Harrington v. Purdue Pharma L.P. Revisions: 6/27/24
Headline: Court bars bankruptcy plans that release and enjoin claims against non-debtors without victims’ consent, blocking the Sackler family’s attempt to be shielded and affecting opioid victims’ settlement prospects.
Holding: The bankruptcy code does not authorize a release and injunction as part of a Chapter 11 plan that effectively discharges claims against a non-debtor without affected claimants’ consent.
- Prevents bankruptcy courts from approving nonconsensual third-party releases.
- May force renegotiation and shrink recoveries for opioid victims.
- Leaves consensual releases and future Congressional fixes open.
Summary
Background
Between 1999 and 2019 about 247,000 Americans died from prescription-opioid overdoses. Purdue Pharma, controlled by the Sackler family, sold OxyContin and later faced thousands of lawsuits. After family withdrawals of roughly $11 billion, Purdue filed for Chapter 11 in 2019. The Sacklers offered to return billions over time and sought a court order releasing current and future opioid claims against them without victims’ consent. The bankruptcy court approved the plan; the district court vacated that approval; the Second Circuit revived it.
Reasoning
The Court asked whether the bankruptcy code allows a reorganization plan to extinguish claims against people who did not file for bankruptcy. It focused on §1123(b)(6), a catchall that allows “other appropriate” plan terms, and used textual context to limit that catchall. The Court said the code normally reserves discharge for the debtor who places most assets in the estate and that the catchall cannot be read to give courts a new power to wipe out third-party claims without claimants’ consent. The Court therefore reversed the Second Circuit.
Real world impact
The decision forbids bankruptcy courts from ordering nonconsensual releases that would bar current and future suits against non-debtors like the Sacklers as part of a Chapter 11 plan. That ruling prevents the specific Purdue-Sackler deal from taking effect as approved and may make recoveries smaller unless new consensual settlements are reached. The opinion is narrow: it does not forbid consensual third-party releases or decide whether completed plans can be unwound. The Court left policy trade-offs to Congress and the parties.
Dissents or concurrances
A dissent said nonconsensual third-party releases have long helped mass-tort bankruptcies solve collective-action problems, preserve estate value, and produce substantial recoveries for victims, and warned that banning such releases would reduce recoveries and disrupt future mass-tort reorganizations.
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