Abstract
The Bankruptcy Code enables corporate debtors to restructure their debts, including liability for tort damages. Recovery from an insolvent debtor poses daunting collective action problems for tort victims. By creating and funding a trust in bankruptcy, the liable company can streamline settlement and distribute available assets to give all claimants—including individuals who have been harmed by the company’s past activity but are not yet aware of the harm—an aliquot portion of available funds.
Frequently, tort damages levied against a bankrupt company implicate not only the debtor but other related parties, like the company’s insurers, directors and officers, corporate affiliates, and co-tortfeasors. The bankruptcy estate contains only the debtor’s assets and the discharge granted in bankruptcy is given only to the debtor. Nevertheless, courts have often allowed third parties limited involvement as trust contributors. In exchange for money payments made into the trust, these third parties may also be released from future liability.
In Harrington v. Purdue Pharma, the Supreme Court ruled that the Bankruptcy Code does not allow for third-party releases over the objection of creditors. As recognized by the dissent, this ruling will complicate efforts to recover assets for mass tort victims in bankruptcy. This Article argues that some releases may be better termed “estate preservation releases” or even “second-party releases,” and should be upheld even after the Supreme Court’s ruling. Insurance proceeds frequently fall into this category. We argue that second-party releases remain lawful under a narrow reading of Purdue Pharma. If not, Congress should pass legislation that permits their continued use.
Recommended Citation
Brook E. Gotberg & Annette W. Jarvis,
Defending "Second-Party" Releases in Mass Tort Bankruptcies,
41
Emory Bankr. Dev. J.
195
(2025).
Available at:
https://scholarlycommons.law.emory.edu/ebdj/vol41/iss2/2