On August 16, 2024, Judge Christopher Lopez of the United States Bankruptcy Court for the Southern District of Texas, issued an opinion in In re Robertshaw US Holding Corp. (Bankr. S.D. Tex., Case No. 24-90052, Docket No. 959), finding the opt-out procedures proposed by the debtor in its Chapter 11 plan were adequate to provide consent for third-party releases. A copy of the opinion can be found here.
In a prior blog post titled, A Deeper Dive into the SCOTUS Purdue Pharma Opinion, I discussed how SCOTUS concluded that the bankruptcy court lacked the authority to grant nonconsensual third party releases.
As noted by Judge Lopez, the “Purdue decision was about non-consensual third-party releases and the Supreme Court said nothing should cast doubt on consensual ones.” In Purdue Pharma, SCOTUS stated,
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. See, e.g., In re Specialty Equipment Cos., 3 F.3d 1043, 1047 (CA7 1993). 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 . . . Confining ourselves to the question presented, we hold only that the bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants.
The United States Trustee filed an objection to Robertshaw’s amended plan on July 25, 2024, a copy of which can be found here. The Trustee’s objection stated the following grounds:
- Nonconsensual plan releases of non-debtor third parties by non-debtor third parties are not authorized under the United States Bankruptcy Code.
- The opt-out provisions in the ballots and the non-voting status notice are ineffective to confer consent to the Third-Party Release.
- Deeming all holders of claims that vote to accept the amended plan a “Releasing Party” is coercive and should not be approved.
- Voting to accept the amended plan should not constitute consent to the Third-Party Release.
- Parties “deemed to have accepted the Plan” should not be deemed to automatically consent to the Third-Party Release.
- The amended plan’s exculpation provision is too broad and violates Fifth Circuit authority.
- The amended plan should clarify that claims of governmental entities are not released.
Overruling the Trustee’s objection, Judge Lopez noted that hundreds of plans had been confirmed in the District that contained “consensual third-party releases with an opt-out” and that nothing contained in Purdue Phama disturbed that practice.
Judge Lopez found, among other things:
- Parties in interest were provided detailed notice about the Plan, the deadline to object to plan confirmation, the voting deadline, and the opportunity to opt out of the third-party releases.
- Disclosure Statement included a detailed description about the third-party releases and the opt-out.
- All ballots provided claimants an opportunity to opt out.
- The ballots and the Notice of Non-Voting Status allowed parties to carefully review and consider the terms of the third-party release and the consequences of electing not to opt-out. Each of the ballots advises in bold, that: “If you submit your Ballot without this box checked, or if you do not submit your Ballot by the Voting Deadline, you will be deemed to consent to the releases contained in Article X.C of the Plan to the fullest extent permitted by applicable law.”
- Robertshaw also caused the third-party release language to be published in the Wall Street Journal.
- Over 100 creditors opted out of the third-party releases.
Judge Lopez found no evidence of the coercion or confusion alleged by the Trustee and concluded that “the third-party release language is specific enough to put releasing parties on notice of the types of claims released” and that the “opt-out worked.”