IN RE: ENGINEERING RECRUITING EXPERTS (2025)

Chapter 11

Subchapter V

ORDER OVERRULING OBJECTION TO NON-DEBTOR CHAPTER 11 PLAN INJUNCTION

This Case came before the Court on July 17, 2025, for a trial on confirmation of the Debtors’ Third Amended Subchapter V Plan of Reorganization (the “Third Amended Plan”) (Doc. 58) and the Objection to Confirmation (Doc. 61) filed by the United States Trustee (the “UST”). At the conclusion of the trial, the Court overruled the UST's objection to feasibility and confirmed the Third Amended Plan.¹ The sole remaining issue relates to the propriety of the non-debtor injunction contained in the Third Amended Plan. (the “Plan Injunction”) (Doc. 58, p. 2). The Court took this issue under advisement.² Upon review, the Court will grant the Plan Injunction requested by the Debtor. Importantly, no creditors objected to the temporary injunctive relief,³ unsecured creditors voted to accept the plan terms,⁴ the Subchapter V Trustee supported confirmation, and the Internal Revenue Service was carved out as an exception to the Plan Injunction.

Background

The Debtor operates an engineering recruiting business based in Jacksonville, Florida. The Debtor's sole owner is Christopher J. McHatton (“Mr. McHatton”).⁵ At the confirmation hearing, Mr. McHatton testified that he is primarily responsible for operating the Debtor's business. He communicates with the candidates, and the Debtor earns a commission based on a percentage of the new hire's salary. For example, a manufacturing company would pay the Debtor a $20,000.00 commission for a new hire with a salary of $100,000.00. The Debtor averages sixteen placements per year. Going forward, Mr. McHatton will be the sole employee in the United States and the only employee that brings in new clients and business, while the Debtor will continue to employ personnel located in Columbia, South America for more menial tasks.

Unsecured Distributions and Plan Injunction in Third Amended Plan

The Third Amended Plan provides for unsecured creditors to receive $500.00 per month over five years for a total of $30,000.00.⁶ In addition to the foregoing payments, Mr. McHatton will contribute $5,000.00 annually to the unsecured creditors for a total distribution to unsecured creditors of $55,000.00 over the five-year plan term.⁷

The Plan Injunction provides for an extension of the automatic stay to “any co-debtor.”⁸ Despite this broad language, the Debtor only offered evidence and argument warranting injunctive relief in favor of Mr. McHatton. To the extent any other co-debtors exist, the Court will limit the injunctive relief to Mr. McHatton alone.

The Plan Injunction terminates upon the earliest of: (1) discharge or dismissal; (2) Mr. McHatton leaves his employment; (3) plan default;⁹ or (4) voluntary written waiver by the co-debtor. The Third Amended Plan also requires the Debtor to submit quarterly reports to the Subchapter V Trustee and to all creditors.¹⁰ Any creditor or interested party, including the Subchapter V Trustee, may file an objection with the Court post-confirmation to increase payments based on actual disposable income exceeding projected disposable income, thereby potentially increasing plan payments.¹¹ Finally, the Third Amended Plan tolls any applicable statute of limitations, thus allowing creditors to pursue their claims against Mr. McHatton after the plan payments are completed and a discharge is entered.¹²

Discussion

The UST argues that the Plan Injunction is prohibited because the Supreme Court abrogated past decisions relied on by bankruptcy courts in this Circuit.¹³ However, these decisions, like Purdue,¹⁴ related to non-consensual third-party permanent releases rather than temporary injunctions.¹⁵ Furthermore, bankruptcy courts have narrowly construed Purdue.¹⁶ This is unsurprising because the Supreme Court itself stated “[t]oday's decision is a narrow one.”¹⁷ This Court will also narrowly construe Purdue and finds that it prohibits only non-consensual third-party permanent releases as outlined by the Supreme Court but certainly not temporary third-party injunctions.

The Court notes that the Supreme Court focused its attention on § 1123(b)(6) because “the plan proponents primarily relied upon, and the Second Circuit rested upon, § 1123(b)(6).”¹⁸ The Supreme Court found that § 1123(b)(6), in conjunction with § 105, does not permit bankruptcy courts to issue non-consensual third-party releases because “[p]aragraph (6) is a catchall phrase tacked on at the end of a long and detailed list of specific directions.”¹⁹ Section 1123(b) also provides for what a plan “may” do.

