Can the Sackler Family, the former owners of Purdue Pharma, L.P., be released from future claims of liability in connection to their alleged contributions to the opioid crisis through Purdue Pharma’s Chapter 11 bankruptcy proceedings despite not being a party to those bankruptcy proceedings?
This case concerns the interpretation of a bankruptcy court’s power under Chapter 11 of the Bankruptcy Code to provide for release from claims by tort victims against non-debtors. OxyContin producer Purdue Pharma––owned by the Sackler Family––filed for bankruptcy in September 2019. The bankruptcy plan provided for the Sackler Family to be released from all civil claims by third parties resulting from the acts or omissions of Purdue in exchange for the Sackler Family providing around $5.5 billion to satisfy bankruptcy claims. William K. Harrington, United States Trustee for Region 2, argues that the Code limits the bankruptcy court’s authority to manage debtor-creditor relationships. Purdue Pharma, its creditors, and the Sackler Family argue that the court’s power is limited only by “inconsisten[cy]” with the Code––which doesn’t expressly prohibit these kinds of releases. The case has significant implications for the handling of mass tort claims and potential relief for victims of the opioid crisis.
Questions as Framed for the Court by the Parties
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.
Since the 1990s, the pharmaceutical manufacturer Purdue Pharma L.P.––owned by the Sackler family––vigorously promoted the use of its name-brand drug OxyContin, an opioid analgesic utilized for its painkilling qualities. In re Purdue Pharma at 9–10. OxyContin would prove highly addictive, and “has been blamed for significantly contributing” to the ongoing opioid epidemic. Id. at 10. Sufferers of OxyContin dependency, along with their families and relations, began to file claims against Purdue as well as members of the Sackler family. Id. Claimants stated causes of action from negligence to willful misconduct to public nuisance relating to Purdue’s distribution and advertising of the painkilling drug. Id.
Eventually confronted with nearly three thousand such lawsuits, Purdue sought bankruptcy protection on September 15, 2019. As part of Purdue’s bankruptcy plan, the Sacklers agreed with the bankruptcy parties to contribute more than four billion dollars in exchange for the release of all civil claims against the family. In re Purdue Pharma at 10. This provision were to bar all lawsuits against the Sacklers, present and future, relating to the conduct of Purdue. Id. The bankruptcy court approved the release but limited it to claims where Purdue’s conduct was alleged as a proximate cause of an injury that could directly affect the Sacklers’ estate. Id. at 11. In consideration, the Sacklers agreed to contribute nearly $5.5 billion from their personal wealth in satisfaction of claims in bankruptcy; these payments would be made in scheduled installments over the course of ten years. Harrington v. Purdue Pharma at 5.
Consistent with procedures under the Bankruptcy Code, the Court held a vote on the proposed plan in which all individuals who filed proof of their claim on Purdue assets could participate. Harrington v. Purdue Pharma at 3–4. With over 618,000 claimants eligible to vote, “[m]ore than 120,000 votes were cast” on the Plan, representing just under 20% of eligible voters and a 95% overall approval. Id. at 22. In September 2021, the bankruptcy judge entered orders confirming the plan and permitting Purdue to arrange for the first disbursements. Soon after, the United States Trustee––the federal officer charged with overseeing bankruptcy proceedings––filed an emergency motion for a stay pending appeal to the District Court for the Southern District of New York. The District Court rejected the plan on grounds that the bankruptcy court exceeded its authority in approving a plan that included nonconsensual releases of claims by tort victims. In re Purdue Pharma at 82.
On appeal to the Second Circuit Court of Appeals, Purdue prevailed over the Trustee’s challenge. Finding that the Bankruptcy Code granted bankruptcy courts “residual [equitable] authority” to modify third-party relationships that could affect party funds in bankruptcy, the Second Circuit held that any provision in a plan that was “not inconsistent with” the Code could be included in a plan. In re Purdue Pharma at 52. Since no provision of the Bankruptcy Code explicitly forbids the use of third-party releases, the Second Circuit reasoned, the release was not inconsistent with the Code and therefore permissible. Id. at 53.
