Harrington v. Purdue Pharma L.P.

Harrington v. Purdue Pharma L.P.
Supreme Court of the United States
Argued December 4, 2023 Decided June 27, 2024
Full case name	William K. Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P., et al.
Docket no.	23-124
Case history
Prior	Bankruptcy Court's Confirmation Order and related Advance Order vacated, In re Purdue Pharma, 635 B.R. 26 (S.D.N.Y., 2021), order affirmed in part, reversed in part, In re Purdue Pharma LP, 69 F. 4th 45 (2nd Cir., May 30, 2023); cert. granted (Aug. 10, 2023)
Questions presented
Whether the Bankruptcy Code authorizes a court to approve, as part of a plan of reorganization under Chapter 11 of the Bankruptcy Code, a release that extinguishes claims held by nondebtors against nondebtor third parties, without the claimants’ consent.
Holding
The bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seek to discharge claims against a nondebtor without the consent of affected claimants.
Court membership
Chief Justice John Roberts Associate Justices Clarence Thomas · Samuel Alito Sonia Sotomayor · Elena Kagan Neil Gorsuch · Brett Kavanaugh Amy Coney Barrett · Ketanji Brown Jackson
Case opinions
Majority	Gorsuch, joined by Thomas, Alito, Barrett, Jackson
Dissent	Kavanaugh, joined by Roberts, Sotomayor, Kagan
Laws applied
Title 11 of the United States Code

Harrington v. Purdue Pharma L.P., (Docket No. 23-124), is a United States Supreme Court case regarding Chapter 11 of the Bankruptcy Code.^[1] This case is about the settlement by Purdue Pharmaceutical for opioid victims who overdosed with the OxyContin drug produced by their company. The justices determined that the Bankruptcy Code does not authorize the claimant's order, blocking the bankruptcy plan.

In 1995, the Purdue Pharmaceutical company developed and produced OxyContin, a form of opioid. This drug was subsequently approved by the Food and Drug Administration. From 1996 to 2001, Purdue excessively marketed OxyContin to both doctors and patients, claiming a low risk of addiction. This drastically increased the abuse of the drug across the nation. This subsequently resulted in what is now known as the "opioid epidemic in the United States".^[2]

From 2000, the side effects of opioids was starting to be more prevalent, resulting in an influx of lawsuits in the years to come.

Anticipating that they might be liable in these lawsuits, both civilly and criminally, the Sackler family decided to reallocate revenue from Purdue Pharma to their own trusts and holding companies. This reduced the financial standing of Purdue Pharma to fend the incoming lawsuits. Eventually, by 2019, all Sackler family that were on the board of directors of Purdue Pharma have resigned.

In 2019, the Department of Justice (DoJ) brought criminal and civil charges against Purdue Pharma, alleging that their acts defrauded the United States and violated federal kick-back statutes.^[2]

In the same year, Purdue Pharma filed for Chapter 11 Bankruptcy, whereas the Sackler family did not.^[2] As part of their bankruptcy proceedings, Purdue Pharma sought an injunctive stay on all the lawsuits, towards the company and the Sacklers.

The United States Bankruptcy Court for the Southern District of New York sided with Purdue Pharma and granted the stay.

In accordance to the Bankruptcy Code, a mediation was opened to avoid the liquidation of the company. Eventually, a plan was agreed by the company, the Sacklers and 15 other non-consenting states. The plan was for the Sacklers to contribute 4.325 billion, in exchange any third-party lawsuits against the Sacklers would be enjoined. This meant that any claims made towards the Sacklers would not be tried and the Sacklers would be free of those liabilities.

Bankruptcy in the United States
Bankruptcy in the United States
Authority History U.S. Trustee Court BAP Code FRBP
Chapters
Chapter 7 Chapter 9 Chapter 11 Chapter 12 Chapter 13 Chapter 15
Aspects of bankruptcy law
Automatic stay Discharge Bankruptcy trustee Chief restructuring officer Claim Means test DIP
v t e

This agreement was eventually agreed to by judge Robert Drain^[3] as it was deemed to have satisfied 3 of the court's criteria.^[4]

This bankruptcy plan was appealed to the District Court for the Southern District of New York, which reversed and vacated the Bankruptcy Court's ruling, deeming the Bankruptcy Code did not permit these "third-parties" releases.

This was subsequently appealed to the Court of Appeals for the Second Circuit. The Court of Appeals reversed the District Court's ruling, reaffirmed the Bankruptcy Court ruling; holding that it is statuary permissible for the approval of these releases under as the Bankruptcy Court had "Statutory Authority" and it was consistent with "Second Circuit case law". Representing the United States Bankruptcy Trustees, the Justice Department, appealed the Court of Appeals for the Second Circuit decision to the Supreme Court of the United States seeking a stay in the lower court's decision.

