In a motion to stay the issuance of the mandate, the government has announced that it will be filing a petition for certiorari asking the Supreme Court to review the Second Circuit’s Purdue decision allowing bankruptcy courts to issue releases to nondebtors.

The Second Circuit’s May 30 decision reversed the district court and reinstated the bankruptcy court’s confirmation of the chapter 11 plan of Purdue Pharma LP. The New York-based court of appeals held that chapter 11 plans may include nonconsensual releases of creditors’ direct claims against nondebtors. Purdue Pharma LP v. City of Grand Prairie (In re Purdue Pharma LP), 69 F.4th (2d Cir. May 30, 2023). To read ABI’s report, click here.

The motion filed by the government on July 7 states that “the [U.S.] Solicitor General has determined to seek review of the panel’s decision in the Supreme Court” before the August 28 deadline. The government’s motion characterized Purdue’s chapter 11 plan as giving absolute, unconditional and permanent releases “from every conceivable type of opioid-related civil” claims to members of the Sackler family that owned and controlled the company.

According to the government, the releases are “not authorized by the Bankruptcy Code, constitute[] an abuse of the bankruptcy system, and violate[] due-process principles by extinguishing the property rights of non-debtors against individuals or entities not themselves in bankruptcy without consent.” If the Second Circuit’s decision is allowed to stand, the government says it will create “a roadmap for wealthy corporations and individuals who are not in financial distress to misuse the bankruptcy system to avoid mass tort liability. That is not what Congress enacted the Bankruptcy Code to accomplish.”

The government characterized the Purdue decision as enabling “wealthy and powerful tortfeasors to obtain legal immunity from tort victims — for a far broader array of claims than could be discharged by declaring bankruptcy themselves — without ever having to subject themselves to scrutiny under the procedures set forth by the Bankruptcy Code.

The government contends there is a “reasonable probability” the Supreme Court will grant review because “the courts of appeal[s] are sharply and intractably divided on the question [of] whether nonconsensual third-party releases are lawful.”

Filed by the appellate staff of the Department of Justice in Washington, D.C., the motion recites how Circuit Judge Richard C. Wesley wrote a 14-page concurrence in which he “reluctantly” agreed with the judgment given existing Second Circuit precedent. However, Judge Wesley said that the question “would benefit from nationwide resolution by the Supreme Court” of “a weighty issue that, for too long, has split the courts of appeals.”

According to the government, Judge Wesley saw “[n]o provision of the Code [that] authorizes the sweeping power of releasing nonconsenting third parties’ claims against non-debtors.”

The government is asking the Second Circuit to stay issuance of the mandate pending disposition of the petition for certiorari. If the appeals court does not grant the requested stay, the government wants the circuit court to grant a 21-day stay enabling the Solicitor General to request a stay from the Supreme Court.