In a March 19, 2021, decision in
., the Third Circuit joined the Second, Fifth and Seventh Circuits, prohibiting triangular setoff in a bankruptcy proceeding. A triangular setoff occurs when Party A attempts to set off a debt owed by it to Party B against a debt owed by Party B to Party C. This raises practical concerns for parties that have multiple contracts with a third party, particularly if affiliates or subsidiaries are parties to some of those contracts.
Background
In July 2016, Orexigen entered into a “Services Agreement” with McKesson Patient Relationship Solutions (MPRS), a wholly owned subsidiary of McKesson Corporation, Inc. The agreement concerned a loyalty rebate program, under which MPRS advanced funds to pharmacies to finance discounts and then billed Orexigen for reimbursement, creating an account payable by Orexigen to MPRS. Separately, Orexigen and McKesson were parties to a “Distribution Agreement,” under which, McKesson purchased drugs manufactured by Orexigen and distributed them to pharmacies. This created an account payable by McKesson to Orexigen. The Distribution Agreement included a setoff provision that allowed “[McKesson] and its affiliates … to set-off, recoup and apply any amount owed by it to [Orexigen’s] affiliates against any [and] all amounts owed by [Orexigen] or its affiliates to any of [McKesson] or its affiliates.”