In December 2023, the U.S. Supreme Court heard oral arguments in the case of Harrington v. Purdue Pharma, L.P., Case No. 23-124. Purdue Pharma is the drug manufacturer of the prescription opioid, OxyContin, an alleged contributor to a major public health crisis involving loss of life due to overdose.1
In 2019, Purdue Pharma, but not the Sackler family owning it, filed bankruptcy under Chapter 11. The filing was prompted by thousands of wrongful death suits against the company and the family. Purdue Pharma eventually presented the Bankruptcy Court with a Chapter 11 plan that included a release for the Sackler family from civil liability for any role it may have played in the drug epidemic.2 A condition of the release, was the Sackler family's agreement to contribute $6 billion of the $11 billion recently withdrawn from the company and to remake Purdue Pharma a non-profit company for the purpose of addressing public health opioid issues. In 2021, the Bankruptcy Court in the Southern District of New York approved the release of the Sackler family over the objection of the Department of Justice and others. The ruling was rejected by the district court on appeal, but reversed by the Second Circuit Court of Appeals.
The precise issue before the U.S. Supreme Court is whether 11 U.S.C. § 1123(b)(6) authorizes a court to approve, as part of a Chapter 11 plan of reorganization, a release that extinguishes claims held by nondebtors against nondebtor third parties, without the claimants' consent. Such releases are not new. What has brought them to the forefront of late are the high profile matters in which they have occurred including the U.S. Conference of Catholic Bishops,3 the Boy Scouts of America,4 USA Gymnastics,5 and Alex Jones' Infowars.6 The Fifth, Ninth, and Tenth Circuits do not permit this type of release.7 Critics argue the Bankruptcy Code is not intended to force creditors to unwillingly give up claims against non-debtors.8 Allowing such releases at times are the Second, Third, Fourth, Sixth, Seventh, and Eleventh Circuits.9 Proponents see such a release as a tool to facilitate complex corporate transactions and resolve mass tort claims that would otherwise be unachievable.
The American Bar Association has described the Purdue Pharma case as the "most important corporate bankruptcy" before the U.S. Supreme Court in the last 30 years.10 A ruling of a blanket prohibition on these releases could wreak havoc on settlements in high profile cases and prevent global settlements in the future. Affirmation of the release could mean that defendants in large corporate litigation will look to Bankruptcy Courts as a friendlier path than federal district courts. A ruling by the U.S. Supreme Court is anticipated in June 2024.
Footnotes
1. https://www.npr.org/2021/12/30/1069062738/more-than-a-million-americans-have-died-from-overdoses-during-the-opioid-epidemic (last visited March 26, 2024).
2. Family members of overdose victims are divided on the release. Some see these funds as the only way to ensure compensation and funding for opioid recovery projects. The Department of Justice remains vehemently opposed to it.
4. Boy Scouts' $2.4 billion bankruptcy plan upheld by judge, CBS News Texas (March 28, 2023).
5. Nancy Armour, USA Gymnastics, survivors reach agreement on proposed $425 million settlement, USA TODAY (Aug. 31, 2021).
6. Derrick Bryson Taylor, Alex Jones's Infowars Files for Bankruptcy, N.Y. TIMES (Apr. 18, 2022).
7. https://www.abi.org/newsroom/daily-wire/supreme-court-seems-dubious-about-purdue%E2%80%99s-nonconsensual-nondebtor-releases (last visited March 26, 2024).
8. https://www.bankruptcypower.com/blog/how-nonconsensual-third-party-releases-can-be-useful-in-chapter-11-bankruptcy-cases/#:~:text=Nonconsensual%20third%2Dparty%20releases%20are,in%20a%20number%20of%20situations. (last visited March 26, 2024).
9. https://www.bloomberglaw.com/external/document/X42S2V68000000/bankruptcy-professional-perspective-constitutionality-of-non-con (last visited March 26, 2024).
10. https://www.americanbar.org/groups/public_education/publications/preview_home/harrington-v-purdue-pharma-lp/ (last visited March 26, 2024.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
