Harrington v. Purdue Pharma L.P.
603 U.S. 204 (2024)
Rule of Law:
The Bankruptcy Code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants.
Facts:
- Between 1999 and 2019, approximately 247,000 people in the United States died from prescription-opioid overdoses.
- In the mid-1990s, Purdue Pharma, owned and controlled by the Sackler family, began marketing OxyContin, an opioid prescription pain reliever, claiming its novel “time-release” formula greatly diminished the threat of addiction, leading to its use in a much broader range of applications.
- Purdue generated approximately $34 billion in revenue from OxyContin sales between 1996 and 2019, propelling the Sackler family onto lists of the wealthiest families in America with an estimated net worth of $14 billion.
- In 2007, a Purdue affiliate pleaded guilty to a federal felony for misbranding OxyContin as less addictive and less subject to abuse than other pain medications.
- Appreciating that the mounting litigation would eventually impact them directly, the Sackler family initiated a “milking program,” withdrawing approximately $11 billion—roughly 75% of Purdue’s total assets—between 2008 and 2016, diverting much of that money to overseas trusts and family-owned companies.
- In 2019, Purdue filed for Chapter 11 bankruptcy, during which the Sacklers proposed to return approximately $4.325 billion (later increased to $5.5-$6 billion) to Purdue’s bankruptcy estate.
- In exchange for their financial contribution, the Sacklers sought a judicial order releasing the family from all opioid-related claims and enjoining victims from bringing such claims against them in the future, without the consent of the affected opioid victims.
- Thousands of opioid victims, the U. S. Trustee, eight States, the District of Columbia, and various Canadian municipalities and Tribes objected to the proposed nonconsensual release and injunction against the Sacklers.
Procedural Posture:
- Purdue Pharma filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York in 2019.
- The bankruptcy court approved Purdue's proposed reorganization plan, including its provisions for the Sackler discharge.
- The U.S. District Court for the Southern District of New York vacated the bankruptcy court's decision, holding that bankruptcy law does not authorize extinguishing claims against non-debtor third parties without claimant consent.
- Plan proponents, including Purdue, members of the Sackler family, and various creditors, appealed to the U.S. Court of Appeals for the Second Circuit.
- While the appeal was pending, the Sacklers increased their proposed contribution to Purdue's estate by more than $1 billion, leading eight objecting States and the District of Columbia to drop their objections to the plan.
- A divided panel of the Second Circuit reversed the district court's decision, reviving the bankruptcy court's order approving the (now-modified) reorganization plan.
- The U.S. Trustee filed an application with the Supreme Court to stay the Second Circuit's decision, which the Supreme Court granted and treated as a petition for a writ of certiorari.
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Issue:
Does the Bankruptcy Code, specifically 11 U.S.C. §1123(b)(6), authorize a Chapter 11 reorganization plan to include a nonconsensual release and injunction that effectively discharges claims against a nondebtor without the consent of affected claimants?
Opinions:
Majority - Gorsuch, J.
No, the Bankruptcy Code does not authorize a Chapter 11 reorganization plan to include a nonconsensual release and injunction that effectively discharges claims against a nondebtor without the consent of affected claimants. The Court relied on a strict textualist interpretation of 11 U.S.C. §1123(b), which governs the contents of a reorganization plan. Paragraphs (1) through (5) of §1123(b) concern only the debtor's rights, responsibilities, and its relationship with its creditors, not claims against third parties. The catchall provision in paragraph (6), which allows for "any other appropriate provision not inconsistent with the applicable provisions of this title," must be interpreted in light of its surrounding context and the ejusdem generis canon. Under this canon, the catchall embraces only objects similar in nature to the specific examples preceding it. The power to discharge the debts of a nondebtor without claimant consent is a "radically different" authority not akin to the specific powers enumerated in paragraphs (1)-(5). The Bankruptcy Code’s broader statutory scheme further forecloses the Sackler discharge, as it generally reserves discharge for a debtor who places substantially all of their assets on the table and does not include claims based on "fraud" or "willful and malicious injury." The Sackler discharge defies these limitations by seeking relief for nondebtors without a full surrender of assets and encompassing non-dischargeable claims. The specific congressional authorization of nonconsensual third-party injunctions only in asbestos-related bankruptcies under §524(g) indicates that such a power is not generally available. Finally, historical pre-Code practice (from 1800 until 1978) consistently reserved the benefits of discharge to the debtor who offered a “fair and full surrender of [its] property,” with no precedent for discharging nondebtor claims without consent. While plan proponents raised policy arguments about victim recovery, the Court concluded that such policy decisions are for Congress, not the judiciary, to make.
Dissenting - Kavanaugh, J.
Yes, the Bankruptcy Code does authorize a Chapter 11 reorganization plan to include a nonconsensual release and injunction that effectively discharges claims against a nondebtor when such releases are appropriate and essential to a mass-tort bankruptcy reorganization plan. The dissent argued that bankruptcy aims to solve collective-action problems and prevent a race to the courthouse, ensuring fair and equitable distribution of assets, especially in mass-tort cases. Section 1123(b)(6), which allows "any other appropriate provision not inconsistent with the applicable provisions of this title," grants bankruptcy courts broad discretion and flexibility to achieve these goals. Non-debtor releases are often "appropriate" and essential because they protect the debtor's estate from being depleted by indemnification claims (as the Sacklers were indemnified by Purdue, suits against them were essentially suits against Purdue) and they facilitate substantial settlement payments from non-debtors to the estate (the Sacklers' $5.5-$6 billion contribution quadrupled the estate, enabling significant victim recovery). The ejusdem generis canon does not apply as narrowly as the majority suggests; §1123(b)(3) already allows the settlement of debtor's claims against non-debtors, which can extinguish creditors' derivative claims without their consent. Moreover, consensual non-debtor releases, full-satisfaction releases, and exculpation clauses are routinely approved under §1123(b)(6), demonstrating its reach to non-debtors. The text of §524(g) explicitly states it does not "modify, impair, or supersede any other authority the court has to issue injunctions," indicating Congress did not intend to limit non-debtor releases to asbestos cases only. Non-debtor releases are not "discharges" but negotiated settlements for specific claims. The overwhelming support for the plan (over 95% of voting victims and creditors, all 50 state Attorneys General) demonstrates its appropriateness and necessity for victim recovery, as without it, victims face an uphill battle with uncertain recovery, or potentially no recovery at all due to priority claims.
Analysis:
This decision significantly curtails the tools available to bankruptcy courts in resolving complex mass-tort cases, particularly in situations where nondebtors closely tied to the bankrupt entity are sought to be released from liability. It establishes a clear legal boundary that nonconsensual third-party releases for nondebtors who have not filed for bankruptcy are not authorized by the Bankruptcy Code. The ruling signals a strong emphasis on strict textualist interpretation of the Bankruptcy Code, potentially favoring a literal reading over policy arguments concerning efficiency, global peace, or maximizing victim recovery. This may lead to more fragmented litigation against nondebtors, incentivize nondebtors to withhold contributions to bankruptcy estates if comprehensive releases are unavailable, and potentially delay or reduce overall recovery for victims in future mass-tort bankruptcies.
