By: Donald L Swanson

Four U.S. Supreme Court justices (Kagan, Kavanaugh, Roberts and Sotomayor) provide the following summary of their Purdue Pharma dissent in the Purdue Pharma case.

Wrong & Devastating

Today’s five-justice majority opinion is wrong on the law and devastating for more than 100,000 opioid victims and their families:

• the majority opinion rewrites the text of the Bankruptcy Code and restricts the long-established authority of bankruptcy courts to fashion fair and equitable relief for mass-tort victims; and
• as a result, opioid victims are now deprived of the substantial monetary recovery that they long fought for and finally secured after years of litigation.

Bankruptcy Policies

Bankruptcy seeks to solve a collective-action problem and prevent a race to the courthouse by individual creditors who, if successful, could obtain all of a company’s assets, leaving nothing for all the other creditors.

The bankruptcy system works to preserve a bankrupt company’s limited assets and to then fairly and equitably distribute those assets among the creditors—and in mass-tort bankruptcies, among the victims.

To do so, the Bankruptcy Code vests bankruptcy courts with broad discretion to approve “appropriate” plan provisions. 11 U. S. C. §1123(b)(6).  

An Admirable Plan

In this mass-tort bankruptcy case, the Bankruptcy Court exercised that discretion appropriately—indeed, admirably:

• the Bankruptcy Court approved a bankruptcy reorganization plan for Purdue Pharma that built up the estate to approximately $7 billion by securing a $5.5 to $6 billion settlement payment from the Sacklers, who were officers and directors of Purdue;
• the plan then guaranteed substantial and equitable compensation to Purdue’s many victims and creditors, including more than 100,000 individual opioid victims; and
• the plan also provided significant funding for thousands of state and local governments to prevent and treat opioid addiction.

A Shining Example

The plan was a shining example of the bankruptcy system at work.

Not surprisingly, therefore:

• virtually all of the opioid victims and creditors in this case fervently support approval of Purdue’s bankruptcy reorganization plan; and
• all 50 state Attorneys General have signed on to the plan—a rare consensus.

The only relevant exceptions to the nearly universal desire for plan approval are a small group of Canadian creditors and one lone individual.

But the Court now throws out the plan—and in doing so, categorically prohibits non-debtor releases, which have long been a critical tool for bankruptcy courts to manage mass-tort bankruptcies like this one.

No Mooring

The Court’s decision finds no mooring in the Bankruptcy Code:

• under the Code, all agree that a bankruptcy plan can non-consensually release victims’ and creditors’ claims against a bankrupt company—here, against Purdue; and
• yet the majority opinion says that a plan can never release victims’ and creditors’ claims against non-debtor officers and directors of the company—here, against the Sacklers.

That is true, the 5-justice majority says, even when (as here):

• those non-debtor releases are necessary to facilitate a fair settlement with the officers and directors and produce a significantly larger bankruptcy estate that can be fairly and equitably distributed among the victims and creditors; and
• those officers and directors are indemnified by the company.

When officers and directors are indemnified by the company, a victim’s or creditor’s claim against the non-debtors is, in essence, a suit against the debtor that could deplete the assets of the estate for the benefit of only a few, just like a claim against the company itself.

Decades of Bankruptcy Practice – Undone

For decades, bankruptcy courts and courts of appeals have determined that non-debtor releases can be appropriate and essential in mass-tort cases like this one. Non-debtor releases have enabled substantial and equitable relief to victims in cases like:

• asbestos;
• Dalkon Shield;
• Dow Corning silicone breast implants;
• Catholic Church; and
• Boy Scouts.

As leading scholars on bankruptcy explain, “the bankruptcy community has recognized the resolution of mass tort claims as a widely accepted core function of bankruptcy courts for decades”—and they emphasize that a “key feature in every mass tort bankruptcy” has been the nondebtor release.

• No longer.

Given the broad statutory text—“appropriate”—and the history of bankruptcy practice approving non-debtor releases in mass-tort bankruptcies, there is no good reason for the debilitating effects that the decision today imposes on the opioid victims in this case and on the bankruptcy system at large.

Hostility Toward Sacklers

To be sure, many Americans have deep hostility toward the Sacklers. But allowing that animosity to infect this bankruptcy case is entirely misdirected and counterproductive, and just piles even more injury onto the opioid victims.

And no one can have more hostility toward the Sacklers and a greater desire to go after the Sacklers’ assets than the opioid victims themselves.

• Yet the victims unequivocally seek approval of this plan.

Severe Consequences

With the current plan now gone and non-debtor releases categorically prohibited, the consequences will be severe, as the victims and creditors forcefully explained:

• without releases, there will be no $5.5 to $6 billion settlement payment to the estate, and there will be no viable path to any victim recovery; and
• without the plan’s substantial funding to prevent and treat opioid addiction, the victims and creditors bluntly described further repercussions: “more people will die without this Plan.”  

Dissent’s Recap

Despite the broad term “appropriate” in the statutory text, despite the longstanding precedents approving mass-tort bankruptcy plans with non-debtor releases like these, despite 50 state Attorneys General signing on, and despite the pleas of the opioid victims:

• today’s decision creates a new atextual restriction on the authority of bankruptcy courts to approve appropriate plan provisions.

The results include:

• opioid victims and their families are deprived of their hard-won relief;
• communities devastated by the opioid crisis are deprived of the funding needed to help prevent and treat opioid addiction;
• each victim and creditor receives the essential equivalent of a lottery ticket for a possible future recovery for (at most) a few of them; and
• without the non-debtor releases, there is no good reason to believe that any of the victims or state or local governments will ever recover anything.

Conclusion

How could this dissenting opinion not get a fifth Vote?!!

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