In an opinion issued on January 13, 2022, Judge David Novak of the United States District Court for the Eastern District of Virginia struck down non-consensual third-party releases [2] from a plan confirmed by the bankruptcy court.

Seeking relief under the Bankruptcy Code is a common method of restructuring a business pushed into insolvency by tort claims. Under current law, filing a petition under chapter 11 of the Bankruptcy Code allows a business to stay all litigation against it and propose a plan of reorganization that channels tort claims to a settlement trust for valuation and payment.

The approval of third-party releases in connection with the confirmation of a debtor’s chapter 11 plan before a bankruptcy court has become increasingly controversial and the subject of several recent district court decisions.

The term “mootness” refers to a category of related precepts that preclude a reviewing court from reaching the underlying merits of a controversy. While questions dog this doctrine’s constitutional and prudential forms outside of the Bankruptcy Code’s ambit, few doubt either’s general validity. However, within bankruptcy’s periphery, more substantive questions abound.