In re Pat McGrath Cosmetics LLC: Opt-Out Third-Party Releases Confirmed

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April 21, 2026 Get Citation Alerts Download PDF Add Note

In re: Pat McGrath Cosmetics LLC

United States Bankruptcy Court, S.D. Florida.

• Citations: None known
• Docket Number: 26-10772

• Precedential Status: Unknown Status

• Opinion

• Authorities (7)

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• Summaries (0)

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Trial Court Document

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ORDERED in the Southern District of Florida on April 21, 2026.

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Laurel M. Isicoff, Judge
United States Bankruptcy Court
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF FLORIDA
MIAMI DIVISION
www.flsb.uscourts.gov
In re:
Case No.: 26-10772-BKC-LMI
PAT MCGRATH COSMETICS LLC,
Chapter 11
Debtor.

MEMORANDUM OPINION ON OPT-OUT THIRD-PARTY RELEASES
INCLUDED IN THE DEBTOR’S FIRST AMENDED PLAN OF
REORGANIZATION
This matter came before the Court to consider confirmation of the First
Amended Plan of Reorganization of Pat McGrath Cosmetics LLC Pursuant to
Chapter 11 of the Bankruptcy Code (ECF #128) filed on March 10, 2026 by the
Debtor, Pat McGrath Cosmetics LLC (the “Debtor”), as modified by Debtor’s
Expedited Motion(s) to Modify Plan of Reorganization (ECF ##216, 231)
(collectively, as modified, the “Plan”), and final approval of the First Amended
Disclosure Statement for Plan of Reorganization of Pat McGrath Cosmetics LLC
Pursuant to Chapter 11 of the Bankruptcy Code (ECF #126) (the “Disclosure

Statement”). After a contested confirmation hearing held on April 13, 2026, and
continued to April 15 and April 17, 2026 (collectively, the “Confirmation
Hearing”), the Court confirmed the Plan. The Court has separately entered an
order confirming the Plan (ECF #244) (the “Confirmation Order”).1 This
memorandum opinion is entered separately to explain in more detail the Court’s
ruling with respect to why the opt-out provisions of the Plan (with some

exceptions) were approved, thereby finding consent for the third-party releases
in the Plan.2
Article VIII.C of the Plan, Releases by Holders of Claims and Interests (the
“Holder Release”), contains “opt-out third-party releases”. This section provides
that a Holder of a Claim or Interest who does not want to be bound by the Holder
Release must indicate that such Holder “opts out” of such release. Under the
Plan, any Holder that votes for the Plan, that votes to reject the Plan but does
not check an “opt-out” box on the ballot, or that does not submit a ballot or an
“opt-out” form (provided to all non-voting Holders of Claims and Interests) is
deemed to have consented to the Holder Release. This memorandum opinion
addresses why and to what extent requiring affirmative opt out of a third-party
release constitutes consent.

As the Court ruled in the Confirmation Order, “the Holder Release is
appropriate under the circumstances of this Chapter 11 Case and consistent
with the Bankruptcy Code, the Bankruptcy Rules, the Local Rules, and all other

1 All capitalized terms not defined herein shall have the meanings ascribed to them in the
Confirmation Order.
2 This memorandum opinion only addresses the Holder Release. No party objected to the
Exculpation Provision of the Plan, the Debtor Release or the Injunction Provision; the basis for
approval of those provisions is set forth in the Confirmation Order.
applicable laws, rules, and regulations. The mechanism by which Holders of
Claims and Existing Equity Interests were allowed to opt out of the Holder
Release constituted a consensual release under Federal bankruptcy law because
such releases and the opportunity to opt out were conspicuously disclosed in the
Confirmation Hearing Notice, the Ballots and the Disclosure Statement, and
Holders of Claims and Existing Equity Interests were given due and adequate