Harrington petitioned to the Supreme Court for a writ of certiorari on July 28, 2023, and certiorari was granted on August 10, 2023.
INTERPRETING THE BANKRUPTCY CODE
Petitioner William K. Harrington, United States Trustee, argues that the Bankruptcy Code cannot be interpreted to authorize releases from liability for individuals outside of the bankruptcy process (i.e. nondebtors like the Sacklers). Brief for Petitioner, William K. Harrington United States Trustee Region 2 at 19. First, Harrington claims that the general purpose of the Bankruptcy Code is to “address the relations between debtors and their creditors, not between nondebtors.” Id. Specifically, Harrington maintains that the Code works by establishing a quid pro quo between debtors and their creditors: in exchange for the debtor fully disclosing the state of its financial affairs and providing its assets to the satisfaction of its creditors, the debtor may receive a discharge of its debts. Id. at 20. Such a discharge may serve to void any judgments of personal liability or operate as an injunction against any new or continuing litigation with respect to the personal liability of the debtor regarding the debt discharged under 11 U.S.C. § 524(a). 11 U.S.C. § 524(a). Harrington asserts that such a benefit can only be granted to a debtor who takes on bankruptcy’s onerous responsibilities. Brief for Petitioner at 20.
Harrington starts by claiming that § 1123(b)(6) cannot be interpreted to authorize nonconsensual third-party releases. Brief for Petitioner at 22. Harrington then argues that the general catchall provision provided by § 1123(b)(6) is similarly insufficient. Id. Specifically with respect to § 1123(b)(6), Harrington maintains that the Court must limit general provision by the specific provisions that precede it, consistent with a common method of statutory interpretation. Id. at 23–24. In other words, Harrington claims that §§ 1123(b)(1)-(5) are impliedly limited to creditor-debtor relations, thus also limiting § 1123(b)(6) to governing creditor-debtor relations. Id. at 24. Additionally, Harrington contends that Respondent’s interpretation of § 1123(b)(6) is inconsistent with other limits throughout the Bankruptcy Code. Id. Harrington points towards § 524(g), which expressly provides for extensive procedures governing third-party releases for actions alleging damages for asbestos exposure. Id. at 33. With § 524(g), Harrington seeks to demonstrate that where Congress intends to permit third-party releases within the Bankruptcy Code, it will do so explicitly; where Congress fails to include such releases, it does not then imply courts may issue third-party releases. Id. Furthermore, Harrington contends that even if Congress did imply such powers, the Sackler’s release ought to be subjected to the stringent requirements of § 524(g), which was not the case in this instance. Id. at 43.
Harrington further argues that the Court of Appeals misapplied the Supreme Court case precedent United States v. Energy Resources to be in favor of third-party releases, which does not speak to the issue of third-party releases despite also concerning the breadth of § 1123(b)(6). Brief for Petitioner at 36. Additionally, Harrington contends that the Court of Appeals misconstrued the equitable authority traditionally given to courts. Id at 37. Harrington equates the power of bankruptcy courts to release claims against debtors with the traditional power to enjoin enjoyed by other courts in equity. Id. Harrington asserts that “in traditional equity practice, injunction did not control the rights of nonparties,” and therefore bankruptcy courts cannot release nondebtors, like the Sacklers, against third-party claims without explicit statutory authorization. Id. Lastly, Harrington maintains that the seven-factor test, adopted by the court of appeals in determining whether third-party releases are warranted, subjects such releases to a heightened risk of abuse. Id. at 39. Harrington criticizes the test as being amorphous and malleable and absent of any guiding principles as to how the test ought to be applied. Id. at 40. Harrington foreshadows that, because of this test, third-party releases may turn into the rule rather than the exception. Id.
