Business Law

The 5-4 Purdue Pharma Majority Decision

The following is one of multiple ebulletins about 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. This ebulletin by Leonard Gumport, counsel on the ILC’s amicus brief, discusses the majority opinion in Purdue 4.        

To read the decision, click here.


On June 27, 2024, in a 5-4 decision, the United States Supreme Court held that the Bankruptcy Code “does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants.” Writing for the majority in Purdue 4, Justice Gorsuch cautioned: “As important as the question we decide today are ones we do not.” The concluding section of the majority opinion describes issues left undecided, including issues relating to consensual releases, full-payment plans, and equitable mootness. Purdue 4, at *31-32.


A caveat to the reader: This summary of facts is drawn from the majority opinion in Purdue 4. A different view of the record (and the law) appears in the dissent of Justice Kavanaugh, joined by Chief Justice Roberts and Justices Sotomayor and Kagan. A separate ILC ebulletin by a different author will focus on the dissent.

Purdue Pharma L.P. (“Purdue”) was a family-owned company that marketed OxyContin, a prescription pain reliever. Between 1996 and 2019, Purdue generated approximately $34 billion in revenues, mostly from sales of OxyContin. Purdue’s success made its owners (the “Sacklers”) among the wealthiest families in America, with an estimated net worth of $14 billion. Purdue 4, at *10.  

In 2004, Purdue agreed to indemnify the Sacklers, except for misconduct that a court determined was not taken in good faith. Id. at *30 n. 7. In 2007, a Purdue affiliate pleaded guilty to a federal felony for misbranding OxyContin as less addictive and abuseable than other pain medications. A tsunami of civil lawsuits followed as “individuals, families, and governments” sought damages from Purdue and the Sacklers for injuries allegedly caused by “Purdue’s deceptive marketing practices.” In response, the Sacklers began what one family member described as a “milking program.” Between 2008 and 2016, Purdue distributed approximately $11 billion to the Sacklers, draining Purdue’s total assets by 75% and leaving Purdue financially weakened. The Sacklers “diverted much of that money to overseas trusts and family-owned companies.” Id. at *8, 10-11.

In 2019, Purdue filed a chapter 11 petition in the United States Bankruptcy Court for the Southern District of New York. During the case, the Sacklers proposed to return, in installments spread out over a decade, approximately $4.325 billion of the $11 billion that they had withdrawn from Purdue. In return, the Sacklers sought to have Purdue confirm a chapter 11 plan that released and enjoined two categories of disputed claims: (1) claims of Purdue’s bankruptcy estate against the Sacklers, including fraudulent transfer claims for withdrawing $11 billion from Purdue, and (2) claims of Purdue’s creditors against the Sacklers, including claims by opioid victims relating to Purdue’s marketing of OxyContin. The claims to be released and enjoined included disputed claims for fraud and willful misconduct, regardless of whether the opioid victims consented to those releases. The injunction would run in favor of numerous entities, including the Sacklers, Purdue’s officers and directors, and hundreds, if not thousands, of Sackler family members and entities under their control. Id. at *11-12.

Purdue agreed to the requested terms and incorporated them in a proposed chapter 11 plan. In the plan, Purdue proposed to reorganize as a public benefit company dedicated to opioid education and abatement efforts. Individual victims harmed by Purdue’s products would receive, with help from the Sacklers’ anticipated settlement payment of approximately $4.325 billion, a base amount of $3,500 up to a ceiling of $48,000 before deductions for attorney’s fees and other expenses. For those receiving more than the $3,500 base amount, payments would come in installments spread out over as many as 10 years. Id. at *12-13.

During 2021, a majority (in fact, an overwhelming majority) of creditors who returned ballots supported Purdue’s plan, but fewer than 20% of eligible creditors voted. Thousands of opioid victims voted against the plan. Many of them pleaded with the bankruptcy court not to wipe out their claims against the Sacklers. The United States Trustee (UST), eight States (including California), the District of Columbia, the city of Seattle, and various Canadian entities and Tribes joined in those objections. The bankruptcy court overruled the objections and confirmed the plan, including its nonconsensual release of opioid victims’ claims against the Sacklers. On September 17, 2021, United States Bankruptcy Judge Robert D. Drain decided that the Bankruptcy Code authorized the nonconsensual release of creditors’ claims against nondebtors. See id. at *12-14; In re Purdue Pharma L.P., 633 B.R. 53, 95-115 (Bankr. S.D.N.Y. 2021) (Purdue 1).