notice of their opportunity to opt out of such releases. Thus, such releases are
appropriate and consistent with the Bankruptcy Code, the Bankruptcy Rules,
the Local Rules, and all other applicable laws, rules, and regulations and not
prohibited by Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024). However,
as set forth on the record at the Confirmation Hearing, any party who (i)
affirmatively voted to reject the Plan, (ii) was in a class that was conclusively
deemed to reject the Plan, or (iii) voted to accept the Plan but nevertheless
checked the box to opt out, shall not grant the Holder Release.”
FACTUAL BACKGROUND
The Holder Release provision in Article VIII.C of the Plan provides:
C. Releases by Holders of Claims and Interests
Notwithstanding anything contained in this Plan to the
contrary, and in all respects subject to the DIP Orders and the
Restructuring Term Sheet, as of the Effective Date, for good and
valuable consideration, each Releasing Party is deemed to have
released and discharged each Released Party, Dame Pat
McGrath, GDA, in its capacities both as the Prepetition Lender
and the DIP Lender, and Keyhaven from any and all Causes of
Action, whether known or unknown, including any derivative
claims, asserted on behalf of the Debtor, that such Entity would
have been legally entitled to assert (whether individually or
collectively), based on or relating to, or in any manner arising
from, in whole or in part, the Debtor (including management,
ownership, or operation thereof), the Debtor’s in- or out-of-court
restructuring efforts, the Chapter 11 Case the Disclosure
Statement, the Plan, or the Restructuring Transaction,
contract, instrument, release, or other Plan Transaction
Document, agreement, or document created or entered into in
connection with the Disclosure Statement, or the Plan, the
filing of the Chapter 11 Case, the pursuit of Confirmation, the
pursuit of Consummation, the administration and
implementation of the Plan, or the distribution of property
under the Plan or any other related agreement, or upon any
other related act or omission, transaction, agreement, event, or
other occurrence taking place on or before the Effective Date,
other than claims or liabilities arising out of or relating to any
act or omission of a Released Party to the extent such act or
omission constituted actual fraud or gross negligence.
Notwithstanding anything to the contrary in the foregoing, the
releases set forth above do not release any post-Effective Date
obligations of any Person or Entity under the Plan, any
Restructuring Transaction, or any document, instrument, or
agreement (including those set forth in the Plan Supplement)
Reinstated with respect to, or executed to implement the Plan.
For the avoidance of doubt, nothing in this Plan shall release,
waive or otherwise limit the rights of all Persons and Entities
who have held, hold, or may hold direct, independent Claims
against any non-Debtor party without such Person or Entity’s
consent or deemed consent as provided for in the Plan,
Disclosure Statement, any Ballot to vote on the Plan, or order
of the Bankruptcy Court.

On March 11, 2026, the Court entered its Order (I) Conditionally Approving
Debtor’s Disclosure Statement, (II) Approving the Solicitation and Voting
Procedures With Respect To Confirmation of the Proposed Chapter 11 Plan, and
(III) Granting Related Relief (ECF #132) (the “Conditional Approval Order”).
Attached to the Conditional Approval Order as Exhibit 1-B is the Form of
Ballots which contain certain instructions through which a claim or interest
holder could elect to opt out of the Holder Release:
IF THE PLAN IS CONFIRMED BY THE BANKRUPTCY COURT,
IT WILL BE BINDING ON YOU WHETHER OR NOT YOU VOTE.
THE VOTING DEADLINE IS APRIL 7, 2026.
Item 1. The [Class 3, 4, 5, or 6 Claim or Interest].

Item 2. Vote on Plan.
The Holder of the Clam set forth in Item | votes to (please check only one; check neither to abstain):
0 ACCEPT (vote FOR) the Plan Oo REJECT (vote AGAINST) the Plan

IMPORTANT INFORMATION REGARDING
CERTAIN RELEASES BY HOLDERS OF CLAIMS:
IF YOU VOTE TO ACCEPT THE PLAN, YOU WILL BE DEEMED TO GRANT THE
RELEASES FOUND IN ARTICLE VHC OF THE PLAN (REPRODUCED BELOW)
REGARDLESS OF WHETHER YOU CHECK THE BOX IN ITEM 3 BELOW.
IF YOU ABSTAIN FROM VOTING OR VOTE TO REJECT AND SUBMIT A BALLOT
WITHOUT CHECKING THE BOX IN ITEM 3 BELOW, YOU WILL BE DEEMED TO
CONSENT TO THE RELEASES SET FORTH IN ARTICLE VUILC OF THE PLAN.
IF ¥OU FAIL TO SUBMIT A BALLOT, YOU WILL BE DEEMED TO HAVE
CONSENTED TO THE RELEASES FOUND IN ARTICLE VIILC OF THE PLAN.
IF YOU ABSTAIN FROM VOTING OR VOTE TO REJECT, YOU MUST OPT OUT OF
THE RELEASES PROVIDED IN ARTICLE VIIL.C OF THE PLAN BY CHECKING
THE BOX IN ITEM 3 BELOW IN ORDER TO NOT BE BOUND BY SUCH RELEASES.
IF YOU WISH NOT TO BE BOUND BY THE RELEASES IN ARTICLE VHLC OF THE
PLAN YOU MUST “OPT OUT" BY CHECKING THE BOX IN ITEM 3.
Item 3. Important Information Regarding the Proposed Releases.
Important Information Regarding the Proposed Releases (including the Proposed Releases by Holders of
Claims and Interests) are excerpted from the Plan below; please review the Plan and the Disclosure
Statement in full. Moreover, please be advised that the language of the proposed releases included herein
may be materially modified at such time that the Plan is confirmed.

