Finality, Gatekeeping Provisions, and Creditors of Non-Debtor Entities
While the finality of a confirmed plan is a familiar concern for creditors concerning their claims against a debtor, it poses an equal—and often overlooked—risk to those creditors' potential claims against non-debtors. In the wake of Purdue Pharma, the rapid evolution in the permissible scope of third-party releases demands that creditors who may also have claims against non-debtors implicated in a chapter 11 case monitor the proceeding closely. Otherwise, those creditors risk missing a narrow window to challenge plan provisions that could permanently impair their rights against non-debtors.
A recent decision from the U.S. Bankruptcy Court from the Southern District of Texas provides a case study—In re Sorrento Therapeutics Inc., No. 23-90085, 2026 WL 1791033 (Bankr. S.D. Tex. June 21, 2026).
At the center of the dispute were: (i) a "gatekeeping" provision that required claimants to obtain bankruptcy court confirmation that certain types of claims against an enumerated list of related non-debtors were "colorable" before pursuing the claim; and (ii) an "exculpation" provision that limited the liability of certain non-debtor entities for actions taken in connection with the bankruptcy case.
Two years after confirmation of a chapter 11 plan that included a gatekeeping provision, a group of plaintiffs sued various non-debtor parties that had been involved in the bankruptcy case and were protected by that provision. The non-debtors requested the Bankruptcy Court to enforce the gatekeeping provision and demand a showing that the claims were colorable. The plaintiffs, on the other hand, argued the gatekeeping provision violated Fifth Circuit precedent because it was overbroad.
While the court agreed with the plaintiffs that the gatekeeping provision likely ran afoul of binding Fifth Circuit precedent, it nonetheless effectively ended the plaintiffs' cases against the non-debtors when it held that: (i) the provision was valid and enforceable because the confirmation order was final and plaintiffs did not pursue a valid path to challenge it; and (ii) the plaintiffs' claims were not colorable.
Chapter 11 Plan Exculpation and Gatekeeping Provisions
Exculpation clauses generally specify the scope of, or the standard of care (e.g., ordinary negligence, gross negligence, or willful misconduct) governing, an exculpated party's liability for conduct during the course of the bankruptcy case. Such provisions commonly insulate estate fiduciaries—including officers, directors, and employees of the debtors and the reorganized debtors, as well as advisors and professionals retained by the estate, official committees, and their members—from most claims arising from their official conduct during the chapter 11 case.
A gatekeeping provision bars litigation against critical plan participants without prior bankruptcy court approval, typically conditioned on the court's finding that the proposed claim is "colorable." These provisions derive from the Barton doctrine—named for Barton v. Barbour, 104 U.S. 126 (1881)—which requires leave of the appointing court before any party may sue a trustee or other court-appointed officer in another forum for acts done in an official capacity. See ACE Insurance Co., Ltd. v. Smith (In re BCE West, L.P.), No. 06-0325-PHX-JAT, 2006 WL 8422206, at *2 (D. Ariz. Sept. 20, 2006); Villegas v. Schmidt, 788 F.3d 156, 159 (5th Cir. 2015). Courts have expanded the doctrine beyond trustees to encompass other related entities, including trustees' counsel and liquidating trusts, affiliates of the debtor, and third parties contributing funds to a settlement trust, reasoning that the doctrine prevents litigation that would interfere with estate administration. See Lawrence v. Goldberg, 573 F.3d 1265, 1270 (11th Cir. 2009); In re Circuit City Stores, Inc., 557 B.R. 443, 447 (Bankr. E.D. Va. 2016).
The Fifth Circuit articulated its narrow view regarding both the scope of permissible plan exculpations and the validity of gatekeeping provisions in a pair of rulings arising from the same chapter 11 case. In NexPoint Advisors L.P. v. Highland Capital Mgmt., L.P. (In re Highland Capital Mgmt., L.P.), 48 F.4th 419 (5th Cir. 2022) ("Highland I"), the bankruptcy court confirmed a chapter 11 plan that included a broad exculpation provision—covering certain executives and independent directors of the debtors, the creditors' committee, all professionals retained in the case, and numerous categories of "related persons"—designed to shield estate fiduciaries and other parties from future lawsuits. Id. at 427. The plan also contained a gatekeeping provision requiring plaintiffs to obtain bankruptcy court authorization before suing various "protected parties" for conduct related to the bankruptcy, by demonstrating that any such claims are "colorable." Id. at 435.
