668 B.R. 689
Bankr. S.D.N.Y.2025Background
- Spirit Airlines and affiliates filed Chapter 11 in Nov. 2024 and proposed a plan based on a prepetition Restructuring Support Agreement (RSA) providing DIP financing, equitization of debt, a backstopped $350M equity rights offering, and other transactions to preserve value and pay unimpaired classes in full.
- The Plan includes broad third‑party releases of claims by certain creditors and interest holders in favor of Consenting Stakeholders and related parties, subject to an opt‑out procedure (ballots/Opt‑Out Forms; deadline Jan. 21, 2025).
- Classes 4 (Senior Secured Notes) and 5 (Convertible Notes) — the impaired, voting classes — overwhelmingly voted to accept the Plan; ~98% of impaired creditors were signatories to the RSA and had agreed in writing to the releases.
- The U.S. Trustee and the SEC objected only to the Third‑Party Releases, arguing that an opt‑out mechanism cannot establish the affirmative consent required by the Supreme Court’s decision in Harrington v. Purdue Pharma (Purdue Pharma).
- The bankruptcy court held a confirmation hearing, found the Disclosure Statement and Plan otherwise compliant, and in this memorandum ruled that the Third‑Party Releases are consensual and that the opt‑out mechanism was permissible under the particular facts and law cited.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether third‑party releases in a Chapter 11 plan are permissible post‑Purdue Pharma when imposed by an opt‑out mechanism | UST/SEC: Purdue Pharma forbids imposing releases without affirmative opt‑in consent; failure to return or to check an opt‑out box is not sufficient | Debtors: opt‑out can manifest consent if notice is clear, opportunity to decline exists, and releases are part of an integrated plan providing consideration | Court: Opt‑out permissible here — releases are consensual given clear, prominent notice, integrated consideration (RSA), voting results, and factual context |
| Whether non‑voting or deemed‑to‑accept creditors can be bound by opt‑out releases | UST: Non‑voting creditors cannot be bound absent opt‑in; silence insufficient | Debtors: opt‑out valid for non‑voting creditors if notice and opportunity to opt out were provided | Court: Opt‑out binds non‑voting creditors in these cases because notice was clear, the releases were consistently presented, and affected creditors had economic incentive to monitor the case |
| Whether RSA signatories manifest consent to releases | Objectors: signature on RSA may not substitute for affirmative opt‑in in all respects | Debtors: RSA signatories gave contractual, written consent to the releases | Court: Written RSA consent is a clear manifestation — signatories’ consent is sufficient |
| Whether consent assessment should be governed by state contract law/Restatement or federal bankruptcy law and whether silence can operate as acceptance | UST: apply state contract/silence rules; require affirmative writing | Debtors: federal bankruptcy law governs; Restatement exceptions support silence as acceptance in some circumstances | Court: analysis rests in federal bankruptcy framework; Restatement exceptions (silence as assent where explicit notice, course of dealings, or benefit accepted) are persuasive; court did not finally decide full choice‑of‑law question but found consent here under federal law and contract principles |
Key Cases Cited
- Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024) (Supreme Court: Bankruptcy Code does not authorize nonconsensual third‑party releases)
- Deutsche Bank AG v. Metromedia Fiber Network, Inc. (In re Metromedia Fiber Network, Inc.), 416 F.3d 136 (2d Cir. 2005) (Second Circuit: consensual nondebtor releases may be tolerated)
- In re Avianca Holdings S.A., 632 B.R. 124 (Bankr. S.D.N.Y. 2021) (approving opt‑out third‑party releases where notice was clear and procedure prominent)
- In re Chassix Holdings, Inc., 533 B.R. 64 (Bankr. S.D.N.Y. 2015) (discussing when votes/inaction can or cannot be treated as consent to releases)
- In re SunEdison, Inc., 576 B.R. 453 (Bankr. S.D.N.Y. 2017) (examining silence, abstention, and consent; declined to treat abstainers as consenting absent special facts)
- In re Tonawanda Coke Corp., 662 B.R. 220 (Bankr. W.D.N.Y. 2024) (rejected opt‑out where releases lacked separate consideration and distributions were unchanged)
- In re Smallhold, Inc., 665 B.R. 704 (Bankr. D. Del. 2024) (post‑Purdue analysis skeptical of opt‑out for non‑voting creditors; emphasized case‑by‑case review)