COMPLETE THIS ITEM 3 ONLY IF YOU ARE ABSTAINING FROM VOTING ON THE PLAN
IN ITEM 2 ABOVE.
The Holder of the General Unsecured Claim identified in Item | above elects to:
OPT OUT of the Release in Article VIILC of the Plan
(Releases by Holders of Claims and Interests)

The United States Trustee objected to the Holder Release on several
grounds, including that consent to a third-party release is governed by state law,
and that the Plan’s opt-out procedure does not comply with either New York or
Florida law. The United States Trustee also objected to the location of the opt-
out language on the ballot at page 4, arguing that the opt-out language was not
in an obvious enough location on the ballot. For the reasons stated on the record
at the Confirmation Hearing and as further detailed below, the Court overrules
the objection.
ANALYSIS?
The Third-Party Release
In Harrington v. Purdue Pharma L.P., the Supreme Court held that, outside
the asbestos context addressed by 11 U.S.C. §524 (g), the Bankruptcy Code “does
not authorize a release and injunction that, as part of a plan of reorganization
under Chapter 11, effectively seeks to discharge claims against a nondebtor
without the consent of affected claimants.” 603 U.S. at 227. At the same time,

3 The findings of fact and conclusions of law set forth herein constitute the Court’s findings of
fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure
(“Fed. R. Bankr. P.”). To the extent any of the following findings of fact are determined to be
conclusions of law, they are adopted, and shall be construed and deemed, as conclusions of law.
To the extent any of the following conclusions of law are determined to be findings of fact, they
are adopted, and shall be construed and deemed, as findings of fact.

the Court emphasized that “[n]othing in what we have said should be construed
to call into question consensual third-party releases offered in connection with a
bankruptcy reorganization plan.” Id. at 226 (emphasis in original). Thus, after
Purdue, if consensual third-party releases remain possible4; the issue left open
is what procedures are sufficient to establish the requisite consent. Purdue itself
did not answer that question. The Supreme Court expressly declined to “express

a view on what qualifies as a consensual release or pass upon a plan that
provides for the full satisfaction of claims against a third-party nondebtor.” Id. In light of that reservation, lower courts have divided over whether silence or
failure to act after notice can constitute consent to a third-party release, whether
a creditor must affirmatively opt in to consent to a third-party release, or whether
some intermediate mechanism may suffice.
A. Current State of the Law
The post-Purdue decisions that recognize that consent to a third-party
release is possible reflect three general approaches.
Opt-Out
Some courts have approved opt-out mechanisms as sufficient to establish

consent. In In re Robertshaw US Holding Corp., the Bankruptcy Court for the
Southern District of Texas approved consensual third-party releases with opt-
out provisions, finding them appropriate where parties-in-interest received
detailed notice, deadlines to object, voting deadlines, and all ballots provided
claimants opportunity to opt out. 662 B.R. 300, 323 (Bankr. S.D. Tex. 2024); see

