USA – DELAWARE Trends and Developments Contributed by: Rachel Jaffe Mauceri, Evan M. Lazerowitz, Margaret A. Goggins and Davis Lee Wright, Robinson & Cole LLP
failing to affirmatively opt out (other than those not sent appropriate forms)). Fifth Circuit The Fifth Circuit Court of Appeals recently confronted non-consensual third-party releases post- Purdue in Highland Capital Management Fund Advisors, L.P. v Highland Capital Management, L.P. (In re Highland Capital Management, L.P.) , 132 F.4th 353 (5th Cir. 2025). In Highland , the Fifth Circuit reiterated its prior precedent, some of which pre-dated Purdue , that non-consensual third-party releases are impermissi - ble (ibid at 358). However, because Highland did not address opt in versus opt out, bankruptcy courts in the Fifth Circuit have arrived at differing conclusions, with courts in the Northern District of Texas approv - ing both types of plans, and courts in the Southern District of Texas generally confirming opt-out plans. Of note, Highland also limited the types of parties who can be exculpated under a plan (ibid at 362). On one hand, the court in In re Ebix, Inc. , Case No 23-80004, Docket No 851 (Bankr. N.D. Tex. Aug. 2024) declined to follow other decisions within the Northern District of Texas that allowed opt-out structures and, relying on state contract law, held that silence – failing to return an opt-out form – cannot form a contract. Contra, eg, In re Tommy’s Fort Worth LLC , Case No 24-90000, Docket No 1033 (Bankr. N.D. Tex. 18 Jul. 2025) (approving opt-out plan). On the other hand, a court in the Southern District of Texas reached the opposite conclusion in In re Rob- ertshaw US Holding Corp. , 662 B.R. 300 (Bankr. S.D. Tex. 2024), confirming an opt-out plan and holding that Purdue did not change long-standing Southern District practice treating opt-out procedures as con - sensual when supported by conspicuous notice and a chance to object. In the court’s view, what counts as consent in Houston “has long been settled”, and Purdue effectively endorsed the pre-existing approach in the Fifth Circuit. See also In re Wesco Aircraft Hold- ings, Inc. , Case No 23-90611, Docket No 2550 (Bankr. S.D. Tex. 1 Jan. 2025) (approving opt-out plan). Eleventh Circuit While the Eleventh Circuit Court of Appeals has not opined on opt-in versus opt-out releases, two recent
bankruptcy courts in the Middle and Southern Dis - tricts of Florida have arrived at duelling conclusions. In In re Red Lobster Mgmt LLC , Case No 24-02486, Docket No 728 (Bankr. M.D. Fla. 26 Jul. 2024), the court cited Purdue and applicable state contract law in refusing to allow solicitation on a plan that would have deemed creditors to consent to third-party releases unless they opted out. The court later confirmed the plan once the debtors modified the releases to require opt-in. (See ibid, Docket No 1140 at 15–16.) The bankruptcy court in In re Bird Global Inc. , Case No 23-20514, Docket No 1254 (Bankr. S.D. Fla. 12 Aug. 2024), confronted a unique scenario in approv - ing a plan that combined a sale under Section 363 of the Bankruptcy Code with insurance settlements that funded a USD19.2 million tort claims trust. Tort claim - ants objected to the plan, arguing that the opt-out release in the channelling injunction and bar order vio - lated Purdue . The Bird court disagreed, holding that (i) the plan provided for “full satisfaction” of the tort claims and thus fell outside Purdue ‘s prohibitions, and (ii) Purdue did not apply because the channelling injunction and bar order were part of a Bankruptcy Rule 9019 settlement with insurers and a Section 363 sale of the insurance policies. Bird implicated a very specific set of facts and procedural mechanisms that are unlikely to arise in every case. But it is likely that courts in cases involving tort liabilities may look to Bird to support approval of opt-out releases, provided the debtor can demonstrate payment in full or con - summate an insurance policy sale. Conclusion Purdue was a long-anticipated decision with far-reaching reverberations, the full impact and import of which are still developing. Indeed, the extent of Purdue ‘s scope has now appeared in both the Chapter 15 context and in proposed sale orders under Bankruptcy Code Section 363. (See, eg, In re Odebrecht Engenharta E Construção S.A. – Em Ruperação Judicial , 669 B.R. 457 (Bankr. S.D.N.Y. 2025); In re Crédito Real SAB de CV, SOFOM, E.N.R. , 670 B.R. 150 (Bankr. D. Del. 2025); In re Hope- man Bros., Inc. , 667 B.R. 101 (Bankr. E.D. Va. 2025).) Debtors and parties-in-interest must stay up to date as jurisprudence continues to evolve, in order to maximise their opportunities and protect their rights.
541 CHAMBERS.COM
Powered by FlippingBook