Harrington v. Purdue Pharma L.P.
Headline: Bankruptcy power limited: Court blocks plan freeing Purdue’s owners from opioid claims without victims’ consent, making it harder for wealthy nonbankrupt individuals to obtain broad releases in mass-tort reorganizations.
Holding: The Court held that the bankruptcy code does not authorize a Chapter 11 plan to extinguish claims against nonbankrupt third parties without the affected claimants’ consent.
- Bars Chapter 11 plans from extinguishing claims against nonbankrupt third parties without consent.
- Leaves victims free to sue Sackler family members over opioid harms.
- Keeps consensual third-party releases available but limits nonconsensual use.
Summary
Background
Purdue Pharma, a company owned and controlled by the Sackler family, marketed the opioid OxyContin and faced thousands of suits after many people died from opioid overdoses. The Sacklers withdrew roughly $11 billion from the company over years. Purdue filed for Chapter 11 bankruptcy in 2019. The Sacklers offered to return billions in exchange for a court order that would release them from present and future opioid-related claims and bar victims from suing them. A bankruptcy court approved the plan; a district court vacated that approval, the Second Circuit revived it, and the case reached this Court.
Reasoning
The core question was whether the bankruptcy code allows a Chapter 11 plan to extinguish claims against nonbankrupt third parties without the affected claimants’ consent. The Court said no. It interpreted the plan-content statute (§1123) and its catchall phrase in context, applying the principle that a general clause should be read in light of the specific items that precede it. The majority held that Congress intended discharge powers to operate for debtors who place most assets in the estate, that the code limits discharges for fraud and willful injury, and that historical practice did not support courts giving bankruptcy plans the power to wipe out nondebtor claims without consent. The Court declined to resolve policy arguments about settlements.
Real world impact
The ruling prevents a Chapter 11 plan from imposing a nonconsensual release and injunction that effectively discharges claims against nonbankrupt third parties. Victims keep the right to sue those third parties. The opinion is narrow: it does not invalidate consensual third-party releases, does not decide what counts as a consensual release, and does not address whether already-effective plans should be undone. The case is remanded for further proceedings.
Dissents or concurrances
Justice Kavanaugh’s dissent argues the decision is wrong and will harm opioid victims. He says nonconsensual third-party releases have long helped solve collective-action problems in mass-tort bankruptcies and that the Sacklers’ settlement (roughly $5.5–6 billion, boosting the estate toward $7 billion) and overwhelming victim and state support made the releases appropriate.
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