4 There are some courts who have held that, based on the reasoning of Purdue, no third-party
releases, even those which the court has found consensual, may be included in a chapter 11
bankruptcy plan.
also Epstein v. Container Store Group, Inc. (In re Container Store Group, Inc.), 2026
WL 395898 (S.D. Tex. 2026) (With an exception for two classes, upholding
confirmation of an “opt-out” plan, finding that the opportunity to opt out of
releases in favor of non-debtors made the releases consensual and therefore
permissible under Purdue.).
The Bankruptcy Court for the Southern District of New York reached a

similar result in In re Spirit Airlines, Inc., holding that Purdue did not foreclose
opt-out releases where creditors received clear notice and a meaningful
opportunity to decline the release. 668 B.R. 689 (Bankr. S.D.N.Y. 2025). And in
In re LaVie Care Centers, LLC, the Bankruptcy Court for the Northern District of
Georgia approved an opt-out release structure after examining the sufficiency of
the notice and solicitation procedures in that case. 2024 WL 4988600, at *17
(Bankr. N.D. Ga. 2024).
Opt-In
Other courts have held that silence alone is insufficient and that some
form of affirmative assent is required. In In re GOL Linhas Aéreas Inteligentes
S.A., the district court reversed the bankruptcy court and held that opt-out
mechanisms were insufficient under both federal and New York law to establish

creditor consent. 675 B.R. 125 (S.D. N.Y. 2025). The district court found that
creditors had no duty to respond to opt-out opportunities and that silence did
not imply consent to enter into a contract. See id. Likewise, in In re Diocese of Buffalo, N.Y., the Bankruptcy Court for the
Western District of New York held that the extension of release protection to
nondebtors is permissible only with actual consent and required solicitation
procedures that would obtain express opt-in consent. 2026 WL 585099 (Bankr.
W.D.N.Y. 2026).
Hybrid Approach
Some courts have adopted an intermediate or hybrid approach. Those
decisions do not require a standalone opt-in election in every circumstance, but

they do require some affirmative participation before failure to opt out may be
deemed consent. In In re Smallhold, Inc., the Bankruptcy Court for the District
of Delaware concluded that a pure default opt-out mechanism could not bind
truly silent creditors after Purdue, though it permitted releases as to creditors
who returned ballots and failed to opt out. 665 B.R. 704 (Bankr. D. Del. 2024).
Another example is In re Azul S.A., where the Bankruptcy Court for the
Southern District of New York approved a revised structure under which only
creditors who returned ballots and then failed to opt out would be treated as
consenting releasors. In re Azul S.A., 2026 WL 40912, at *9 (Bankr. S.D.N.Y.
2026) (“the use of the opt-out here is permissible because the Debtors amended
the Plan to provide that the releases are provided only by creditors that both
returned a ballot and did not elect to opt-out. This conclusion is the same
regardless of whether one applies federal or state law because the only releases

granted here are for those creditors who took the affirmative step of returning a
ballot but did not check the box for an opt out.”).
To date, there is no precedent that binds this Court on the issue of
whether, post-Purdue, a consensual third-party release may be implemented
through an opt-out mechanism rather than an opt-in mechanism. The existing
authorities are persuasive, and they reveal a genuine division in approach.
B. The Competing Rationales
The courts requiring opt-in or other affirmative assent by creditors to be
bound by consent generally reason that because the Bankruptcy Code does not
itself authorize nonconsensual third-party releases outside §524(g), a release of
direct claims against non-debtors is governed by state law. In each of the cases

to address this issue to date, the applicable state law does not recognize silence
or failure to act as consent.5
The courts permitting opt-out releases begin from a different premise. They
view the question as arising not in ordinary bilateral contract formation, but in
the context of a court-supervised chapter 11 process governed by the
Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, fiduciary
obligations, disclosure requirements, and due process. Under that approach, the
controlling inquiry is not whether the creditor affirmatively checked an opt-in
box, but whether the creditor received clear and conspicuous notice of the
release, understood the consequences of inaction, and had a meaningful
opportunity to decline the release by opting out.
C. This Court’s View: Opt-Out Is Permissible

This Court agrees with those courts that recognize opt-out procedures as
an acceptable form of consent. Purdue did not define consent and an opt-out
mechanism may, in an appropriate case, furnish the consent necessary for a
consensual third-party release. The Bankruptcy Code and Federal Rules of
Bankruptcy Procedure frequently give legal effect to inaction after

5 For a robust analysis of these cases the Court directs the reader to the objection filed by the
United States Trustee at ECF #204.
constitutionally adequate notice. And opt-out procedures have long been
recognized in other representative contexts, most notably class actions.
First, because resolution of this issue is governed solely by federal law,
neither Florida nor New York law has relevance to the resolution of this issue.6
The Court finds that it has the authority, subject to the requirements of due
process and certain limitations, to approve consensual third-party releases. 11