Purdue Pharma, its creditors, and the Sacklers (“Respondents”) contend that Congress has granted courts extensive power to safeguard bankruptcy estates, including through nonconsensual third-party releases. Brief for Debtor Respondents at 17. Contrasting with Petitioner, Respondents maintain that the “bankruptcy power is not confined solely to creditors and debtors”; rather, the power concerns all aspects linked to the bankrupt estate and therefore, the court’s power should affect third parties whose claims impact the assets of the estate. Id. at 26. Respondents cite § 1123(b)(6) of the Bankruptcy Code as the statutory authorization that underpins this power, claiming § 1123(b)(6) serves as a catchall to empower the courts with extensive equitable powers to balance the concerns of affected parties, driven by the overarching goal of ensuring reorganization's success. Id. at 21. Accordingly, Respondents argue further that, without the releases, the bankruptcy reorganization would fail under the weight of subsequent litigation; thus, third-party releases must be a part of the court’s broad equitable powers to ensure the success of reorganization. Id. at 27.
Respondents maintain that Congress made the breadth of § 1123(b)(6) unambiguous by explicitly authorizing bankruptcy courts to issue plans that may include “any … provision not inconsistent with” another provision of the Bankruptcy Code. Brief for Debtor Respondents at 20. Respondents argue that broad discretion authorized under § 1123(b)(6) provides bankruptcy courts with the residual authority necessary to carry out its broad equitable powers. Id. at 21. Accordingly, Respondents dispute Petitioner’s statutory interpretation, claiming instead that the other provisions contained with § 1123 support the conclusion that the catchall “confers whatever residual authority is needed to approve plan provisions needed so closely related to the other powers enumerated in § 1123.” Id. at 24.
Respondents further claim that third-party releases are entirely consistent with historical practice. Brief for Debtor Respondents at 27. In particular, Respondents dispute Harrington’s characterization of whether courts of equity would enjoin non-parties historically, arguing that these courts “could––and did––enjoin claims held by creditors of the debtor against third parties.” Id. Respondents contend that Harrington’s description of traditional equitable practice rests on two false premises. Id. at 28. First, Respondents reject Petitioner’s claim that the releases at issue control the rights of non-parties where, “[e]veryone who is bound by the releases at issue is a party … by virtue of being a creditor to Purdue.” Id. Second, Respondents assert that these releases also fall within the traditional exception to rules counseling against third-party releases by serving to protect a “limited fund,” that being the assets of the bankrupt estate. Id. Lastly, in contrast with Petitioner, Respondents support the Second Circuit's proposed seven-factor test as exhibiting crucial limiting principles in the application of third-party releases. Id. at 30. Specifically, Respondents point towards limiting language among the factors such as “necessary” and “appropriate” as well as requirements that the releases be considered against general equitable principals and that third-party releases must be approved by both Article III and bankruptcy courts. Id.
THE DOCTRINE OF CONSTITUTIONAL AVOIDANCE
Harrington argues that the doctrine of constitutional avoidance supports his interpretation of the Code. Brief for Petitioner at 41. This doctrine counsels the Court to answer questions, where possible, in a way that does not require constitutional interpretation or raise fresh constitutional questions. Id. Since claims of liability are property interests, Harrington contends, adopting Respondents’ interpretation of the Code raises important questions about government power over property in bankruptcy. Id. Extinguishing those claims would “significantly alter  the power of the Government over private property,” while sharply contravening due process rights to be heard. Id. at 41–42. Harrington also argues that notice of the hearing on the plan was inconsistent with due process, since no opt-out provision permitted objecting parties to protect their interests against a binding change in their property rights. Id. at 42. Though § 524(g) authorizes limited third-party releases relating to asbestos claims, Harrington concedes that express Congressional approval and significant procedural safeguards together remove § 524(g) from constitutional concern. Id. at 43–44.