This comes after the Biden administration urged the court to review the entire bankruptcy proceeding by Purdue Pharma, calling it an "unprecedented agreement" that will protect the Sackler's family from opioid-related civil claims.^[5] On August 10, 2023, the Supreme Court granted a stay in the lower court's decision and granted certiorari; with oral arguments occurring on December 4, 2023.^[6]

Oral arguments were heard December 3, 2023.^[7] Representing the Federal Government, Former Deputy Solicitor General Curtis E. Gannon argued that Section 1123(b)(6) did not permit for the release of the Sacklers, as nonconsensual third-party releases are not authorized by the Bankruptcy Code given they extinguish property rights that do not belong to the bankruptcy estate.^[8] Pratik A. Shah argued on behalf of The Official Committee of Unsecured Creditors of Purdue Pharma L.P. while Gregory Gare argued on behalf of Purdue Pharma.^[9] In his argument, Gare contended that the notion that all non-consensual third-party releases are invalid was contradicted by Section 1123(b)(6), as it provides for "any other appropriate provision not inconsistent with" other bankruptcy laws to be used.^[10][8] Shah provided similar arguments in favor of a broader reading of Section 1123(b)(6) and emphasized the direct effects such an interpretation would have on the victims.^[11] In doing so, Shah noted that if such a determination was not adopted by the court, a vast majority of opioid victims would not receive financial compensation, as, given the $40 trillion worth of lawsuits that stood against Purdue and the Sacklers, the first successful lawsuit would likely result in such a large payout that it would eliminate any recovery for additional victims in future lawsuits.^[12] Justice Kavanaugh appeared sympathetic towards the arguments presented by Gare, stating that such language appeared to be sufficiently broad and well-supported, as there had been 30 years’ worth of practice in the bankruptcy courts approving the release and indemnification from liability by a company of its officers or directors who are parties in such cases.^[10][13] Justices Gorsuch and Jackson conversely questioned Gare's position on the broadness of the provision arguing that the terminology of 'appropriate' garnered some limitations in terms of what was applicable.^[8]

Writing for the majority, Justice Neil Gorsuch, joined by Justices Thomas, Alito, Barrett, and Jackson overturned the bankruptcy settlement.^[14][15] In his opinion, Gorsuch contended that federal bankruptcy laws did not allow for the non-consensual third-party release and injunction of the Sackler family from criminal liability without the consent of the creditors and opioid victims.^[16][17] According to Gorsuch, provision §1123(b)(6), which indicates a bankruptcy plan may "include any other appropriate provision not inconsistent with" other bankruptcy laws, does not give the bankruptcy courts broad powers in Chapter 11 bankruptcy reorganization.^[18][19] As such, this "catchall" provision did not permit for any and all bankruptcy provisions to be inserted into a reorganization plan, but rather, only those applying to scenarios in the preceding subsections of §1123(b).^[18] Given all similar preceding scenarios involved either debtors or responsibilities to creditors, only provisions relating to either were permissible.^[19][20] Given this, whether or not the Sackler family were permitted to move forward with the non-consensual third-party release required an affirmative determination that they were considered to be 'debtors'.^[21]

The obtainment of a release of a debtor's debt liability requires "virtually all [of its] assets" to be put on the table"; an action which Gorsuch determined to not have been taken by the Sackler family as they maintained billions of dollars in profit accrued from Purdue Pharma and avoided personal Bankruptcy.^[19][20] Additionally, such a discharge also typically operated only for a debtor's benefit against its creditors and didn't extend to additional creditor claims of fraud or willful or malicious injury.^[21] Given such actions were, respectively, not taken by or accurate of the Sackler family, the family were not determined to be 'debtors' but rather 'nondebtors', and were therefore not subject to the benefit of the non-consensual non-debtor claim extinguishment permitted by Chapter 11.^[22][21] As such, Gorsuch determined that the subsequent "catchall" provision "cannot be fairly read to endow a bankruptcy court with the 'radically different' power to discharge the debts of a nondebtor without the consent of affected nondebtor claimants".^[18][19] Gorsuch again contended that the non-consensual release of nondebtor liability by bankruptcy laws was only utilized in asbestos-related bankruptcies, and whose limited authorized use "makes it all the more unlikely" that such a "catchall" provision would be interpreted to approve such releases in all scenarios.^[19][23] Such a release could therefore not move forward as, even the 'broad equitable powers' of the bankruptcy courts which would allow for such a release, could only move forward when such actions are deemed "necessary or appropriate to carry out the provisions of" the bankruptcy code, which was determined not to be the case.^[20]

Justice Brett Kavanaugh wrote the dissenting opinion joined by Chief Justice Roberts alongside Justices Sotomayor and Kagan.^[24] In his opinion, Kavanaugh wrote that federal bankruptcy law provides bankruptcy courts with the "broad discretion to approve 'appropriate' plan provisions" to ensure that a bankrupt company’s assets are distributed fairly among its creditors rather than going to whoever can file a lawsuit first.^[19] Given a company such as Purdue typically pays for claims against company officials, Kavanaugh reasoned that those officials may be shielded from liability as part of the bankruptcy plan, particularly when the officials are willing to contribute money to settle the bankruptcy.^[19] In addition, Kavanaugh emphasized the real-world effects of the abrogation of such a settlement, writing: "The opioid victims and their families are deprived of their hard-won relief. And the communities devastated by the opioid crisis are deprived of the funding needed to help prevent and treat opioid addiction [...] As a result of the Court's decision, each victim and creditor receives the essential equivalent of a lottery ticket for a possible future recovery for (at most) a few of them".^[25][26]

• SCOTUS oral arguments audio
• SCOTUS oral arguments transcript
• SCOTUS opinion