U.S.C. §105 (a) provides “the court may issue any order, process, or judgment
that is necessary or appropriate to carry out the provisions of this title.” The
question is not whether equity can be used to override the Bankruptcy Code; it
cannot. See Law v. Siegel, 571 U.S. 415, 421 (2014); Norwest Bank Worthington
v. Ahlers, 485 U.S. 197, 206 (1988). But it is equally incorrect to say that a
bankruptcy court may approve only those procedures expressly spelled out in
the Bankruptcy Code. Section 105(a) permits a bankruptcy court to issue orders
necessary or appropriate to carry out the provisions of title 11, so long as those
orders do not contravene the Bankruptcy Code.7
Nothing in the Bankruptcy Code prohibits a court from treating failure to
opt out, after clear notice and an opportunity to decline, as consent to a
consensual release. Indeed, the entire structure of voting on bankruptcy plans

6 The United States Trustee takes the position that the release provisions are governed by New
York law because the Debtor is a New York corporation. The Debtor argues that Florida law
applies and that under Florida law, under circumstances where the consequence of silence can
be deemed consent, the Plan’s opt-out procedure is authorized. Because the Court holds that
state law does not apply to resolve this issue, the Court does not need to decide which state law
applies or whether the Debtor’s interpretation of Florida law is correct.
7 11 U.S.C. §524 (g) is not a barrier to holding that an opt-out requirement is a satisfactory
reflection of consent. Indeed, enforceability of the injunctions of section 524(g) start first with
the results of plan voting, which, as further discussed below, bind non-voting holders of claims.
Moreover, there is nothing either in section 524(g) or its legislative history to suggest that section
524(g) is the only avenue for any kind of third-party releases in bankruptcy plans. Were that
the case, the Supreme Court would have stated so in Purdue.
is based on binding creditors or interest holders who do not choose to “opt out”.
A failure to participate will bind a creditor or interest holder to the vote of the
class in which the claim or interest of that creditor or interest holder is placed.
The numerosity and percentage requirements of determining class acceptance
are based only on voting creditors or interest holders. Yet, no matter what the
percentage of voting creditors or interest holders to all creditors or interest

holders in a particular class is– if the numerosity requirements are met by the
voters, all creditors or interest holders in the class are bound. Likewise, other
bankruptcy procedures attach consequences to inaction after notice. That does
not mean every silence-based consequence is valid in every circumstance, but it
does show that the reorganization process can, consistent with due process, give
binding effect to a non-response when the notice is adequate and the
consequences are clearly disclosed.
Moreover, Purdue is not a barrier. Purdue itself did not prescribe any
particular form of consent. When Justice Gorsuch wrote at the conclusion of the
opinion: “[n]othing in what we have said should be construed to call into question
consensual third-party releases offered in connection with a bankruptcy
reorganization plan; those sorts of releases pose different questions and may rest

on different legal grounds than the nonconsensual release at issue here”, Purdue, 603 U.S. at 226, he cited to Matter of Specialty Equip. Companies, Inc., 3 F.3d
1043, 1047 (7th Cir. 1993). Specialty Equipment is a 1993 Seventh Circuit case,
which states, in rejecting a challenge based on section 524(e), “we note that a
bankruptcy court does have the power to determine the legality of provisions,
including releases, incorporated into a reorganization plan.” Matter of Specialty
Equip. Companies, Inc., 3 F.3d 1043 at 1045. Had the Supreme Court intended
to require opt-in consent in every case, or imply that even consensual third-party
releases are not appropriate, it is not likely the Supreme Court would have cited
to Speciality Equipment, a case that predates the enactment of section 524(g).
Second, due process is the critical safeguard. There are many instances in
law where the failure to act will bind a party so long as that party has received

constitutionally satisfactory notice of the relief being sought against that party.
The most familiar and obvious example is the ability to get a judgment against a
party who has never appeared, so long as the person seeking the relief has
satisfied the notice requirements imposed by due process. That determination
is made under federal law, not state law. This same principle underlies the
concept of class action. As the Supreme Court wrote in 1940 in Hansberry v.
Lee, the class action “was an invention of equity” created “to enable [a suit] to
proceed to a decree. . . where the number of those interested in the subject of
the litigation is so great that their joinder as parties in conformity to the usual
rules of procedures is impracticable.” 311 U.S. 32, 41 (1940). The Supreme Court
noted that equity can dictate a procedure by which plaintiffs will be bound by
actions that they have not themselves participated in so long as “such an

