The Supreme Court recently issued its long-awaited decision in Harrington v. Purdue Pharma L.P., 144 S.Ct. 2071 (U.S. 2024) (“Purdue Pharma”), addressing whether nonconsensual third-party releases are permissible under the Bankruptcy Code. In a 5-4 decision, the Court ruled that nonconsensual third-party releases are not permitted under the Bankruptcy Code. Notably, however, the Supreme Court did not opine on the issue of whether for a release to be deemed consensual it must contain an “opt-in” or “opt-out” provision for creditors and parties-in-interest. See Purdue Pharma, 144 S.Ct. at 2087–88 (“As important as the question we decide today are ones we do not. Nothing in what we have said should be construed to call into question consensual third-party releases offered in connection with a bankruptcy reorganization plan; those sorts of releases pose different questions and may rest on different legal grounds than the nonconsensual release at issue here. . . . Nor do we have occasion today to express a view on what qualifies as a consensual release or pass upon a plan that provides for the full satisfaction of claims against a third-party nondebtor.”). Thus, this issue remains open.
While there are variations as to process, an “opt-out” release typically requires parties entitled to vote on the plan and who have received ballots to do so, or nonvoting parties (who are deemed to accept or reject a plan) who have received notice, to check a box affirmatively indicating that they do not agree to provide the releases which the plan seeks to provide. In other words, in order not to be deemed to have agreed to the releases, the party must take affirmative action demonstrating a conscious decision to do so. Parties that abstain from voting will typically be deemed to have consented to the releases. In some cases, where no ability to opt-out has even been provided, parties that vote in favor of a plan are also deemed to consent to the releases. In contrast, under an “opt-in” mechanism, voting and nonvoting parties must check a box affirmatively agreeing to the nondebtor releases. Any party that does not check the box, or “opt-in,” is deemed to be a non-releasing party, including parties who do not return ballots at all. Bankruptcy Judge Craig T. Goldblatt from the District of Delaware is one of the latest judges to grapple with this issue.