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One decision and six weeks changed the course of this case. For ECI Pharmaceuticals, its Chapter 11 bankruptcy was well underway. Its plan had already been confirmed when the Supreme Court made its ruling on Harrington v. Purdue Pharma L.P. Then, a creditor tried to use this ruling to backtrack ECI’s plan. The only problem was that the creditor hadn’t objected to the plan. Wernick Law brought the case to an Eleventh Circuit victory.
ECI Pharmaceuticals confirmed its Chapter 11 bankruptcy plan that contained a release benefiting nondebtors. This confirmation occurred about six weeks before the Supreme Court ruled on Purdue Pharma. The creditor had actual notice of the bankruptcy plan when ECI confirmed it. However, the creditor chose not to take action and object to the plan at that time. Instead, the creditor waited until after the Supreme Court ruled on Purdue Pharma. It then appealed the confirmation order, using Purdue Pharma as the basis of its argument. The district court dismissed the appeal. The creditor then appealed to the Eleventh Circuit Court.
The Eleventh Circuit Court will generally not consider issues that the appealing party didn’t previously raise in the lower bankruptcy court. Essentially, parties cannot bring up new issues when they appeal that they hadn’t previously raised. In this case, that is what the creditor was attempting to do.
The creditor was asking the appellate court to consider whether Purdue Pharma invalidated the releases. However, before the appellate court can consider this, it has to determine whether it can address the issue at all. The creditor agreed that it had not previously raised the issue. Instead, it argued that one of the exceptions applied, so the court could hear the creditor’s argument.
The court acknowledged five situations in which an appellate court can make an exception and consider an issue not properly raised in a lower court:
Sometimes, an appellate court will overlook the failure to raise an issue if the issue is purely legal and doesn't require the court to dig into the facts. The creditor tried to argue this exception by citing Purdue Pharma. The Eleventh Circuit rejected that argument. To be able to analyze how Purdue Pharma applies, the court would first have to look at the release in ECI's bankruptcy plan. That would be a question of fact, not law. That's a mixed question of fact and law, so the first exception doesn’t apply.
If you genuinely didn't have a chance to make the argument in the bankruptcy court, an appellate court may let you raise it later. The creditor argued that it didn't know about the problematic release because the bankruptcy plan was 120 pages long. The Eleventh Circuit didn’t accept this argument. It stated that the creditor was given the plan in a timely manner and had an opportunity to read it and object. This exception was also not applicable to the case.
This exception gives courts flexibility when refusing to consider an issue would create a serious injustice. The creditor argued this was important because Purdue Pharma dealt with whether the releases were legally permissible. The Eleventh Circuit disagreed with the creditor because there weren't any due-process issues that would make this particular situation an exceptional case.
When the law is clear that there’s no question of how the court will resolve the issue, the court may look beyond the fact that the party didn’t raise the issue earlier. The creditor argued that Purdue Pharma made the answer clear. The Eleventh Circuit disagreed. The court stated that bankruptcy courts had reached different interpretations about what Purdue Pharma requires for a third-party release to qualify as consensual. With varying rulings, there isn’t a clear-cut, obvious outcome for this particular case, making this exception not relevant to the creditor’s situation.
The court may consider a new argument on appeal when an issue involves a significant question with broader implications or serious public concern. However, the analysis is more complex than "What does Purdue Pharma mean for bankruptcy law?" Instead, the court considered whether Purdue Pharma invalidated the specific releases contained in this particular bankruptcy plan. The Eleventh Circuit ruled that answering this question wouldn’t necessarily provide much useful guidance for other Purdue Pharma challenges.
In the Eleventh Circuit victory, the court affirmed the dismissal because it determined that none of the five exceptions applied to the creditor’s situation. The creditor had an opportunity to object to the nondebtor releases in bankruptcy court. It didn't do so. The Supreme Court's decision in Purdue Pharma shortly afterward didn't erase that procedural problem.
Wernick Law secured an Eleventh Circuit victory that provides a concise explanation of when the court may consider an issue that wasn't raised in bankruptcy court, particularly in the wake of Purdue Pharma. The Eleventh Circuit specifically laid out five circumstances in which a forfeited issue might still be considered, then explained why this creditor didn't fit any of them.
For parties in bankruptcy proceedings, if they believe a provision in a proposed bankruptcy plan is objectionable, they generally need to raise that objection before the bankruptcy court. They shouldn’t wait to see how the law or case develops and then try to introduce arguments for the first time on appeal.
The Eleventh Circuit’s decision ultimately came down to a procedural issue that can have significant consequences in bankruptcy litigation. When an objection is not raised at the appropriate stage, there may be no second opportunity on appeal. Wernick Law successfully represented ECI Pharmaceuticals through that appeal, securing an affirmation of the district court’s dismissal. The result reflects the firm’s experience handling complex bankruptcy and appellate matters where procedural strategy can shape the outcome. If you are facing bankruptcy, schedule a consultation to learn how we can assist you.
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