adjudication satisfies the requirements of due process and of full faith and
credit.” See id. at 42-43. The Supreme Court concluded that “there has been a
failure of due process only in those cases where it cannot be said that the
procedure adopted fairly insures the protection of the interests of absent parties
who are to be bound by it.” Id. Rule 23 of the Federal Rules of Civil Procedure was substantially rewritten
in 1966 primarily to lay out clearly the procedural management of class actions,
including a much debated opt-out provision. The Reporter for the 1966
amendments wrote “we see that requiring the individuals affirmatively to request
inclusion in the lawsuit would result in freezing out the claims of people –
especially small claims held by small people – who for one reason or another,

ignorance, timidity, unfamiliarity with business or legal matters, will simply not
take the affirmative step. The moral justification for treating such people as null
quantities is questionable.” Benjamin Kaplan, Continuing Work of the Civil
Committee: 1966 Amendments of the Federal Rules of Civil Procedure (I), 81 Harv.
L. Rev. 356, 397–98 (1967).
In Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) the Supreme Court
rejected a due process challenge to the opt-out procedures provided for in a
Kansas class action statute. The Supreme Court found that the exercise of
personal jurisdiction over the putative class plaintiffs not located in Kansas did
not violate the minimum contacts requirements of due process because the
requirements for personal jurisdiction over putative plaintiffs is a lower standard
of due process than for defendants. The Supreme Court also specifically rejected

the argument that due process required an affirmative request for inclusion. The
Supreme Court held that, so long as all potential class members were properly
notified of the action to satisfy constitutional notice, their failure to opt out would
bind them. In the Phillips case the Court held that a fully descriptive notice sent
by first class mail explaining the opt-out right was sufficient.
This Court finds that class action procedures, which recognize that absent
parties may be bound through an opt-out mechanism where notice and
procedural protections are sufficient, provide this Court with guidance in
considering the adequacy of an opt-out release in a plan of reorganization.
Although the class-action context is not identical to a chapter 11 confirmation
process, those authorities are instructive insofar as they demonstrate that due

process does not invariably require affirmative opt-in participation. What due
process requires is a fair procedure reasonably calculated to inform affected
parties of their rights and to afford them a meaningful opportunity to act.
D. Governing Standard
The bankruptcy court’s equitable powers authorize the court to approve
plan provisions relating to third- party releases providing that the failure to opt
out is consent – this is consistent with the provisions of the Bankruptcy Code,
consistent with the bankruptcy court’s jurisdiction over those parties, and
constitutional so long as notice satisfies due process.
Accordingly, the Court holds that an opt-out mechanism for purposes of
satisfying consent to a third-party release as part of a plan of reorganization is
permissible under the following circumstances:

1. First the bankruptcy court must find that the inclusion of consensual
   third-party releases is “necessary or appropriate” to confirmation.

2. Second, the bankruptcy court must determine whether the
   circumstances are appropriate to use opt-out. Considerations include –
   a. How large is the creditor class?8 Can affirmative consent be
   reasonably obtained;

8 For example, a prerequisite to maintaining a class action under Rule 23 is that “the class is so
numerous that joinder of all members is impracticable.” Fed. R. Civ. P. 23(a)(1).
b. Is the relief that is being sought related to the creditors’ status as a
potential plaintiff/claimant against the party being released;9
c. Is there a benefit to the creditors for the release that is being
included;
d. Is the release consistent with the good faith requirements for
confirmation?

1. Due process must be satisfied. Has adequate notice been provided to meet the constitutional prerequisites of notice?

E. Application
Applying those principles here, the Court finds that the Plan’s use of opt-
out to determine consent to the Holder Release is permissible and that the Holder
Release can be approved, with certain limitations. The Court will address those
limitations first. The Plan proposed that all parties who failed to opt out of the
Holder Release are bound by the Holder Release, including those creditors who
rejected the Plan but failed to check the “opt-out box”. The Court finds that this
is not reasonable. A party in interest who rejects a plan, or has a claim or an
interest in a class that is deemed to reject the plan, cannot be bound to a release
provision in the absence of expressly opting out.10 Thus, approval of the opt-out
provisions only applies to creditors in class 6 who either voted in favor of the
plan and did not opt-out of the Holder Release, or creditors in class 6 who did
not vote.
As set forth in the Confirmation Order, the Court finds that the Holder
Release is necessary and appropriate for confirmation. The Court finds that it

