Special Feature: Third Party Releases After the Second Circuit Decision in Purdue Pharma

Last year, our Contributors tackled the debate swirling around the SDNY and EDVA decisions rejecting non-consensual third party releases here.

What a difference a year makes!

On May 30, 2023, the Second Circuit overruled the SDNY and approved the third party releases that had tied up the Purdue Pharma case.

Does the Second Circuit decision deepen the rift over bankruptcy releases, or is Purdue a special case? How will lower courts apply the new seven-factor test articulated by the Court? Will the test prove to be rigorous and limit relief, or are the floodgates opened for businesses to seek redress in the SDNY to settle mass tort exposure? What can we expect next? How likely is Supreme Court review?

We asked Martin Bienenstock, Marshall Huebner and Edward Neiger together with Contributors Phil Anker, Paul Silverstein and Cliff White to help us answer these swirling questions, and we were not disappointed by their responses.

While much has changed, our experts remain split. Contributors Bienenstock and White dissent from the Second Circuit’s opinion and argue that non-consensual third-party releases are impermissible under the Bankruptcy Code and constitutional principles.  While Silverstein sees only dubious statutory support for the Court’s opinion, virtually all objectors had withdrawn their opposition (other than the U.S. Trustee) before the Court’s decision, in effect, making it a consensual case. Contributors Huebner and Anker think the Second Circuit got it right, variously arguing that statutory authority exists, and that the Purdue releases are supported by precedent and policy.   Not so fast, says Neiger joined by Jennifer Christian. They warn would-be mass tort debtors to carefully read the Purdue decision and appreciate the convergence of the rare and unique facts and circumstances that formed the basis of the recent decision. “In reality, the Second Circuit narrowed the possibility of nonconsensual third-party releases”, they conclude. 

Even the policy issues continue to split our Contributors, with some interpreting the Second Circuit’s decision as a necessary result to consensually resolve mass tort cases and get money into victims hands while others see the contrary result as merely changing negotiating dynamics to obtain a consensual BK resolution or forcing the parties to litigate the outcome in front of an Article III judge.

The dissenters see the issue going up en banc or to the Supreme Court for further review given the remaining Circuit split (and disguised dissent of Judge Wesley). White goes so far as to bet the DOJ asks for Supreme Court review and to predict a 9-0 reversal of the Second Circuit decision. Bold indeed!

The debate rages on.