Respondents, the Official Committee of Unsecured Creditors of Purdue Pharma, L.P. (“CUC”), counters that Harrington’s due process concerns are overblown. Official Committee of Unsecured Creditors of Purdue Pharma, L.P. et al., at 42. CUC contends that sufficient notice and opportunity to be heard on the proposed plan was provided, including a public letter submitted to creditors that “walked through the Plan’s major provisions and the role of the Release.” Id. at 42–43. CUC explains that bankruptcy proceedings require the ability to operate without unanimity; however, it concedes that the special due process concerns of nonconsensual third-party releases warrant a higher level of procedural protection. Id. at 43. However, CUC argues that courts’ “insistence” on a “fair resolution endorsed by an ‘overwhelming’ majority of creditors,” sufficiently supplements the usual hearing and notice provisions to address those concerns. Id. at 43–44. Lastly, CUC contends that the asbestos release provision § 524(g) provides effectively identical procedural protections to the Second Circuit’s third-party release test applied in this case. Id. If the asbestos provision’s safeguards are constitutionally sufficient, so, too, must the third-party release program provided for by the bankruptcy court. Id.
ABUSE OF THE BANKRUPTCY SYSTEM
A group of bankruptcy law professors (“Bankruptcy Professors”), in support of Harrington, allege that the Sackler release is “an abusive discharge of debt.” Brief of Amici Curiae Bankruptcy Professors, in Support of Petitioner at 10. The Bankruptcy Professors echo the Supreme Court precedent which describes discharges under bankruptcy as being reserved for the “honest but unfortunate debtor.” Id. at 13. The Bankruptcy Professors then distinguish the liabilities accrued by Purdue and the Sacklers as neither honest nor unfortunate, but rather, being the result of “reprehensible” conduct. Id. Specifically, the Bankruptcy Professors accuse the Sacklers of committing fraudulent transfers as a means of creating conditions to make their release appear necessary. Id. at 17. “Texas Two-Step” Victims express similar concerns about abuse of the bankruptcy system, characterizing the Sackler release as another abuse of the bankruptcy system. Brief of Amici Curiae “Texas Two-Step” Victims, in Support of the Petitioner at 20. Texas Two-Step Victims argue that, if the Sacklers are granted this release, other alleged wealthy tortfeasors may apply similar strategies in the future to avoid extensive liabilities. Id. at 21. Similarly, Professor Adam J. Levitin contends that permitting the types of nonconsensual releases requested by the Sacklers will result in lower recovery for creditors. Brief for Amicus Curiae Adam J. Levitin, in Support of the Petitioner at 19. Professor Levitin argues that Purdue’s amici have created a false dichotomy in placing nonconsensual releases and a mass tort crisis as competing interests. Id. at 20. Professor Levitin maintains that economic theory demonstrates that the greatest recovery, for both victims and creditors, will result from consensual releases obtained through bargaining. Id. at 22.
An ad hoc group of local councils of the Boy Scouts of America (“BSA Attorneys”), in support of Respondents, instead characterize the type of third-party release requested by the Sacklers as critical to the resolution of mass-tort claims. Brief for Amicus Curiae Ad Hoc Group of Local Councils of the Boy Scouts of America, in Support of Debtor Respondents at 5. The BSA Attorneys argue that such releases “expand the funds available to claimants” by allowing for pooled resources unhindered by the cost associated with a mass-tort litigation. Id. A group of law professors (“Law Professors”) further claim that third-party releases granted through bankruptcy help to cure collective action problems in mass-tort claims by preventing litigants from racing against one another towards litigation. Brief for Amici Curiae Law Professors, in Support of Respondents at 21. The Law Professors maintain that the coordination and organization achieved through bankruptcy proceeding result in a more efficient and more equal asset allocation. Id. at 22. Similarly, the Chamber of Commerce of the United States of America and a group of professional and business associations argue that the threat of third-party releases under bankruptcy proceedings force potential holdouts into negotiation. Brief for Amici Curiae for the Chamber of Commerce of the United States of America et al., in Support of Affirmance at 21. Accordingly, the Law Professors argue that third-party releases have been indispensable to achieving the resolution of many mass-tort cases rather than exemplifying abuse of the bankruptcy system. Law Professors at 23.