9 So, for example, the hypothetical proposed in the Smallhold case would not pass muster. See
In re Smallhold, Inc., 665 B.R. at 709–10 (subjecting a creditor who failed to return a ballot to be
“required to make a $100 contribution to the college education fund for the children of the CEO
of the debtor.” ).
10 But see In re Smallhold, Inc., 665 B.R. at 724 (“creditors in class 2 who voted against the plan
and elected not to opt out . . . were provided clear instruction that a vote against the Plan would
suffice to manifest agreement to a third-party release if they did not affirmatively opt-out by
marking the box on the ballot.”).
was appropriate to use “opt-out” rather than another method to determine
consent due to the number of creditors in the case. The only argument presented
to the Court regarding the numerosity of the amount of creditors was the
Debtor’s citation to a Southern District of Florida case stating “[a]s a general
rule, a group of more than 40 satisfies numerosity, a group of fewer than 21 does
not, and the numbers in between are subject to judgment based on additional

factors.” Kelecseny v. Chevron, U.S.A., Inc., 262 F.R.D. 660, 668 (S.D. Fla. 2009).
In this case, the size of the creditor class is approximately 350.
While there was no evidence that any of the creditors have any claims
against GDA and others included in the Holder Release, the Holder Release
relates to any possible claims those releasing parties might have as plaintiffs.
There is no question that the creditors in class 6 are receiving a benefit on
account of the Holder Release; without the Holder Release GDA will not provide
the initial funding for the Liquidating Trust or cover the expenses of the
Liquidating Trust for the first three years. Without that funding there are no
resources to pursue Retained Causes of Action, which may include Chapter 5
claims11, if any, the only unencumbered Debtor assets, for which currently there
is no estimated value.

The Court finds that the solicitation materials clearly disclose the Holder
Release, identify the released parties, explain the opt-out right in understandable
terms, and provide a meaningful opportunity to exercise that right. The
mechanism is not hidden, confusing, or coercive. While the actual opt-out “box”

11 11 U.S.C. §§501-562.
appeared on page 4 of the ballot, the second page of the ballot clearly advises of
the Holder Release.
The certificates of service submitted in support of confirmation indicate
that all creditors received the Plan, the Disclosure Statement, and all proper
notice relating to the Holder Release.
On this record, the Court is satisfied that affected parties were afforded

adequate notice that satisfies due process. Because class 6 voted in favor of the
Plan, those creditors in class 6 who did not opt out of the Holder Release, as well
as those creditors in class 6 who did not vote, may properly be treated as having
consented to the Holder Release.12
CONCLUSION
The debate regarding the inclusion of third-party releases in chapter 11
plans, and whether and when such releases are consensual, will continue to
provide fodder in chapter 11 cases. While the Court recognizes, and respects,
the various approaches to resolve this issue, for the reasons more fully addressed
in this memorandum opinion, this Court holds that, subject to certain
conditions, the use of an opt-out mechanism to obtain consent to the consensual
third-party releases in a chapter 11 plan is permissible. And as set forth herein

12 Initially class 6 did not accept the Plan, but the Court granted the Debtor’s Motion for Entry
of an Order Approving the Debtor’s Tabulation of Untimely Ballot Cast in Support of the Plan
(ECF #226) to allow a late filed ballot accepting plan filed by Creditor S. Axelrod Co. (ECF #225).
By virtue of the S. Axelrod Co. ballot, class 6 then had the sufficient votes in number and amount
to satisfy acceptance in accordance with 11 U.S.C. §1126 (c). If the Debtor had had to resort to
cramdown to confirm the Plan, the Court would have held that only creditors in class 6 who
voted in favor of the Plan (and did not opt out) would be bound by Holder Release. Cramdown
of a plan does not satisfy the requirements necessary to bind members of the class subject to
cramdown to any third-party releases because cramdown necessarily presupposes a lack of
consent.
and in the Confirmation Order, the Court approves the Holder Release, including
reliance on the opt-out process to bind creditors to its terms.

# # #

Copies furnished to:
Joseph Pack, Esq.

Attorney Pack is directed to serve a copy of this memorandum opinion on
interested parties who do not receive service by CM/ECF, and file a proof of such
service within two (2) business days from entry.