Non-Consensual Third-Party Releases in Bankruptcy: Impact of Purdue Pharma

Description

On June 27, 2024, the Supreme Court issued its landmark 5-4 decision in Purdue Pharma. The decision relies on statutory construction and rejects what it called policy arguments.

The Court struck down the efforts by the parties to release the Sacklers under the plan, in exchange for the Sacklers’ contributing almost $6 billion to the debtors. Since the decision, the creditors’ committee in Purdue Pharma has commenced adversary proceedings against the Sacklers seeking to find them culpable for the damage caused by their conduct in marketing and distributing oxycontin. It is unclear whether the Purdue Pharma estate will be able to recover anywhere near the amount agreed to by the Sacklers prior to the ruling by the Supreme Court. Yet, the recovery to the injured claimants seems to have played little role in the Supreme Court decision. Instead, the Court focused strictly on statutory construction of the Bankruptcy Code in striking down the third-party releases in favor of the Sacklers.

But by invalidating all third-party releases, the Court removed a longstanding and key bankruptcy tool used to resolve mass tort and other complex cases. Does Purdue Pharma signal the end of bankruptcy courts as a venue to resolve mass torts, except for the asbestos provisions specifically set out in Bankruptcy Code § 524(g)? Or is there still room to argue that non-consensual releases can still be proper under the right circumstances in a bankruptcy case? What can or will be used to replace third-party releases and what are the consequences of being unable to do so?

Listen as this experienced panel of bankruptcy attorneys reviews the decision and then discusses where it leaves us, any possible loopholes or new restrictions, what we might expect going forward for various non-debtor constituencies, and what if anything it tells us about how broadly we can read the Bankruptcy Code.