The Supreme Court did not consider § 1123(a)(5), which the Court finds distinguishable from § 1123(b)(6). Section 1123(a) outlines mandatory provisions to be included in a plan, including subsection (5), which states that “a plan shall provide adequate means for the plan's implementation, such as--” and then provides a non-exhaustive list of examples. Unlike the catchall provision in § 1123(b)(6), which follows a detailed and descriptive list, § 1123(a)(5) begins with a mandate and includes examples of providing “adequate means for the plan's implementation.” In the circumstances at bar, the Plan Injunction is necessary for implementation of the plan and thus is authorized by § 1123(a)(5) in conjunction with § 105.²⁰ Other courts have also found a temporary injunction like the one here to be necessary “to facilitate the successful implementation of the Plan.”²¹

As other courts have discussed at length, “courts have indicated that non-consensual third-party stay extensions survived the Supreme Court's ruling.”²² Once courts determined that Purdue did not prohibit temporary third-party injunctions, they had to determine what standard to apply when considering the requested relief. In Hal Luftig Co.²³ , Judge Mastando goes through the current state of the standard and ultimately follows the standard outlined in Parlement Techs,²⁴ which has also been applied in the subsequent Purdue ²⁵ remanded proceeding. In Miracle Restaurant Group,²⁶ Judge Grabill goes through the current state of the standard and ultimately finds that Purdue did not change the Fifth Circuit's analysis regarding temporary non-debtor stays and relied on Zale ²⁷ for the standard.²⁸

In determining whether to issue a temporary injunction of third-party actions as part of confirmation, the Court will apply the Zale factors ²⁹ used by the Fifth Circuit and will next apply the traditional four-factor test for issuance of a temporary injunction.³⁰

Although permanent injunctions are prohibited based on the language of section 524(e), temporary injunctions are not and may be warranted in certain circumstances, including:

(1) When the non-debtor and the debtor enjoy such an identity of interest that the suit against the non-debtor is essentially a suit against the debtor, and (2) when the third-party action will have an adverse impact on the debtor's ability to accomplish reorganization. When either of these circumstances occur, an injunction may be warranted.31

“The success or failure of the Debtor lies mainly, if not exclusively, with the efforts, reputation, and dedication of [Mr. McHatton].”³² Mr. McHatton is the Debtor's founder, managing member, sole shareholder, and only employee that brings in new clients and business. Mr. McHatton and the Debtor share an identity of interest such that a suit against Mr. McHatton would in effect be a suit against the Debtor. In expanding the Debtor's business, Mr. McHatton guaranteed certain debts of the Debtor. Were these creditors to pursue Mr. McHatton they would take Mr. McHatton's focus away from bringing in new clients and business. Given that there are no other employees to bring in clients, Mr. McHatton's complete attention to the business is absolutely necessary for the success of the Debtor. Absent Mr. McHatton's continued involvement, the Debtor's operations could not continue. Such circumstances make Mr. McHatton's continued participation essential to the Debtor's successful reorganization ³³ and meet the two-factor test established in Zale.³⁴

Given the presence of the Zale factors, the Court will next consider the traditional four-factor test for a preliminary injunction, which requires the injunction proponent to show that:

(1) it has a substantial likelihood of success on the merits; (2) it will suffer an irreparable injury unless the injunction is granted; (3) the harm from the threatened injury outweighs the harm the injunction would cause the opposing party; and (4) the injunction would not be adverse to the public interest.35

First, the Debtor has established a substantial likelihood of success on the merits, which in the present context is the likelihood that the Debtor will complete the Plan payments and receive a discharge. When the Court confirmed the Third Amended Plan, the Court determined that the Debtor satisfied feasibility under the heightened standard provided by § 1191(c)(3).³⁶ Mr. McHatton's testimony at the confirmation hearing demonstrated his business acumen and his familiarity with the Debtor's finances. Further demonstrating feasibility, the Debtor timely made all payments post-petition and pre-confirmation and timely filed monthly operating reports. Given the likelihood that Debtor will complete its plan payments, the first factor is easily met.

