Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P. et al., Docket No. 23-124

The justices of the U.S. Supreme Court had to decide whether the bankruptcy code allows for a plan that releases claims against a company that isn't actually filing for bankruptcy, without getting permission from those who are affected.

In a decision led by Justice Neil Gorsuch, the Court ruled that such releases are not allowed under the bankruptcy code. This means that if a company like Purdue Pharma is reorganizing under Chapter 11, it cannot simply wipe away claims against it without the agreement of those who have claims. The Court reversed a previous ruling from the Second Circuit that had permitted these kinds of releases in Purdue Pharma's bankruptcy plan.

This ruling has implications for how bankruptcy cases are handled, especially for companies that may be trying to limit their liability while restructuring. The decision was not unanimous, with Justice Brett Kavanaugh and three other justices dissenting, indicating that there are differing views on how the law should be interpreted in these situations.

As we see, the nuances of the law can lead to significant discussions and differing opinions, highlighting the ongoing debate about the balance between corporate restructuring and the rights of claimants.

Summary of the Case

The case of Harrington v. Purdue Pharma L.P. arose from Purdue Pharma's bankruptcy proceedings, which were initiated in 2019 following extensive litigation related to the opioid crisis. The Sackler family, owners of Purdue, sought to discharge claims against them while proposing to return $4.3 billion to the bankruptcy estate. The bankruptcy court approved a reorganization plan that included a non-consensual release of claims against the Sacklers, which was contested by the U.S. Trustee and various claimants. The district court vacated the bankruptcy court's decision, asserting that the law does not permit such releases without claimant consent. The Second Circuit reversed this decision, leading to the Supreme Court's review to determine whether the bankruptcy code allows for non-consensual releases of claims against non-debtors.

Opinion of the Court

The Supreme Court, in a decision delivered by Justice Gorsuch, held that the bankruptcy code does not authorize a bankruptcy court to release claims against a non-debtor without the consent of affected claimants. The Court emphasized that the bankruptcy code is designed to facilitate the discharge of debts for debtors who place their assets on the table for creditors. The Sacklers, who had not filed for bankruptcy, sought to benefit from a discharge that the law does not permit. The Court interpreted the relevant provisions of the bankruptcy code, particularly §1123(b), to conclude that while a debtor can discharge its debts, this does not extend to non-debtors without claimant consent. The Court's ruling reversed the Second Circuit's decision and remanded the case for further proceedings.

Separate Opinions

Justice Kavanaugh dissented, joined by Chief Justice Roberts and Justices Sotomayor and Kagan. Kavanaugh argued that the Court's decision undermines the authority of bankruptcy courts to provide equitable relief in mass-tort cases. He contended that non-debtor releases are often necessary to facilitate fair settlements and that the bankruptcy court had appropriately exercised its discretion in this case. Kavanaugh criticized the majority for categorically prohibiting non-debtor releases, which he viewed as a critical tool for resolving complex bankruptcy cases.

Dissenting Opinions

Justice Kavanaugh's dissent highlighted several key points: 1. He argued that non-debtor releases are essential in mass-tort bankruptcies to prevent a race to the courthouse and ensure equitable distribution of assets. 2. Kavanaugh emphasized that the Sacklers' settlement payment was crucial for the victims and creditors to recover meaningful compensation. 3. He criticized the majority for failing to recognize the historical context and established practice of allowing non-debtor releases in bankruptcy cases.

Bankruptcy and Ejusdem Generis Canon

The law governing bankruptcy, particularly Chapter 11, is complex and designed to balance the interests of debtors and creditors. The Court's interpretation of §1123(b) reflects a strict adherence to the text, emphasizing that the provisions primarily concern the debtor's rights and responsibilities. The majority's reliance on the ejusdem generis canon suggests that the catchall provision in §1123(b)(6) should not extend to non-debtor releases, as such releases do not align with the specific provisions preceding it. Conversely, the dissent argues for a broader interpretation that considers the practical realities of mass-tort bankruptcies, where non-debtor releases can facilitate equitable settlements and prevent collective-action problems. This divergence illustrates the tension between textualism and a more purposive approach to statutory interpretation in bankruptcy law.