Later that year, the UST, the eight States, the District of Columbia, certain individual opioid victims, and the Canadian entities filed appeals from the confirmation order. The district court granted a stay pending appeal. On December 16, 2021, United States District Judge Colleen McMahon vacated the confirmation order and ruled that the Bankruptcy Code did not authorize the plan’s nonconsensual releases of creditors’ claims against the Sacklers. See Purdue 4, at *14; In re Purdue Pharma L.P., 26 (S.D.N.Y. 2021) (Purdue 2).

In 2022, Purdue, the Sacklers, and others filed appeals to the United States Court of Appeals for the Second Circuit. During the appeals, the Sacklers agreed to pay an additional $1.175 to $1.675 billion to Purdue’s bankruptcy estate if the eight States and the District of Columbia withdrew their objections to Purdue’s plan. This settlement increased the Sacklers’ contribution under the plan to approximately $6 billion. The Sacklers’ increased contribution “still fell well short of the $11 billion they received from the company” during 2008-2016, “did not begin to reflect the earnings the Sacklers have enjoyed from that sum over time,” and “would still come in installments spread over many years.” Although the eight States and the District of Columbia withdrew their objections, the UST, the Canadian entities, and at least one opioid victim did not. Id. at *14-15.

In 2023, a 2-1 divided panel of the Second Circuit reversed the district court and reinstated the confirmed plan (as enhanced by the Sacklers during the appeals). Writing for the majority, United States Circuit Judge Eunice C. Lee decided that the Bankruptcy Code permitted nonconsensual releases of third-party claims against nondebtors. Id. at *15; Purdue Pharma, L.P. v. City of Grande Prairie (In re Purdue Pharma L.P.), 69 F.4th 45 (2d Cir. 2023) (Purdue 3). Citing 11 U.S.C. § 1123(b)(6) and United States v. Energy Resources Co., Inc., 495 U.S. 545 (1990), Judge Lee wrote, “as the Court’s language in Energy Resources indicates, § 1123(b)(6) is limited only by what the Code expressly forbids, not what the Code explicitly allows.” Purdue 3, 69 F.4th at 73-74.

Writing separately, United States Circuit Judge Richard C. Wesley reluctantly concurred in the judgment, which he viewed as compelled by Second Circuit precedent. Judge Wesley doubted that the Bankruptcy Code authorized nonconsensual releases of third-party claims against nondebtors, except in asbestos-related bankruptcies. Id. at 85-86. Judge Wesley wrote: “At bottom, if Congress intended so extraordinary a grant of authority, it should say so.” Id. at 90 (citing Czyzewski v. Jevic Holding Corp., 580 U.S. 451, 465 (2017)).  

On the UST’s behalf, the Solicitor General requested the Supreme Court to grant a stay and writ of certiorari. On August 10, 2023, the Supreme Court stayed the Second Circuit’s decision and granted certiorari to resolve a circuit split on the following issue: “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.”  

On June 27, 2024, in a 5-4 decision, the Supreme Courtreversed the Second Circuit. In the majority opinion, Justice Gorsuch wrote: “Confining ourselves to the question presented, we hold only that the [B]ankruptcy [C]ode does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants.” Id. at *32.


The nonconsensual releases and injunction of opioid victims’ claims against the Sacklers were inconsistent with the Bankruptcy Code and were not authorized by 11 U.S.C. §§ 105(a) and 1123(b)(6).    

[A] Section 105(a) of the Bankruptcy Code, 11 U.S.C. § 105(a), allows a bankruptcy court to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions” of the Code. Section 105(a) serves only to “carry out” authorities expressly conferred elsewhere in the Code. Standing alone, § 105(a) did not authorize a court to grant the nonconsensual releases and injunction of creditors’ claims against third parties. The Second Circuit was correct insofar as it recognized that § 105(a), standing alone, did not authorize the nonconsensual releases and injunction. Purdue 4, at *19 n.2.