Second, absent the injunction, the Debtor will suffer irreparable injury. Mr. McHatton is not only the sole owner but also the only individual responsible for generating new business and attracting clients. Continued collection on business debts would ultimately proceed to lawsuits against Mr. McHatton. Defending such lawsuits would significantly divert his attention from critical business functions—particularly client acquisition and revenue generation. With no other personnel available to assume these responsibilities, the business would be left vulnerable, ultimately leading to its collapse and closure. Few consequences are more devastating to a business than forced closure.

Third, the harm from the threatened injury outweighs the harm the injunction would cause the opposing parties. The potential prejudice to the Debtor would be extreme. Absent the injunction, the Debtor's operations would likely cease. This would harm not only the Debtor but all creditors as well. Conversely, prejudice to enjoined creditors is limited. In fact, without the Plan Injunction the creditors would be harmed by diminished distributions under the Third Amended Plan. As noted by the Subchapter V Trustee at the confirmation hearing, the Debtor runs a services business. If the case were converted or dismissed or the Debtor were otherwise forced to liquidate its assets, the unsecured creditors would likely receive no distributions from the Debtor.

Further, the Plan Injunction will merely delay the enjoined creditors from collecting against Mr. McHatton. Given the plan provisions that will toll the applicable statute of limitations, the creditors will be able to pursue their claims against Mr. McHatton when the Debtor receives a discharge after completing the five-year unsecured payment schedule. If the Debtor's business improves in the next five years, then Mr. McHatton may be better situated to pay a meaningful distribution towards his debts.

Fourth, the injunction would not be adverse to the public interest. The public interest is served by facilitating the debtor's continued operations and ensuring plan payments to creditors are completed, including substantial payments to the Internal Revenue Service. At the same time, creditors are protected and may eventually realize the benefit of Mr. McHatton's personal guarantee. Thus, the fourth factor has been established.

In sum, the Court finds the Zale factors and the factors for a preliminary injunction are present. Consequently, the Plan Injunction should be approved.

Lastly, the Court addresses a unique objection raised by the UST – one that appears to not previously been considered by other courts in post-Purdue decisions. The UST argues that the requested injunction is impermissible due to its preliminary nature and the lack of a subsequent court order specifically resolving the Plan Injunction. While inventive, this argument ultimately falls short. The requested Plan Injunction is requested by the Debtor and for the benefit of the Debtor and not Mr. McHatton. Viewed through that lens, the Debtor's Discharge Order will serve as the final adjudication resolving the preliminary nature of the Plan Injunction. The Discharge Order will ultimately make the Plan Injunction go away, which will then subject Mr. McHatton to potential lawsuits and collection actions should those creditors choose to pursue those actions. By that point, however, the Debtor will have already reaped the benefits of the Plan Injunction—namely, enabling Mr. McHatton to concentrate on his responsibilities to the Debtor and facilitate the optimal distribution to creditors.

Conclusion

In the wake of the Supreme Court's narrow ruling in Purdue, the UST seeks to stretch its implications beyond their intended reach—arguing that the Plan Injunction must be barred. This Court finds that argument unpersuasive. The Supreme Court's decision targeted non-consensual third-party permanent releases, not temporary injunctions that are at issue here. Bankruptcy courts have rightly read Purdue with precision, and this Court will do the same. The Plan Injunction, far from being a sweeping shield, is a tailored tool—one that ensures the Debtor's survival and successful reorganization by temporarily protecting the linchpin of its operations: Mr. McHatton.

Accordingly, it is

ORDERED:

1. The Objection is OVERRULED.

2. The Plan Injunction as outlined above is APPROVED.

FOOTNOTES

1.   The Court entered the Confirmation Order on July 29, 2025. (Doc. 86).

2.   The Debtor and the UST previously submitted memoranda in support of their respective positions. (Docs. 54, 61).

3.   Only the UST objected to the Plan Injunction.

4.   Ballot Tabulation (Doc. 77).

5.   Statement of Financial Affairs #28 (Doc. 1, p. 36).

6.   Third Amended Plan (Doc. 58, p. 6).

7.   Id. at p. 11.

8.   Id. at p. 10.

9.   This third provision is ambiguous and could be construed as terminating the Plan Injunction only as to a single creditor; however, the Court determines that any plan default will terminate the Plan Injunction as to all creditors.

