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Third-Party Releases Clearly Endorsed in the 2nd Circuit, At Long Last

posted by Jason Kilborn

Yesterday's 2nd Circuit opinion reconfirming Purdue Pharma's settlement/restructuring plan is an enlightening read for those interested in third-party releases. In what seems to me (and the concurrence) a bit of a reach, the 2nd Circuit conceded that statutory authority more specific than section 105 was needed to support third-party releases, but the Court found such support in section 1123(b)(6): “a plan may . . . include any other appropriate provision not inconsistent with the applicable provisions of this title.” Hmmm. That's quite a slender reed on which to balance such a powerful action. More interesting, the Court set forth a series of seven tests to gauge whether any given third-party release is appropriate. One key test is rather vague (whether the plan provides for the fair payment of enjoined claims), but at least we now have a roadmap for getting to an effective third-party release. Or do we? The Court in a crucial passage emphasizes "to the extent that there is a fear that this opinion could be read as a blueprint for how individuals can obtain third-party releases in the face of a tsunami of litigation, we caution that the key fact regarding the indemnity agreements at issue is that they were entered into by the end of 2004—well before the contemplation of bankruptcy." So the type of pre-bankruptcy planning we've seen in other cases may be a bridge too far, at least in the 2nd Circuit. This latest opinion seems to add weight to recent arguments that bankruptcy court is, indeed, an appropriate and effective venue for resolving sticky mass-tort issues, though the policy debate will doubtless continue.

Comments

“a plan may . . . include any other appropriate provision not inconsistent with the applicable provisions of this title.”

meanwhile, just 225 miles southwest:

"courts must look to the legislative provisions on which the agency seeks to rely “ ‘with a view to their place in the overall statutory scheme.’ ” “[O]blique or elliptical language” will not supply a clear statement. Nor may agencies seek to hide “elephants in mouseholes,” or rely on “gap filler” provisions"

"blueprint for how individuals can obtain third-party releases in the face of a tsunami of litigation, we caution that the key fact regarding the indemnity agreements at issue is that they were entered into by the end of 2004—well before the contemplation of bankruptcy"

Even if the indemnity agreements were "well before the contemplation of bankruptcy," they were surely not before the contemplation of a "tsunami of litigation" and efforts by the Sacklers to drain value out of Purdue.

The Sacklers provided a masterclass on how to get away w/fraudulent transfers if you have enough lead time, sophistication, effort, and money (e.g., spend-thrift trusts).

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