Behind the Ruling: Purdue Pharma

the following is a “behind the ruling” view of a recent opinion published by the United States Supreme Court, Harrington v. Purdue Pharma, L.P., 603 U.S. __, 2024 U.S. LEXIS 2848 (U.S., June 27, 2024) (Purdue 4), a case in which the ILC filed an amicus brief on September 27, 2023.  Full analyses of the Court’s majority and dissent opinions will be sent in separate eBulletins.

To read the decision, click here.

Summary

On June 27, 2024, the Supreme Court of the United States issued its long-awaited opinion in Purdue 4.  In a 5-4 split decision delivered by Justice Gorsuch and joined by Justices Thomas, Alito, Barrett and Jackson, the Court held that the Bankruptcy Code does not authorize nonconsensual reorganization plan releases that extinguish claims held by nondebtors against other nondebtor third parties.  The ruling reversed the prior ruling by the Second District Court of Appeals.  Justice Kavanaugh delivered the dissent, joined by Chief Justice Roberts and Justices Sotomayor and Kagan.  603 U.S. ____ (2024). 

The Court granted a writ of certiorari on August 10, 2023, and oral arguments were held on December 4, 2023.  For the oral argument audio:  https://www.supremecourt.gov/oral_arguments/audio/2023/23-124

Question Presented by the Supreme Court

Whether the Bankruptcy Code authorizes a court to approve, as part of a plan of reorganization under Chapter 11 of the Bankruptcy Code, a release that extinguishes claims held by nondebtors against nondebtor third parties, without the claimants’ consent.  https://www.supremecourt.gov/qp/23-00124qp.pdf

The Ruling

The Court boiled down the issue presented to “whether a court in bankruptcy may effectively extend to nondebtors the benefits of a Chapter 11 discharge usually reserved for debtors.”  Applying the ejusdem generis canon, among other, the Court held that 11 U.S.C. section 1123(b)(6)’s catchall provision, namely that a plan may “include any other appropriate provision not inconsistent with the applicable provisions of this title,” could not be extended to include nonconsensual releases for nondebtor parties against claims by nondebtor third parties.

The Court limited its ruling to the question at hand, warning that it should not be read to question consensual third-party releases included in bankruptcy reorganization plans.  It expressed no guidance on “what qualifies as a consensual release or [] a plan that provides for the full satisfaction of claims against a third-party nondebtor.”  The opinion also left open “whether [the Court’s] reading of the bankruptcy code would justify unwinding reorganization plans that

have already become effective and been substantially consummated.”

The Amicus Curiae Briefs Behind the Majority and Dissenting Opinions:

While the question posed and answered by the Supreme Court was succinct and seemingly simple, the legal and societal implications of this 5-4 split ruling could be substantial.  To better understand the legal issues and societal stakes, one could review the 25 amicus briefs filed in this case.  Though often ignored, friend of the court briefs offer insights into the stakeholders aligned on each side of the dispute, their motivations, and even roadmaps for practitioners who seek to effectively represent their clients in future cases.  The 25 Amicus Curiae briefs filed in this case comprise:

• 10 Amicus Curiae briefs filed in support of Petitioner William K. Harrington, United States Trustee, Region 2,
• 12 Amicus Curiae briefs filed in support of Respondents Purdue Pharma L.P., et al., and
• 3 Amicus Curiae briefs that supported neither side.  The ILC filed one of these briefs.

For a complete list of those who filed Amicus Curiae briefs and their counsel, with links to the briefs, click here.

These materials were written by Uzzi O. Raanan, a partner at Danning, Gill, Israel & Krasnoff, LLP, located in Los Angeles, California.  Editorial contributions were made by the Honorable Meredith Jury, United States Bankruptcy Judge, C.D. Cal, Ret.  Any opinions expressed herein are solely those of the authors.

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