[B] Section 1123(a) of the Code, 11 U.S.C. § 1123(a), describes what provisions a chapter 11 plan must contain. No party had suggested that “anything like the Sackler discharge” was required by § 1123(a). Id. at *17.

[C] Section 1123(b) of the Code, 11 U.S.C. § 1123(b), describes in six paragraphs the optional terms that a chapter 11 plan may contain. None of those provisions authorized the relief sought by the Sacklers. Id. at *24-25.

The first five paragraphs of § 1123(b) authorize specific plan provisions. See 11 U.S.C. §§ 1123(b)(1)-(5). “But nothing in those paragraphs authorizes a plan to extinguish claims against third parties, like the Sacklers, without the consent of the affected claimants, like the opioid victims.” Id. at *19. Although creditors’ derivative claims, such as fraudulent transfer claims, may be released by a plan pursuant to § 1123(b)(3), that is “because those claims belong to the debtor’s estate.” In contrast, the Sacklers sought to extinguish creditors’ claims that did not belong to Purdue’s bankruptcy estate. That the nonconsensual releases were limited to claims for which Purdue’s conduct was a “legally relevant factor” did not “alter the fact that the Sackler discharge would extinguish the victims’ claims against the Sacklers.” Id. at 23 and n.3 (emphasis in original).

Section 1123(b)(6) of the Code, 11 U.S.C. § 1123(b)(6), did not authorize the releases and injunction. Section 1123(b)(6), provides that a chapter 11 plan may “include any other appropriate provision not inconsistent with the applicable provisions of this title.” Section 1123(b)(6) is a “catchall phrase” that is “tacked on at the end of a long and detailed list of specific directions” in the preceding five paragraphs. “When faced with a catchall phrase like that, courts do not necessarily afford it the broadest possible construction it can bear.” Paragraphs (1)-(5) of § 1123(b) concern the debtor. In context, “the catchall cannot be fairly read to endow a bankruptcy court with the ‘radically different’ power to discharge the debts of a nondebtor without the consent of affected nondebtor claimants.” Id. at *20-21 (applying ejusdem generis canon). Instead of saying “everything not expressly prohibited is permitted,” Congress “set out a detailed list of powers, followed by a catchall that it qualified with the term ‘appropriate.’” Id. at *21.

[D] The nonconsensual releases of the Sacklers were inconsistent with the Code and the basic bargain underlying the Code’s provisions. Section 1123(b)(6) provides that any chapter 11 plan provision must be “not inconsistent with the applicable provisions” of the Code. This requirement of § 1123(b)(6) means that it “cannot bear the interpretation the plan proponents and the dissent would have us give it.” Id. at *25.

First, the Code generally reserves the benefit of a discharge to the debtor, not third parties. Purdue 4, at *25 (citing, inter alia, 11 U.S.C. §§ 524(e) and 1141(d)(1)(A)). Second, to obtain a discharge, the Code “generally requires the debtor to come forward with virtually all its assets (id. at *25-26 (citing, inter alia, 11 U.S.C. §§ 541(a)(1) and 548)), and the discharge does not reach claims for fraud or willful and malicious injury (id. at *26 (citing 11 U.S.C. §§ 523(a)(2), (4), and (6))). Third, for asbestos-related bankruptcy cases, there is “notable exception” to the Code’s general rules. Id. at *26-27 (citing 11 U.S.C. § 524(g)(4)(A)(ii)). That the Code authorizes this exception in only one context “makes it all the more unlikely that § 1123(b)(6) is best read to afford courts that same authority in every context.” Id. at *27 (emphasis in original).

