permanent injunction to protect non-debtors from third-party litigation that may tangentially impact the debtor. The purpose of a preliminary injunction in a bankruptcy case is generally to afford a breathing spell for non-debtor officers and/or directors to focus on the rehabilitation or liquidation of the debtor instead of defending themselves in litigation. Moreover, such a pause could be warranted if the debtor could be indirectly liable in the case arising from indemnification or reimbursement obligations owed to the officer and/or director. Federal Rule of Civil Procedure 65(d), applicable in bankruptcy cases through Federal Rule of Bankruptcy Procedure 7065, governs the issuance of preliminary injunctions, which is acknowledged as an extraordinary equitable remedy that should be granted only in limited circumstances. If granted, the status quo between the parties is maintained during the length of the preliminary injunction.
A debtor’s chapter 11 plan may also include injunctive relief, typically categorized as “debtor releases” and “third-party releases.” A “debtor release” releases claims held by the debtor against third-parties. And a “third-party release” releases creditors’ and other parties-in-interest’s claims against non-debtor third‑parties associated with the debtor (e.g., bankruptcy case professionals, officers, directors, sponsors, and/or others tangentially or indirectly connected to the debtor). Until recently, third-party releases were often nonconsensual in the plan context. But after the Supreme Court’s June 2024 Harrington v. Purdue Pharma LP[2] decision, such releases and related gatekeeper provisions are now commonly the most disputed portions of a chapter 11 plan. Indeed, the Purdue decision springboarded disputes related to what constitutes a permissible consensual third-party release and whether a chapter 15 proceeding can be utilized to obtain an otherwise impermissible nonconsensual third-party release.
Possible Implications Moving Forward
To utilize CASA to challenge a plan’s third-party release provision, a party could characterize a third-party release as a reverse class action. A typical class action involves injured parties electing when and where to commence litigation against a defendant. In bankruptcy, a third-party release flips the script and entails the would-be defendants (here, the non-debtors associated with the debtor) selecting when and where to obtain a final judgment against the injured parties. Accordingly, based on CASA’s analysis, a party could suggest that bankruptcy courts may now be required to examine third-party releases (i.e., reverse class actions) in terms of compliance with Rule 23. This position may be bolstered by considering that bankruptcy court jurisdiction is principally in rem jurisdiction, and whether the bankruptcy court has personal jurisdiction over the injured parties to grant a third-party release is uncertain, therefore requiring a Rule 23 analysis (assuming the bankruptcy court’s in rem jurisdiction does not supplant personal jurisdiction).
However, there are several severe flaws with this position. First, this argument neglects to recognize that pursuant to section 105 of the Bankruptcy Code, bankruptcy courts have jurisdiction to grant broad injunctions to bind “parties in interest” from litigating against certain parties associated with a debtor.[3] Moreover, aside from section 524(g) of the Bankruptcy Code, which explicitly notes that third-party releases in asbestos cases are subject to Rule 23, there is no requirement that other bankruptcy injunctions comply with Rule 23. The Supreme Court’s decision in Purdue also made clear that the Bankruptcy Code does not authorize nonconsensual third-party releases. Having just considered third-party releases last year, it is unlikely that CASA could be interpreted to wipeout all other third-party releases. The CASA argument also fails to consider that third-party releases are much narrower, and not equivalent to, a universal injunction, which prohibits the enforcement of a law, policy, or regulation against anyone, not just “parties in interest” that received notice.
Last, preliminary injunctions sought early in the case by a debtor could be viewed more as in rem jurisdiction, because the purpose of temporarily enjoining litigation against officers/directors of the debtor is to preserve estate assets. There is also no argument that the temporary nature of a preliminary injunction, which cannot be viewed as a reverse class action, should be analyzed under Rule 23.
Time will tell if or when parties begin to assert a CASA-based argument in response to a plan that includes a third-party release, and perhaps to a preliminary injunction motion, and whether courts will be receptive to such a position.
[1] 606 U.S. ___ (2025).
[2] 603 U.S. 204 (2024).
[3] See, e.g., In re Cont’l Airlines, 203 F.3d 203, 214-15 (3d Cir. 2000) (holding that a third-party injunction would be proper under § 105(a) if the proponents of the injunction demonstrated with specificity that such an injunction was both necessary to the reorganization and fair).
