Thoughts on 2026
Will the Supreme Court resolve the meaning of the "subject of Bankruptcies"?
Welcome to SCOTUS Bankruptcy Watch. My thanks to those of you who have already subscribed. It’s free. Please “share” these posts with others.
What’s in store for bankruptcy law at the Supreme Court for the first half of 2026? This post contains a brief discussion concerning the seven bankruptcy cases that are currently at the Supreme Court or likely to arrive there soon.
January 9, 2026, may be a key date for the bankruptcy bar. At least three bankruptcy cases are scheduled for conference on January 9. One case is awaiting oral argument, and one case is awaiting a response from the Solicitor General. We should know the results of the conference on Monday, January 12, 2026.
In the coming weeks/months, I hope to discuss these cases in more detail. But here is a short preview.
The Bestwall case: the titanic case of 2026?
Perhaps the most important case that has the potential to be the subject of a petition for certiorari is Bestwall LLC v. Official Comm. of Asbestos Claimants, 148 F.4th 233 (2025).
Bestwall is not yet at the Supreme Court. The Bestwall decision from the Fourth Circuit is still within the 90 day window for the time to file a petition for certiorari. The petitioners could be the Official Committee of Asbestos Claimants who would be seeking to reverse the decision of a bankruptcy court which declined to dismiss the bankruptcy for both statutory and constitutional grounds.
Simply stated, the Bestwall case asks whether there is any requirement that a debtor be experiencing some level of financial distress in order to file for bankruptcy. But the larger issue is the proper understanding of the Constitution’s Bankruptcy Clause which permits Congress to enact uniform laws on the “subject of Bankruptcies.” The question is whether there are any meaningful limits on what constitutes a valid use of the bankruptcy system. Hence—titanic. If Purdue Pharma mostly ended nonconsensual third-party releases, and if Bestwall endorses the notion that a debtor must be experiencing some level of financial distress, (which could end or limit the use of the Texas Two-Step divisive merger), or defines the meaning of the Bankruptcy Clause, then perhaps some of the more aggressive strategies of the last ten years or so will no longer be available.
At the Fourth Circuit the Official Committee of Asbestos Claimants argued that the bankruptcy case should have been dismissed because neither Bestwall nor Georgia Pacific were experiencing any financial distress, and thus the bankruptcy court lacked subject matter jurisdiction. The Committee argued that the Constitution’s Bankruptcy Clause circumscribes the scope of a proper bankruptcy. Art. I, § 8, cl 4. “The history of the Bankruptcy Clause, as well as subsequent interpretations by both courts and Congress, confirms that “bankruptcy is reserved for actually bankrupt debtors.”[1]
The Fourth Circuit reframed the issue as one of “standing” or eligibility. The Fourth Circuit stated that the Committee’s challenge “really is about Congress’s power under Article I of the Constitution to make parties eligible for bankruptcy protection. It’s not a question of subject matter jurisdiction.” “Challenges about a debtor’s eligibility for bankruptcy protection are not jurisdictional, even when those challenges are constitutional.” Bestwall, 148 F.4th at 241.
Progressive liberalization. Judge Agee concurred. “From the beginning, the tendency of legislation and of judicial interpretation has been uniformly in the direction of progressive liberalization in respect of the operation of the bankruptcy power.” Bestwall, 148 F. 4th at 244 (citing Cont’l Ill. Nat. Bank & Tr. Co. of Chi. v. Chi., Rock Island & P. Ry. Co., 294 U.S. 648, 668).
Originalism. Judge King’s dissent shows the depth of the dispute. Judge King looked instead to the meaning of the Bankrputcy Clause as understood by the Founders. “At the time of the Founding, ‘bankruptcy’ had a specific and well-understood legal meaning” which was that it applied to “merchants and traders who were unable or unwilling to pay their debts.” 148 F.4th at 251. “What emerges from this relevant history is a consistent and constitutionally significant principle: Bankruptcy as the Founders understood it, was meant for the financially distressed.” 148 F.4th at 255.
If the Committee does file a petition for certiorari, I will have more analysis of what is at stake and how this case was argued at both the bankruptcy court and the Fourth Circuit.
Below is a chart that I will update periodically on some of the pending cases. I have attached links to the key briefs.
Pending Oral Argument
In re Thomas Keathley: The meaning of judicial esoppel.
The Supreme Court has already granted certiorari in In re Keathley. This case may be argued in March or April. Keathley involved a Chapter 13 debtor who was injured in a truck accident after his Chapter 13 case was filed, and during the five-year period of plan performance. The debtor sued the owner of the vehicle that injured him. The debtor did not immediately amend his schedules to reflect the possibility of a recovery from the tort. The defendant in the law suit argued that the state law claim should be dismissed on the grounds of judicial estoppel because the claim had not been listed on the schedules. The Fifth Circuit agreed and endorsed a very strict reading of judicial estoppel.
I wrote an amicus brief on behalf of Professor Robert Lawless, and a group of former bankruptcy judges—the Honorable Melanie Cyganowski (ret); the Hon. Joan Feeney (ret.) the Hon. Judith Fitzgerald (ret.) the Hon. Bruce Markell (ret.), and the Hon. Eugen Wedoff. Professor Lawless was the reporter for the ABI Report on Consumer Bankruptcy. The Commission had urged the courts to follow a more holistic test for when to apply judicial estoppel—a test that looked to all of the facts and circumstances, including the complexity of the schedules, the lack of sophistication by many chapter 13 debtors, and whether the bankruptcy court or the Chapter 13 trustee had felt the need to impose any sanction (it had not).