The Fifth Circuit reversed the confirmation order and held that, while bankruptcy courts do have authority to approve chapter 11 plans exculpating non-debtor third parties, the plan's definition of "exculpated parties" was impermissibly broad under section 524(e) of the Bankruptcy Code. Id. at 437–38. Specifically, the court of appeals ruled that exculpation could extend only to the debtor and related entities, the creditors' committee and its members, and the debtor's independent directors for conduct within the scope of their duties. Id. at 438. The Fifth Circuit further ruled that the plan's gatekeeping provision was permissible but did not directly address whether the scope of non-debtor parties protected by the gatekeeping provision must be limited so as to be co-extensive with the narrowed exculpation. See id. at 438–39.
On remand, the bankruptcy court narrowed the exculpation clause in accordance with Highland I but declined to similarly narrow the definition of "protected parties" shielded by the gatekeeping provision, overruling the appellants' objection that the changes should apply equally to the gatekeeper clause. In re Highland Capital Mgmt., L.P., No. 19-34054-SGJ11, 2023 WL 2250145, at *8 (Bankr. N.D. Tex. Feb. 27, 2023).
In NexPoint Asset Mgmt., L.P. v. Highland Capital Mgmt., L.P. (In re Highland Capital Mgmt., L.P.), 132 F.4th 353 (5th Cir. 2025) ("Highland II"), the Fifth Circuit reversed the bankruptcy court's order issued after the remand, holding that the definition of "protected parties" covered by the gatekeeping provision must be co-extensive with the limited scope of parties protected by the plan's exculpation clause. Id. at 358. The court explained that, although bankruptcy courts retain some gatekeeping authority under the Barton doctrine—even where they would not have jurisdiction to adjudicate the underlying claims or where the bankruptcy case has concluded—"they nonetheless do not have unrestricted power to protect non-debtors from liability via a pre-filing injunction." Id. at 359.
The court emphasized that the Fifth Circuit has "never extended the Barton doctrine to give bankruptcy courts gatekeeping power over claims against non-debtors." Id. Gatekeeping, the court concluded, "is patently beyond the power of an Article I court under § 105" if it shields anyone other than the debtor, independent directors, the creditors' committee, and committee members acting within the scope of their duties. Id. at 362.
Sorrento
On February 13, 2023, Sorrento Therapeutics, Inc. and its affiliates (collectively, the "debtors") filed for chapter 11 protection in the Southern District of Texas. On October 11, 2023, the debtors proposed a joint liquidating chapter 11 plan, which the bankruptcy court confirmed, as modified, on December 13, 2023. Critically, the plan included a gatekeeping provision barring any person (other than the liquidating trust, trustee, or their representatives) from pursuing claims against the debtors or "protected parties" arising from post-petition, pre-effective date conduct without prior bankruptcy court approval based on a finding of colorability. "Protected parties" included not only the debtors and the official committee but also non-debtors: the financial advisor, the CRO, and their "related persons."
The plan also included an exculpation clause shielding the debtors and official committees from suit on "covered claims" after the effective date. "Covered claims" encompassed any claims related to the debtors' restructuring efforts, the chapter 11 cases (including financing, asset sales, plan formulation, and solicitation) but excluded claims determined by final order to constitute willful misconduct, gross negligence, criminal conduct, or fraud. The plan transferred all estate claims and causes of action to the liquidating trust and retained post-effective date bankruptcy court jurisdiction over plan-related disputes.
On April 10, 2024, the plan went effective. No party—including the shareholders who later became plaintiffs—timely appealed the confirmation order or moved for relief under Fed. R. Civ. P. 60(b) or section 1144 of the Bankruptcy Code. Rule 60(b) provides that the court, upon motion made within a "reasonable time" of the entry of an order or judgment—capped at one year in some cases—may relieve a party from an order or judgment for various reasons. Section 1144 of the Bankruptcy Code provides that, upon the request of a party-in-interest made within 180 days after the entry of an order confirming a chapter 11 plan, the bankruptcy court "may revoke such order if and only if such order was procured by fraud."
In April 2026, various noncontrolling shareholders of the debtors and non-debtor affiliates (the "plaintiffs") sued the financial advisor, the chief revenue officer ("CRO"), directors, the debtors' controlling shareholder/CEO, and related entities (all non-debtors) in California federal court, asserting RICO violations, breach of fiduciary duty, and California penal code violations. Among other causes of action, the complaint alleged that professionals guided the debtors into an unnecessary bankruptcy with fraudulently manufactured jurisdiction, made false statements under oath, withheld information, and blocked an alternative plan that would have avoided equity dilution.
