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Our attorneys stay on top of changes in legislation, agency regulations, case law, and industry trends—then craft timely legal alerts to keep clients up to date on legal developments important to their business.

December 17, 2021

District Court Rejects Third-Party Releases, Overturns Confirmation of Purdue Pharma Plan

In a December 16, 2021, decision with potentially far-reaching implications, US District Court Judge Colleen McMahon, SDNY, rejected third-party releases benefitting the owners of Purdue Pharma and overturned US Bankruptcy Court Judge Robert D. Drain’s order confirming Purdue’s Chapter 11 plan.

While finding that “[t]he Bankruptcy Code does not authorize a bankruptcy court to order the non-consensual release of third-party claims against non-debtors in connection with the confirmation of a chapter 11 bankruptcy plan,” Judge McMahon recognized “… a long standing conflict among the Circuits that have ruled on the question….” 

Purdue has already stated that it will appeal Judge McMahon’s decision to the Second Circuit Court of Appeals, and with the conflict among the circuits identified in the decision, a subsequent petition for certiorari to the Supreme Court is a distinct possibility. 

While Judge McMahon’s decision in Purdue Pharma has limited precedential value outside the Southern District of New York, her comprehensive survey of the law in her 142-page decision provides a roadmap for those parties wishing to challenge third-party releases of direct claims against non-debtors. Chapter 11 plans featuring third-party releases include the proposed plan filed by the Boy Scouts of America and those plans often filed by Catholic dioceses.

Barclay Damon’s Restructuring, Bankruptcy & Creditors’ Rights Practice Area issues alerts on an ongoing basis to keep clients and friends up to date on important developments in the insolvency space. If you have any questions regarding the content of this alert, please contact Janice Grubin or Jeff Dove, co-chairs of the Restructuring, Bankruptcy & Creditors’ Rights Practice Area, at jgrubin@barclaydamon.com and jdove@barclaydamon.com, respectively, or Robert Wonneberger, partner, at rwonneberger@barclaydamon.com.

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