Discharging Equity: Harrington v. Purdue Pharma L.P. and the Validity of Nonconsensual Third-Party Releases

Authors

Andrew Klauber

Document Type

Supreme Court Commentaries

Publication Date

4-25-2024

Keywords

bankruptcy, bankruptcy code, supreme court, chapter 11, sackler, purdue, opioid, equity, public policy

Subject Category

Constitutional Law

Abstract

In September 2019, Purdue Pharma L.P. petitioned for bankruptcy in the Southern District of New York. Purdue, which the Sackler family had owned and operated for decades, developed and aggressively marketed addictive opioid products, contributing to the modern opioid epidemic. The tsunami of litigation arising from the opioid epidemic gave rise to claims against Purdue and the Sackler family estimated to total more than $40 trillion, causing Purdue to petition for Chapter 11 bankruptcy.

In Purdue’s plan of reorganization, it employed a nonconsensual third-party release to discharge claims against the Sackler family. Nonconsensual third-party releases controversially enjoin parties to a bankruptcy from pursuing actions against third-party nondebtors. The Second Circuit affirmed a bankruptcy court’s power under the Bankruptcy Code to confirm a plan of reorganization containing such a release. In Harrington v. Purdue Pharma L.P., the Supreme Court will determine whether the Bankruptcy Code authorizes a court to approve a plan of reorganization which includes a nonconsensual release extinguishing claims held by nondebtors against nondebtor third parties.

The Court should affirm the Second Circuit’s decision permitting Purdue’s utilization of nonconsensual third-party releases. Nothing in the Bankruptcy Code forecloses the use of such releases. Rather, sections 105(a) and 1123(b)(6) of the Code authorize their use, which accords with historical exercises of equity. As long as a bankruptcy court considers the factors which the Second Circuit employed and confirms that proper notice was given to creditors before extinguishing their claims against nondebtors, the use of nonconsensual third-party releases will inure to the benefit of creditors and debtors undergoing Chapter 11 bankruptcy proceedings.

Recommended Citation

Andrew Klauber, Discharging Equity: Harrington v. Purdue Pharma L.P. and the Validity of Nonconsensual Third-Party Releases, 19 Duke Journal of Constitutional Law and Public Policy 77-120 (2024).