The practice of granting third party releases in bankruptcy was recently dealt another blow by the District Court for the Eastern District of Virginia. In Patterson et. al. v. Mahwah Bergen Retail Group, Inc., Civil No. 3:21cv167 (DJN), the District Court found that the lower bankruptcy court lacked the constitutional authority to both rule on certain of the claims covered by the third-party releases at issue and, it follows, to confirm the debtors’ plan of reorganization. The District Court went so far as to sever the third-party releases from the plan, vacating the plan and remanding the matter for consideration of the plan without the releases. But the District Court didn’t stop there. The District Court further ordered that the case be reassigned to a different bankruptcy judge in a different regional division (that is not known for consistently granting third-party releases), adding that the Chief Judge could “assign it to himself if he believes the interests of justice so warrant.” Doc. 79 at 86.
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