The Fifth Circuit’s decision is out of step with both the ABI Commission and the majority of courts. I believe there is a good chance the Supreme Court will reverse the Fifth Circuit. I will review this case in more detail in a later post.
2026 cases: Seven key bankruptcy cases.
Here is a list of the seven pending bankruptcy cases. I’ve attached links to some of the key pleadings.
1. Lujan Claimants v. Boy Scouts of America. Supreme Court Case 25-490.
Question presented: Whether the mootness provision of § 363(m) pertains to a plan with an unlawful third-party release if there is an “integral” sale appended to the plan and whether equitable mootness is constitutionally or statutorily infirm.
Set for conference on January 9, 2026.
The Boy Scout case is of particular importance, as noted in my first two posts on this Substack. It raises key questions concerning statutory mootness and the use of the Bankruptcy Code’s sales provision found in § 363(b) and 363(m) to argue that an appeal from a confirmation order is moot. The petition also asks the Court to consider and reject the doctrine of equitable mootness. My next Substack will offer additional views on the importance of this case.
Counsel for Petitioner: Mahesha Subbaraman
Counsel for Respondent: Michael Huston
Petition: Lujan cert petition
Opposition: Boy Scout’s brief.
Amicus brief: Wedoff amicus brief.
2. Hertz Corp. v. Wells Fargo Bank, N.A., Supreme Court case no. 24-1062, on petition from the Third Circuit.
Scheduled for conference on January 9, 2026.
Question presented: Whether the pre-Code absolute priority rule supersedes the unambiguous text of the Code and requires a solvent debtor to pay its creditors unmatured interest. The Solicitor General was invited to file a response.
Counsel for petitioner: Paul D. Clement
Counsel for Respondent: Christopher May Mason
Cert petition: Hertz cert. petition
Opposition: Wells Fargo opposition to cert.
Solicitor General Solicitor General Brief
3. Highland Capital Mgmt. v. NexPoint Advisors, L.P., Sup. Ct. Case No. 25-119. Originally scheduled for conference on Nov. 10, 2025. Subsequently, the Court has called for the views of the Solicitor General.
A conference date has not yet been scheduled.
Question Presented: Whether a bankruptcy court can act as a gatekeeper to screen noncolorable lawsuits against nondebtor bankruptcy participants. Whether a bankruptcy court can to a limited degree exculpate nondebtor bankruptcy participants from liability for conduct arising from the bankruptcy process.
Counsel for petitioner: Roy T. Englert, Jr.
Counsel for Respondent: Michael James Edney
Cert petition: Highland cert petition
Opposition: NexPoint Opposition
Amicus Brief: Prof. Anthony Casey amicus brief
4. Ovation Fund Mgmt. v. Nossaman, L.P., Sup. Ct. Case 24-1192.
Conference set for January 9, 2026.
Question Presented: “Whether a federal court overseeing an equity receivership has the power to enjoin and extinguish claims that belong to non-receivership third parties without the claimants’ consent.”
Counsel for Petitioner: Daniel Nathan Csillag
Counsel for Respondent: Joshua Andrew del Castillo
Cert petition: Ovation cert. petition
Opposition: Freigtag brief in opposition
SEC: SEC Brief
5. Kim H. Peterson v. Krista Freitag, Receiver for ANI Development Co., Supreme Court Case No. 25-151. Joint briefs filed with Ovation fund, case 24-1192.
Set for Conference on January 9, 2026.
Question Presented: Whether a federal court overseeing an equity
receivership has equitable authority to dispose of claims that belong to a third-party against non- receivership entities without the claimants’ consent.
Counsel for Petitioner: Rupa Gupta Singh
Counsel for Respondent: Joshua Andrew dl Castillo
Cert. petition: Peterson cert petition
Opposition: Frietag Oppositon
SEC SEC Response
6. Thomas Keathley v. Buddy Ayers, Supreme Court Case No. 25-6. Cert. granted.
Pending oral argument, Spring 2026.
Question Presented: “Whether the doctrine of judicial estoppel can be invoked to bar a plaintiff who fails to disclose a civil claim in bankruptcy filings from pursuing that claim simply because there is a potential motive for nondisclosure, regardless of whether there is evidence that the plaintiff in fact acted in bad faith.”
Counsel for Petitioner: Gregory George Garre
Counsel for Respondent: William McGinley Jay
Cert Petition: Keathley petition
Opposition: Buddy Ayers Response
Merits brief: Keathley merits brief
Amicus brief: Judge Cyganowski amicus brief
7. Official Committee of Asbestos Claimants v. Bestwall, Fourth Circuit Case No. 24-1493.
This Bestwall case is a possible candidate for a petition for a writ of certiorari. The Fourth Circuit affirmed the decision of the bankruptcy court for the western district of North Carolina that had declined to dismiss the Bestwall bankruptcy based on the allegations that the bankruptcy court lacked subject matter jurisdiction based on the lack of financial distress. The Fourth Circuit denied a request for en banc review on October 30, 2025. A cert. petition is due approximately January 30, 2026, subject to a possible request for an extension.
[1] Brief for Appellant, In re Bestwall LLC., Case No. 24-1493 (4th Cir. August 30, 2024), ECF 32, at 1.