Chapter 11 plans are increasingly including third-party release provisions, preventing non-debtors from bringing claims against other non-debtors if agreed to. These sometimes work to protect stakeholders within the bankruptcy estate, such as owners or shareholders of the corporate debtor in bankruptcy, from individual liability when they share an interest with the debtor. These releases have increasingly been including an “opt out” clause, where if a non-debtor fails to exercise this opt out, their rights and abilities to bring forward claims against other non-debtor parties may be impacted. These clauses are frequently easy to gloss over or ignore, which brings into question whether a creditor who fails to opt out of this release truly consented to a release of their claims against third parties.
In 2024, the Supreme Court struck down the use of non-consensual third-party releases in Chapter 11 cases in Harrington v. Purdue Pharma L.P. But the Court expressly noted that its opinion did not contain a view on the permissibility of consensual third-party releases, nor what qualifies as a consensual third-party release.
This Note argues courts should interpret a failure to opt out of a third-party release as a non-consensual third-party release going forward, which would deem consent to a release based on failure to opt out as invalid in light of the Court’s decision in Purdue Pharma. This solution is necessary because of the absence of protections provided to individual creditors in the context of Chapter 11 bankruptcies compared to other litigation vehicles. Further, this solution is more aligned with modern contractual principles.
* J.D. Candidate, 2025, University of Illinois College of Law; MAcc and B.S., 2020, University of Missouri. Thank you to the staff, editors, and members of the University of Illinois Law Review for their careful work in editing this Note. Special thanks to Professor Lawless for his invaluable input through-out the writing process. Any errors or flaws in this work are mine alone. Finally, thank you to my parents, Rob and Becky, for their support and for sparking my interest in bankruptcy.
The full text of this Note is available to download as a PDF.