To embed, copy and paste the code into your website or blog: On March 19, in a matter of first impression, the Third Circuit Court of Appeals (Court) held that triangular setoff is not permissible in bankruptcy due to Bankruptcy Code Section 553(a)'s mutuality requirement, and that parties cannot evade that requirement by contracting around it. See In re Orexigen Therapeutics, Inc., 990 F.3d 748 (3d Cir. 2021). McKesson Corporation, Inc. (McKesson) and Orexigen Therapeutics, Inc. (Orexigen) were parties to a distribution agreement, where Orexigen would sell McKesson the drug Contrave, and McKesson would, in turn, sell the drug to pharmacies. The distribution agreement also had a provision (Setoff Provision) that stated McKesson could reduce any amounts it owed to Orexigen by any amount that Orexigen owed to McKesson or any of its subsidiaries. Separately, Orexigen and McKesson Patient Relationship Solutions (MPRS), a McKesson subsidiary, entered into a services agreement whereby MPRS would manage a customer loyalty program for Orexigen. The distribution agreement with McKesson and the services agreement with MPRS were wholly separate documents that did not reference, incorporate, or integrate each other.