USA – DELAWARE Trends and Developments Contributed by: Rachel Jaffe Mauceri, Evan M. Lazerowitz, Margaret A. Goggins and Davis Lee Wright, Robinson & Cole LLP
Third-Party Releases After Purdue: What Constitutes Consent?
financed by the Sackler family, and pursuant to which they agreed to give up their equity in addition to the multibillion-dollar contribution, and contemplated broad releases of the Sackler family, including for opioid claims. The US Trustee (UST) objected to the plan, arguing that the proposed releases were beyond the breadth and scope of the authority provided in the Bankruptcy Code. In September 2021, Judge Robert D. Drain overruled the US Trustee’s objection and confirmed the Purdue plan, noting that the First, Second, Third, Fourth, Sixth, Seventh, Eleventh, and DC Circuits allowed third-party releases in “appropri - ate, narrow circumstances” ( In re Purdue Pharma L.P. , 633 B.R. 53, 100 (Bankr. S.D.N.Y. 2021)). In so ruling, Judge Drain observed that each voting class voted “overwhelmingly” in favour of confirmation of the plan, with over 95% of voting creditors voting in favour of confirmation, a “remarkable result given the very large number of people who got notice, who were entitled to vote, and who voted” (ibid at 61). On appeal, the district court reversed Judge Drain’s ruling, finding that the Bankruptcy Code did not authorise non-consensual third-party releases of the Sacklers ( In re Purdue Pharma L.P. , 635 B.R. 26, 115 (S.D.N.Y. 2021)). The Second Circuit, however, reversed once again, determining in a 2:1 opinion that the third-party releases were authorised ( In re Perdue Pharma L.P. , 69 F.4th 45 (2d Cir. 2023)). The United States Supreme Court granted certiorari and heard argument in December 2023. In June 2024, in a heavily anticipated and closely analysed decision, the Supreme Court held that, out - side the limited context of Bankruptcy Code Section 524 (g), the Code does not authorise non-consensual third-party releases ( Harrington v Perdue Pharma, L.P. , 603 U.S. 226 (2024)). The Court also held, however, that consensual third-party releases are permissible in connection with a bankruptcy plan, citing United States v Energy Resources Co. , 495 U.S. 545 (1990), a case involving non-debtor affiliates, to support that proposition. The Court declined to determine “what qualifies as a consensual release or pass upon a plan that provides for the full satisfaction of claims against a third-party nondebtor” (ibid at 226).
The Supreme Court’s 2024 landmark ruling in Har- rington v Purdue Pharma determined once and for all that the United States Bankruptcy Code does not authorise non-consensual third-party releases – releases of non-debtor parties for pre-petition liabil - ity given in exchange for plan support or some other consideration regardless of creditor support – other than in the specific context outlined in Section 524 (g). The Purdue decision, however, expressly endorsed the use of consensual third-party releases, although the Court declined to opine on what qualifies as a consensual release. Accordingly, debtors have continued to construct Chapter 11 plans that include broad releases of third- party non-debtors, and to seek implementation of those releases through express or deemed “opt-ins” or “opt-outs” by voting and non-voting creditors. Those approaches have varied across, and even with - in, jurisdictions across the country. The Office of the United States Trustee, consistent with its pre- Purdue posture, continues to object to plans that propose “opt-out” provisions, with mixed success. This chapter of the guide examines the plan release provisions in several Chapter 11 cases across multi - ple circuits since the release of the Purdue decision in June 2024. As even a limited case review shows, given the lack of uniformity of approach, creditors and their advisers will need to be diligent to ensure they do not inadvertently rest on their rights and release potentially valuable causes of action against non-debtors. The Purdue decision Purdue Pharma filed its Chapter 11 petition in Sep - tember 2019 in the Bankruptcy Court for the Southern District of New York, largely in response to thousands of personal injury and wrongful death claims relating to the Purdue-owned opioid OxyContin. The bankruptcy court approved a preliminary injunction that extend - ed stay relief to preclude opioid litigation against the Sackler family, who owned Purdue Pharma and were also defending against the opioid-related suits. In 2021, after extensive mediation, the bankruptcy court confirmed a proposed plan that was significantly
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