Case Roundup for July 12, 2026

By Steve Jakubowski,  July 12, 2026

Posted in Recent Case Law Developments

It’s been a busy past month for me, but I’ve flagged 50 cases of interest that I’ll endeavor to summarize over the next several posts:

Third-Party Release Opt-Outs and Standing to Appeal – Mercy Health Network v. Mercy Hospital, 178 F.4th 449 (8th Cir. June 12, 2026): Appellant, an unsecured creditor who opted out of the third-party releases in the debtor’s plan, was not a “person aggrieved” with standing to bring a bankruptcy appeal because it opted out of the release and thus would not have gained anything from reversal of the confirmation order, since it was not bound by the releases regardless of whether they were held to be enforceable. Also, it was not a “person aggrieved” with standing to appeal the confirmation order on the theory that the releases reduced the pro rata distribution to the objecting creditor, as that claim was “completely speculative” and the creditor “has not identified a single claim that the Debtors released that would have (or even could have) increased its recovery.”

Dischargeability of Post-Confirmation Products Liability Claims – Babcock & Wilcox Co. v. Philadelphia Energy Sols. Ref. and Mktg. LLC, (In re Babcock & Wilcox Co.), 2026 WL 1724858 (Bankr. E.D. La. June 13, 2026): Bankruptcy discharge in a confirmed plan in Babcock & Wilcox’s 2000 bankruptcy case did not extinguish products-liability claims arising from a post-confirmation refinery explosion in 2019 allegedly caused by a defective elbow joint manufactured by B&W in the 1970s. The Court found that these claims did not meet the Fifth Circuit’s “prepetition-relationship” test since the injury was not relatively certain to manifest at the time of B&W’s bankruptcy. As such, the Court denied Babcock & Wilcox’s request for a declaratory judgment to enforce the discharge injunction against the PES Entities, stating:

“[T]o find a future claim to be a dischargeable prepetition bankruptcy claim under the prepetition-relationship test, two conditions must exist: (1) the future injury must be relatively certain to manifest itself at some point and be attributable to the debtor and (2) the debtor must be able to identify the claimant to whom it can give notice sufficient to satisfy due process that his or her future claim might be discharged by a confirmation order.

Procedural Stipulation of Parties Merits Denial of Motion of Summary Judgment – EPIC Cos. Midwest, LLC v. EPIC Gateway LLC (In re Epic Cos. Midwest, LLC), 2026 WL 1719943 (Bankr. D.N.D. June 3, 2026): Judge Bill Fisher (my Univ. of Chicago Law School classmate) denied the Plaintiffs’ motion seeking summary judgment as to various fraudulent transfer claims. Judge Fisher held the motion was procedurally improper because (i) the parties had stipulated that the matter would be set for a jury trial and (ii) the scheduling order required the case to be trial-ready by December 15, 2025, stating:

“Stipulations of various kinds are an invaluable part of the litigation process. However, no one would enter into stipulations if, absent exceptional circumstances, courts did not enforce them. Because the stipulation is clear and no exceptional circumstance has been alleged, the Court is unwilling to deviate from the parties’ agreement.

Additionally, Judge Fisher identified genuine issues of material fact, such as the credibility of the Plaintiffs’ Chief Restructuring Officer and Liquidating Trustee, whose analysis was central to the Plaintiffs’ claims of insolvency and inadequate capital. He also found that the Defendants raised valid defenses, including the possibility that they were “mere conduits,” which further precluded summary judgment. Finally, he noted, the Defendants heavily rely on the in pari delicto defense, which “ ‘bar[s] recovery’ when the plaintiff’s ‘fraud was no less than that of the defendant,’ ” but “this defense may not apply where a plaintiff stands in the shoes of creditors under Section 544 or simply asserts a statutory right under Section 548.”

Circuits Split Over Standards Governing Bad Faith Dismissals – In re JPK Newco, LLC, 2026 WL 1734986 (Bankr. D.D.C. June 12, 2026): The debtor was a special purpose entity formed to hold two junior promissory notes. It had no secured claims and only contingent/disputed unsecured claims from the obligors under the two notes. The first chapter 11 case filed by the debtor was dismissed consensually following a motion to dismiss by the US Trustee that sat pending for 9 months. The second case was filed as a Subchapter V case. Less than a month into the new case, the obligors under the two promissory notes moved to dismiss for bad faith. The Debtor, meanwhile, had already attended the § 341 meeting, filed all required schedules and reports, and submitted its Subchapter V plan nearly 60 days ahead of the statutory deadline.

The Court surveyed the Circuit split on the requirements for establishing a bad faith dismissal, noting that the Eleventh Circuit requires only subjective intent, the Fifth Circuit weighs all factors (both objective and subjective), while the Second, Third, and Fourth Circuits require objective futility as a threshold showing. The Court formally adopted the Fourth Circuit’s test in Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir. 1989), under which a bad faith dismissal requires the movant to prove both objective futility (no realistic possibility of reorganization) and subjective bad faith under a totality-of-the-circumstances analysis. The opinion further held the movants failed to establish objective futility since the debtor had a reasonable likelihood of reorganization and a potentially confirmable plan pending. Consequently, the Court reasoned, it did not need to address subjective intent, which was the element the movants sought additional discovery on, but was no longer necessary given the ruling.

Section 365(h) Election Must Be Made at the Time of Lease Rejection – In re Allstar Props., LLC, 2026 WL 1739523 (Bankr. N.D. Ga. June 15, 2026): The Court addressed whether a lessee seeking to preserve its statutory rights under Bankruptcy Code section 365(h) to terminate or retain its rights under a lease must do so immediately upon rejection of the lease by the debtor-lessor. The lessee, Edward D. Jones & Co. (EDJ) wanted to preserve both options under § 365(h) indefinitely (i.e., the right to retain possession with rent offset protections and the right to terminate the lease later if the new landlord failed to perform under the lease). EDJ proposed language that would have burdened the proposed purchaser of the property from the debtor with the lease while keeping EDJ’s termination option alive with no deadline. Judge Ellis-Monro started by considering the plain meanings of “terminate” and “retain” in Section 365(h), which she found were “diametrically opposed” in ordinary usage but “given that termination contemplates an end but not a time frame, it seems that the words can coexist such that their ordinary meaning does not resolve the issue here.” Finding the text alone insufficient to resolve the timing question, she turned to the broader structure of Section 365:

“Certainly, as EDJ argues there are many time limits in § 365; however, none are included in §§ 365(h), (i) or (n). This could be read as intentional, requiring a negative inference, as argued by EDJ. But the Supreme Court rejected that approach in deciding whether a debtor-licensor’s rejection of a trademark licensing agreement terminates the licensee’s right to use the trademark. Mission Prod. Holdings, Inc. v. Tempnology, LLC, 587 U.S. 370 (2019) (holding that the problem with the negative inference argument as applied to § 365 is that “it treats as a neat, reticulated scheme of ‘narrowly tailored exception[s],’ … what history reveals to be anything but. Each of the provisions Tempnology highlights emerged at a different time, over a span of half a century. … And each responded to a discrete problem—as often as not, correcting a judicial ruling of just the kind Tempnology urges.”).

Judge Ellis-Monro concluded that nonbankruptcy contract law principles govern, that the election is indeed binary, and that it must be made at the time of rejection, “but, that it is not inconsistent with § 365(h), § 105(a), and Law v. Siegel, 571 U.S. 415 (2014) to provide EDJ a reasonable time to make that decision.” The Court granted EDJ 45 days to make that decision and ordered that the sale of the property is subject to EDJ’s rights under Code section 365(h) to ensure that EDJ’s rights are preserved during the sale process.

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