Respondents argued that petitioners did not suffer an injury sufficient to have standing. Specifically, respondents argued that even if the bankruptcy court had not approved the settlement agreement, petitioners would not have received any compensation and will not receive any compensation now if the Supreme Court reverses the Third Circuit, effectively disallowing structured dismissals. The Supreme Court held that this argument relies on two unsupported claims:

The Supreme Court concluded that because the settlement agreement foreclosed various options to petitioners to settle or bring suit, petitioners suffered an injury that can be redressed with a favorable decision by this court giving petitioners standing.

The Supreme Court held that there is no legal authority for bankruptcy courts to approve nonconsensual priority-violating structured dismissals.

There are three possible outcomes in a Chapter 11 bankruptcy case:

A dismissal typically aims to restore the parties to the prepetition status quo, but section 349(b) of the Bankruptcy Code permits the bankruptcy court to depart from the prepetition status quo "for cause." Although the practice of departing from the prepetition status quo "for cause" is not outlined in the Bankruptcy Code, it is referred to as a "structured dismissal" which has become increasingly common (American Bankruptcy Institute Commission To Study the Reform of Chapter 11, 2012-2014 Final Report and Recommendations 270 (2014)).

The Supreme Court also explained that distributions generally occur in a Chapter 7 liquidation proceeding or through a Chapter 11 plan, both of which are governed by the Bankruptcy Code's priority rules. While there is some flexibility in a Chapter 11 plan to apply a different ordering of distributions, a plan violating priority in Chapter 11 plans cannot be affirmed if an impaired class of creditor objects (§ 1129(b), Bankruptcy Code).

The priority system, as applied to distributions, is considered fundamental to the Bankruptcy Code's operations. Therefore, in order to depart from this system the Supreme Court expected to find explicit approval by Congress. However, nothing in the Bankruptcy Code or legislative history supports the bankruptcy court approving nonconsensual priority-violating distributions. In fact, the Bankruptcy Code and legislative history specifically state that when a Chapter 11 case is dismissed, any transfers of assets should be in an effort to restore the parties to the prepetition status quo. For example, sections 349(b)(1), (2), and (3) of the Bankruptcy Code refer to permissible transfers of assets in the event of dismissal restoring the parties to their prepetition financial status quo. While section 349(b) of the Bankruptcy Code does allow a bankruptcy court to depart from restoring the parties to the prepetition status quo in the event of dismissal "for cause," the Supreme Court interpreted this as allowing the bankruptcy court to "make the appropriate orders to protect rights acquired in reliance on the bankruptcy case" (Wiese v. Community Bank of Central Wis., 552 F.3d 584, 590 (7th Cir. 2009)). The Supreme Court concluded that there is no authority from Congress or in the Bankruptcy Code supporting that "for cause" encompasses the bankruptcy court approving nonconsensual priority-violating structured dismissals.

The Supreme Court found no precedent on the issue of bankruptcy court-approved nonconsensual priority-violating structured dismissals. The Supreme Court distinguished cases relating to interim distributions and not final distributions. In addition, the Supreme Court found that in cases in which the court authorized a departure from the priority rules, it was in order to achieve a successful reorganization rather than in the context of a settlement.

The Supreme Court distinguished the existing cases that have addressed structured dismissals as cases:

Here, the priority-violating settlement was in the context of a final disposition and more closely reflects previous rulings in which courts refused to uphold transactions because they impermissibly departed from the Bankruptcy Code. These rulings include courts:

The Supreme Court acknowledged that the Third Circuit upheld the bankruptcy court approving nonconsensual priority-violating structured dismissals only in "rare cases" where the bankruptcy court finds "sufficient reasons" to violate the priority rules. However, the Supreme Court concluded that permitting this type of dismissal, even in "rare cases," presents vague standards that are not approved by Congress and could result in potentially serious consequences.

The Supreme Court opined that the Third Circuit's "sufficient reasons" standard is not precise and could potentially result in a broader, general rule rather than allowing for rare cases. For example, here, the bankruptcy court approved the parties' settlement based on uncertain claims about the parties' ability to settle and the value of their lawsuits. The Supreme Court cautioned that this analysis establishes a precedent for future litigants to make similar uncertain claims, which could ultimately result in nonconsensual priority-violating structure dismissals being approved in many cases rather than a few rare cases.

The Supreme Court outlined the problematic consequences of allowing these types of settlements and concluded that Congress did not authorize a "rare case" exception. The Supreme Court held that bankruptcy courts cannot depart from the rules in the Bankruptcy Code, even if the court believes the parties would be better off.

The dissent expressed concern with the Supreme Court granting the writ, and argued that the writ should be dismissed as improvidently granted. Justice Thomas specifically took issue with the fact that the Supreme Court granted certiorari to decide a much broader issue of whether the bankruptcy court may authorize the distribution of settlement proceeds that violate the bankruptcy code's priority rules, but then were presented with a much narrower issue of whether a Chapter 11 case may be dismissed by a structured dismissal that is in violation of the bankruptcy code's priority rules. By addressing a different, narrower issue, the Supreme Court may have opened the door for future petitioners to alter the question they ultimately present to the Supreme Court. In addition, by altering the question that was presented, the Supreme Court adjudicated an issue that was not the center of a circuit split and without the benefit of a brief from the Respondents or a full, adversarial briefing.