Beneath the “hundreds of interlocking rules” in the Bankruptcy Code, there “lies a simple bargain: A debtor can win a discharge of its debts if it proceeds with honesty and places virtually all its assets on the table for its creditors.” Id. at *8. The “Sacklers have not agreed to place anything approaching their full assets on the table for opioid victims,” yet the Sacklers “seek a judicial order that would extinguish virtually all claims against them for fraud, willful injury, and even wrongful death, all without the consent of those who have brought and seek to bring such claims.” Id. at *26. The argument that the Sacklers seek a “release” instead of a “discharge” consists of “word games.” The “underlying reality” is that “the Sacklers seek greater relief than a bankruptcy discharge normally affords, for they hope to extinguish even claims for wrongful death and fraud, and they seek to do so without putting anything close to all their assets on the table.” Nor do the Sacklers seek a “traditional release, for they hope to have a court extinguish claims of opioid victims without their consent.” Id. at *27.

[E] Policy arguments should be addressed to Congress. “Someday, Congress may choose to add to the [B]ankruptcy [C]ode special rules for opioid-related bankruptcies as it has for asbestos-related cases. Or it may choose not to do so.”   The Court’s only proper task “is to interpret and apply the law as we find it and nothing in the present law authorizes the Sackler discharge.” Id. at *31.   

[F] The majority opinion concludes by stating that the decision is confined to the question presented. The majority opinion states that it does not call into question the validity of consensual releases and does not decide what qualifies as a consensual release. In addition, the majority opinion states that it does not decide the validity of a plan that provides for full satisfaction in return for the release of a third party. Further, the majority opinion states that it does not address whether its reading of the Code “would justify unwinding reorganization plans that have already become effective and been substantially consummated.” Id. at *31-32.

Author’s Comments

[1] The majority opinion in Purdue 4 does not question the validity of consensual releases, and states that “those sorts of releases pose different questions and may rest on different legal grounds than the nonconsensual release at issue here.” Id. at *31-32. Consent should not be found where a party objects. While not citing its precedent from six days earlier, Purdue 4 is consistent with the Court’s decision in Texas v. New Mexico, 603 U.S. __, 219 L. Ed. 2d 539 (June 21, 2024). In Texas v. New Mexico, the two states entered a proposed consent decree to resolve litigation over the apportionment of water in the Rio Grande. The United States had intervened in the case and objected to the proposed settlement because the agreement purported to cut off its rights. The Court held that was impermissible: “[P]arties ‘who choose to resolve litigation through settlement may not dispose of the claims of a third party . . . without that party’s agreement.’” Id., 219 L.Ed. 2d at *548 (quoting Firefighters v. Cleveland, 478 U. S. 501, 529 (1986)); see Purdue 4, at *28 (citing Firefighters).

[2] Purdue 4 explicitly does not decide what qualifies as a consensual release, leaving unresolved the issue of whether an opt-out release in a chapter 11 plan constitutes consent. An opt-out release is a plan provision whereby a creditor is deemed to consent if it fails to opt out. Whether an opt-out release in a chapter 11 plan constitutes valid consent is currently unresolved in the Ninth Circuit. See, e.g., In re Astria Health, 623 B.R. 793, 801 (Bankr. E.D. Wash. 2021) (Holt, J.).

[3] Purdue 4 permits a bankruptcy estate to release creditors’ derivative claims against third parties. A bankruptcy estate may settle derivative claims against third parties “because those claims belong to the debtor’s estate.” Id. at *23. In Purdue 4, there was no dispute that Purdue’s bankruptcy estate was entitled to release creditors’ fraudulent transfer claims against the Sacklers.

[4] Purdue 4 explicitly does not decide the validity of nonconsensual releases in plans that propose full payment of creditors’ claims against third parties. Id. at *32. Confirming a chapter 11 plan that grants nonconsensual releases of creditors’ claims against third parties based on questionable projections of full payment over time is subject to abuse. For example, in non-asbestos cases, to what extent can or should a bankruptcy court estimate the amount of the claims held by mass tort victims under 11 U.S.C. § 502(c) and then extinguish the claims against nondebtors held by such victims based on the projected full payment over multiple years of the estimated amount? In a recent editorial, Professor Melissa Jacoby wrote: “The Boy Scouts of America predicted full compensation for survivors of child sex abuse when it sought approval of its Chapter 11 plan. Yet it was later made clear that survivors almost certainly will not recover at that level. To ensure the trust does not run out of money and shortchange later claimants, initial payouts to Boy Scouts survivors are set at just 1.5 percent of claim values; claimants should collect more later, but no one can say how much more or when.” Melissa B. Jacoby, “The Moral Limits of Bankruptcy Law,” New York Times, June 4, 2024.  