On April 14, 2026, certain defendants (later joined by the liquidation trustee) moved to enforce the plan's gatekeeping provision, arguing, among other things, that: (i) the plaintiffs' claims were "covered claims" against "protected parties" subject to the gatekeeping provision; and (ii) unappealed final orders approving the sale, confirming the plan, denying venue transfer, and awarding professional compensation precluded relitigation. The defendants chiefly relied on United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010), a seminal U.S. Supreme Court decision addressing the finality of bankruptcy court confirmation orders.
In Espinosa, the Court unanimously held that a bankruptcy court's order confirming a plan of reorganization is a final judgment, and that a creditor who receives actual notice of the plan's contents but fails to object or timely appeal cannot later seek to set aside the order as void under Rule 60(b)(4) on the ground that it contained a legal error—even where the bankruptcy court's confirmation was erroneous under the Bankruptcy Code. Legal error does not render a confirmation order void, and a party who had notice and slept on its rights cannot rely on Rule 60(b)(4) as a substitute for a timely appeal.
The defendants argued that Espinosa therefore confirmed that the gatekeeping and exculpation provisions remained binding and enforceable against parties who had notice of the plan and did not timely challenge confirmation, even if they would have been impermissible had they been properly objected to or appealed.
The plaintiffs countered in relevant part that the gatekeeping provision was unenforceable under Fifth Circuit precedent (Highland I and Highland II) as applied to non-debtors, and that the exculpation clause reached only plan solicitation.
The Bankruptcy Court's Ruling
The bankruptcy court granted the motion to enforce the gatekeeping provision in the debtors' chapter 11 plan. The court found that the claims asserted by the plaintiffs were "covered claims" against "protected parties" under the gatekeeping provision because the claims were asserted against the financial advisor, the CRO, certain professionals, and other non-debtor individuals regarding acts or omissions between the petition date and the effective date of the plan relating to, among other things, the debtors' pre- or postpetition restructuring efforts, bankruptcy asset sales, and plan confirmation and implementation. Because the court had not ruled that such actions were within the "willful misconduct" carveout in the gatekeeping provision, the court determined that the plaintiffs were obligated to seek its approval before commencing the California litigation. Sorrento, 2026 WL 1791033, at *15.
U.S. Bankruptcy Judge Alfredo R Pérez, who had replaced the judge originally assigned to the case, acknowledged that if the gatekeeping provision of the plan were unenforceable in accordance with the Fifth Circuit's Highland decisions, "this Court's related-to and core jurisdiction would crumble." Id. at *16.
However, the bankruptcy court explained, despite the Fifth Circuit precedent, the Supreme Court's Espinosa decision obviated the need to rule on the validity of the gatekeeping provision because, instead of appealing or seeking relief from the confirmation order, the sale order, the dismissal/venue transfer order, or any other order—all of which were final orders—the plaintiffs elected to assert their claims in the California litigation two years after confirmation of the plan. Under Espinosa, Judge Pérez concluded, the plan and its gatekeeping and exculpation provisions were valid and enforceable, regardless of whether they were legitimate under Highland II at the time the plan was confirmed. Id.
Outlook
In Sorrento, the plaintiffs never invoked Rule 60(b) or section 1144 (timely or otherwise), nor did they appeal the confirmation order or any other relevant bankruptcy court orders affecting the dispute. Instead, they commenced litigation against parties protected by the gatekeeping provision asserting claims within the scope of the provision without first obtaining bankruptcy court approval on the theory that the provision was invalid under binding Fifth Circuit precedent.
According to the bankruptcy court, this amounted to "too little, too late." The confirmation order was final and therefore inviolate, especially given the two-year delay in lodging a challenge to the order and the (substantially) consummated chapter 11 plan it confirmed, even if the gatekeeping provision in the plan was improper. Therein lies both a cautionary tale regarding the consequences of failing to raise objections early and often, even for creditors holding claims against non-debtors implicated by the chapter 11 plan, and a testament to the importance of finality in bankruptcy cases, particularly the finality and binding nature of chapter 11 plan confirmation orders.
While the landscape concerning consensual non-debtor releases, gatekeeping clauses, and exculpation clauses remains in flux, creditors who have claims against non-debtors need to closely examine how chapter 11 plans will impact those claims and be mindful that a final confirmation order, without proper objections and appeals, can render even the strongest legal argument useless.