JUSTICE FOR VICTIMS OF THE OPIOID CRISIS
Ellen Isaacs, in support of Harrington, challenges the release as mere “special protection for billionaires.” Brief of Amicus Curiae Ellen Isaacs, in Support of Petitioner at 2. Contending that “[t]he Sackler architects of the opioid epidemic always saw America as territory to bury in prescriptions, like a depraved wargame,” Isaacs argues that “[n]o one should get the benefit of a non-debtor release while keeping even a single dollar of profit from misconduct.” Id. at 16–19. Moreover, Isaacs argues that the existence of liability for injuries such as wrongful death and fraud is intended to prevent risky and immoral behavior; permitting the Sacklers to contract out of responsibility would amount to denying those rights to victims while permitting their perpetrators “to profit from wrongdoing.” Id. at 20–21. Similarly, the Federation of Sovereign Indigenous Nations (“FSIN”) highlights the particularly devastating impact of opiates on First Nations communities throughout Canada. Brief of Amicus Curiae Federation of Sovereign Indigenous Nations, in Support of Petitioner at 3–4. FSIN explains that, beyond causing hundreds of deaths, opioids have significantly damaged the community ties of First Nations people and driven many out of their communities. Id. at 7. The Sackler family which “wrought a devastating trail of opioid destruction” within these communities, FSIN reasons, ought not get away with its crimes absent personal liability. Id. at 8.
The Arkansas Opioid Recovery Partnership, the Association of Arkansas Counties, and the Arkansas Municipal League (“Arkansas Groups”), support the plan releasing the Sacklers from liability. Brief of Amici Curiae The Arkansas Opioid Recovery Partnership et al., in Support of Respondents at 1. Though agreeing with Isaacs that “justice is about more than money,” Arkansas Groups contend that the money from the Sackler bankruptcy plan would help numerous Arkansas residents recover from and fight against the opioid crisis. Id. at 19–20. Arkansas Groups explain that the local government approvals are important because relevant vital resources such as emergency dispatch, EMS, hospitals and crisis stabilization units are all services provided at a local level. Id. at 8. Arkansas Groups argue, even if it means the Sacklers retain much of their wealth, the Sacklers’s contribution in bankruptcy will permit local governments to immediately dedicate significant funding to mitigation of the crisis. Id. at 9. Similarly, the Recovery Advocacy Project and other non-profits (“Recovery Advocacy Project”) prefer to permit the bankruptcy plan to go forward for quicker access to funding. Brief of Amici Curiae Recovery Advocacy Project et al., in Support of Respondents at 12. Describing the tremendous loss of life inflicted by the opioid crisis, Recovery Advocacy Project explains that local community assistance is crucial to preventing more deaths. Id. at 6–8. But with treatment, tools, and outreach spread thin by inadequate funding, Recovery Advocacy Project explains that local organizations cannot meet the overwhelming need for preventive and remedial services. Id. at 12.
- John Kruzel and Andrew Chung, US Supreme Court halts Purdue Pharma bankruptcy settlement pending review, Reuters (Aug. 11, 2023).
- Abbie VanSickle and Jan Hoffman, What the Supreme Court’s Decision to Hear the Purdue Pharma Case Means, The New York Times (Aug. 11, 2023).
- John Fritze, These two moms lost sons to opioids. Now they’re on opposite sides at the Supreme Court, USA Today (Oct. 2, 2023).
- · Brian Mann, A landmark appeals court ruling clears way for Purdue Pharma-Sackler bankruptcy deal, NPR (May 30, 2023).