[5] The majority opinion in Purdue 4 does not explicitly address exculpation clauses. A few days after deciding Purdue 4, the Court denied review without explanation of a petition involving an exculpation clause. See Nextpoint Advisors, L.P. et al. v. Highland Capital Management, L.P. et al., Nos. 22-631 and 22-669.

[6] Between November 2019 and September 2021, before permanently enjoining creditors’ third-party claims against the Sacklers, the Bankruptcy Court granted preliminary injunctions that temporarily stayed creditors from pursuing those their claims. Purdue 4 does not question the validity of temporary stays of creditors’ third-party claims. In the Ninth Circuit, the power to stay actions under 11 U.S.C. § 105(a) is governed by the standard that applies to preliminary injunctions. See, e.g., Indivos Corp. v. Excel Innovations, Inc. (In re Excel Innovations, Inc.), 502 F.3d 1086, 1095 (9th Cir. 2007).   

[7] Nonconsensual third-party releases in a chapter 11 plan remain a pitfall for creditors who neglect to protect their rights. Purdue’s plan was stayed pending appeal by the district court, and Purdue 4 does not decide whether the equitable mootness doctrine would have precluded appellate review. Purdue 4 does not change the rule that third-party releases in a confirmed plan are not subject to collateral attack by parties who received adequate notice. See Travelers Indem. Co. v. Bailey, 557 U.S. 137, 152, 155 (2009); In re FFS Data, Inc., 776 F.3d 1299, 1306-09 (11th Cir. 2015); see also United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 269-70 (2010). Additionally, there are times when a chapter 11 plan proposes to extinguish third party claims when the claimants are not even creditors of the debtor. Persons receiving bankruptcy notices must remain diligent in ensuring that their rights are not being affected even if they don’t believe they have claims against the debtor in bankruptcy.   

[8] Why did four Justices dissent? The dueling opinions in Purdue 4 reflect different perspectives on whether the record showed that the settlement with the Sacklers was clearly the best and only viable resolution. After all, the Sacklers offered an additional $1+ billion after the district court vacated the confirmation order. Id. at *29-30. In addition, the majority opinion does not accept the dissent’s view that the Sacklers’ indemnification claims would deplete Purdue’s estate. The majority opinion mentions two arguments made by the UST. First, the 2004 indemnification agreement excepted conduct that a court determined was not in good faith. Second, according to the UST, “bankruptcy courts have a variety of statutory tools at their disposal to disallow or equitably subordinate any potential indemnification claims the Sacklers might pursue.” Purdue 4, at *30 and n. 7 (citing, inter alia, 11 U.S.C. §§ 502(e)(1)(B) and 510(c)(1)). By deciding that the Code did not authorize the releases in Purdue’s plan, the majority avoided having to decide whether non-opt-out third-party releases are constitutionally valid.     

The majority opinion does not agree that the Code should be construed as pursuing at all costs the policy of solving collective-action problems. The majority opinion states: “So, yes, bankruptcy law may serve to address such collective action problems, but no one (save perhaps the dissent) thinks it provides a bankruptcy court with a roving commission to resolve all such problems that happen its way, blind to the role other mechanisms (legislation, class actions, multi-district litigation, [and] consensual settlements, among others) play in addressing them.” Id. at *24. The majority was not receptive to the plan proponents’ “word games,” the Sacklers’ failure to put virtually all their assets on the table for creditors, and the Sacklers’ effort to discharge any liability they allegedly had to Purdue’s creditors on (strongly disputed) claims for fraud and willful misconduct. Id. at *25-28. Most importantly, the majority focused on the text and structure of the Code, including the words of 11 U.S.C. § 1123(b).     

These materials were written by Leonard L. Gumport of Gumport Law Firm, PC in Pasadena ( Editorial contributions were provided the D. Edward Hays of Marshack Hays Wood LLP (

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