10.   Id. at p. 11.

11.   Id.

12.   Id.

13.   UST Objection (Doc. 61, pp. 7-8) (discussing Harrington v. Purdue Pharma, L.P., 603 U.S. 204 (2024)).

14.   Harrington v. Purdue Pharma, L.P., 603 U.S. 204 (2024)

15.   SE Prop. Holdings, LLC v. Seaside Eng'g & Surveying (In re Seaside Eng'g & Surveying), 780 F.3d 1070, 1076 (11th Cir. 2015) (addressing the propriety of non-debtor releases as part of a Chapter 11 plan); In re Dow Corning Corp., 280 F.3d 648, 658 (6th Cir. 2002) (addressing the unusual circumstances that warrant a non-debtor release).

16.   See, e.g., In re Hal Luftig Co., 667 B.R. 638, 658 (Bankr. S.D.N.Y. 2025) (“The Supreme Court did not address the bankruptcy courts’ authority to grant non-consensual third-party automatic stay extensions in Purdue Pharma.”); In re Miracle Rest. Group, 2025 Bankr. LEXIS 1188, at *14-15 (Bankr. E.D. La. May 13, 2025) (“the Supreme Court's holding in Purdue Pharma focused on the narrow question of whether a bankruptcy court may effectively extend to non-debtors the benefits of a Chapter 11 discharge and did not address the propriety of temporary, non-consensual, non-debtor injunction issued through plan confirmation.”); In re Commercial Express, 670 B.R. 573, 583 (Bankr. M.D. Fla. 2025) (“The Supreme Court expressed its decision as a narrow one confined solely to the question presented — whether a bankruptcy court ’may effectively extend to nondebtors the benefits of a Chapter 11 discharge usually reserved for debtors.’ ”) (quoting Purdue Pharma, 603 U.S. at 215) (emphasis in original).

17.   Purdue Pharma, 603 U.S. at 206.

18.   In re Commercial Express, 670 B.R. 573, 583 (Bankr. M.D. Fla. 2025).

19.   Id. at 584 (quoting Purdue Pharma, 603 U.S. at 217).

20.   Section 1142, which allows the court to direct the debtor and “any other necessary party ․ to perform any other act ․ that is necessary for the consummation of the plan,” could also be viewed as authority for temporary third-party injunctions.

21.   In re Miracle Rest. Grp., 2025 Bankr. LEXIS 1188, at *22 (Bankr. E.D. La. May 13, 2025).

22.   In re Hal Luftig Co., 667 B.R. 638, 658 (Bankr. S.D.N.Y. 2025).

23.   Id.

24.   In re Parlement Techs., Inc., 661 B.R. 722 (Bankr. D. Del. 2024).

25.   Purdue Pharma L.P. v. Mass. (In re Purdue Pharma L.P.), 666 B.R. 461, 473 (Bankr. S.D.N.Y. 2024) (“This Court whole-heartedly agrees with the analysis of the Parlement court.”)

26.   In re Miracle Rest. Grp., 2025 Bankr. LEXIS 1188 (Bankr. E.D. La. May 13, 2025).

27.   Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746 (5th Cir. 1995).

28.   In re Miracle Rest. Grp., 2025 Bankr. LEXIS 1188 at *18. (“This Court finds that Zale Corp. continues to be a valid legal proposition.”)

29.   This Court will follow the Zale standard given its extra level of scrutiny above and beyond the usual Eleventh Circuit temporary injunction standards.

30.   In re Couture Hotel Corp., 536 B.R. 712, 751 (Bankr. N.D. Tex. 2015).

31.   Id. (quoting Feld v. Zale Corp. (In re Zale Corp.), 62 F.3d 746, 761 (5th Cir. 1995) (emphasis added)).

32.   Bernhard Steiner, 292 B.R. 109, 117 (Bankr. N.D. Tex. 2002).

33.   In re Seatco, Inc., 257 B.R. 469, 476 (Bankr. N.D. Tex. 2001).

34.   In re Couture Hotel Corp., 536 B.R. at 751 .

35.   Gonzalez v. Governor of Georgia, 978 F.3d 1266, 1270-71 (11th Cir. 2020).

36.   The enhanced standard “fortifies the more relaxed feasibility test that § 1129(a)(11) contains.” In re Pearl Res. LLC, 622 B.R. 236, 269 (Bankr. S.D. Tex. 2020).

Jason A. Burgess United States Bankruptcy Judge