On June 27, 2024, the U.S. Supreme Court blocked a $6 billion bankruptcy settlement in Harrington v. Purdue Pharma L. P., No. 23-124, 2024 WL 3187799, at *11 (U.S. June 27, 2024). The Court found that the Bankruptcy Code does not support a Chapter 11 bankruptcy plan over the objection of claimants, that shields the owners from future lawsuits from mass tort claimants’, where the owners did not seek Bankruptcy Court protection and are not entitled to be discharged of those debts.
The Court found that the Bankruptcy Code does not afford the power needed to block future lawsuits against anyone who has not filed for bankruptcy and concluded that the Bankruptcy Code would not authorize a release or injunction in favor of non-debtors in a reorganization plan. Going forward, debtors will not be able to obtain nonconsensual third-party releases. Instead, a bankruptcy plan may only include consensual third-party releases.
In 2019, Purdue Pharma (“Purdue”) filed for Chapter 11 bankruptcy protection after facing thousands of lawsuits for its role in the opioid epidemic. Purdue is owned, controlled and operated by the Sackler family. Purdue heavily promoted OxyContin, the prescription pain reliever and earned itself billions in sales. Purdue has been accused of significantly contributing to the opioid epidemic. In 2007, an affiliate of Purdue admitted that it misbranded OxyContin, leading many to believe that it was a less-addictive prescription pain reliever.
The Supreme Court agreed to review the challenge to Purdue’s bankruptcy plan of reorganization, which shielded its owners (the Sackler family) of any future liability relating to the opioid lawsuits.[1] Under the plan and over the objection of certain claimants, the Sackler family, who sought to be discharged without filing for bankruptcy protection themselves, would have received immunity from future liability in exchange for paying $6 billion to settle thousands of lawsuits relating to its involvement in the opioid crisis.
Despite being approved by the majority of claimants, the Court rejected this plan and found that the Sacklers could not receive a discharge of future claims against them relating to the opioid crisis over the objection of the non-consenting claimants. Justice Neil Gorsuch stated, “we hold only that 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 non-debtor without the consent of the affected claimants.”
Based on the Court’s decision, the settlement is at a standstill, and it is likely the bankruptcy plan will have to be renegotiated in order to obtain the consent of all parties. The Sacklers may continue to attempt to obtain releases under a plan, however based on Purdue Pharma they may only be successful if they contribute more money to obtain the consent of all claimants and the plan is approved by the Court.
For now, Purdue Pharma will not achieve a bankruptcy settlement until they reach an agreement under a revised bankruptcy plan that provides for the release of the Sacklers, until the plan has the consent of all claimants, and until it is approved by the Bankruptcy Court consistent with the Purdue Pharma holding.
[1] None of the Sackler family members have filed for personal bankruptcy.
