claims, are not controversial. Therefore,
this article focuses on the recent
case law on consensual third-party
releases and non-consensual third-
party releases, as well as the proposed
legislation that, if passed, would impact
the permissibility of such releases.
Consensual Third-Party Releases
The permissibility of consensual
third-party release provisions is not
seriously questioned. Rather, litigation
on consensual third-party releases
generally revolves around what
constitutes a sucient manifestation
of consent to the release. On one
end of the spectrum are courts that
require an armative manifestation of
consent, usually through the return of
a ballot and/or a separate release form
whereby a party expressly confirms
consent to granting the release. Parties
who object or remain silent are not
bound by such release provisions in
the Chapter 11 plan. These so-called
opt-in releases often are advocated
by the U.S. Trustee. Recently, at least
one court has suggested that only
opt-in releases can be binding.1
On the other end of the spectrum are
releases where consent is manifested
by notice and an opportunity to object.
In this situation, unless a party files a
Release provisions are a common
feature of almost every Chapter 11
plan in large bankruptcy cases.
Three categories of release provisions
typically are included: (i) releases by
the debtors of claims they may hold
against a list of “released parties;” (ii)
consensual releases by and among
the non-debtor third parties involved
in the bankruptcy case; and (iii) in
extraordinary circumstances, non-
consensual releases of claims held
by non-debtor third parties against
other non-debtor third parties.
There has long been a split among
Bankruptcy Courts and Circuit Courts of
Appeal on the scope and permissibility
of third-party releases. With the recent
wave of large, high-profile Chapter 11
cases filed to address mass tort
liabilities, a number of prominent courts
have recently weighed in on these
issues. In addition to the new precedent,
pending appeals and proposed
legislation could impact the ability of
parties in complex Chapter 11
cases to use third-party releases as a
tool in a plan of reorganization. These
issues are likely to continue to generate
significant litigation in Chapter 11
cases in the near term so long as the
circuit splits and lack of clarity remain.
The law surrounding debtor releases,
and the evidentiary burden the debtor
is required to meet if seeking to release continued on page 26
BY GEORGE R. HOWARD, PARTNER;
KATHERINE D. GRISSEL, SENIOR ASSOCIATE &
KRISTIE T. DUCHESNE, ASSOCIATE, VINSON & ELKINS LLP
COURTS REMAIN SPLIT
ON RELEASE PROVISIONS
To Release or Not to Release?
