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Harrington v. Purdue Pharma L.P.

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Supreme Court of the United States
Harrington v. Purdue Pharma L.P.
Term: 2023
Important Dates
Argued: December 4, 2023
Decided: June 27, 2024
Outcome
reversed and remanded
Vote
5-4
Majority
Neil Gorsuch • Clarence Thomas • Samuel Alito • Amy Coney Barrett • Ketanji Brown Jackson
Dissenting
Brett Kavanaugh • Chief Justice John Roberts • Sonia Sotomayor • Elena Kagan

Harrington v. Purdue Pharma L.P. is a case that was decided by the Supreme Court of the United States on June 27, 2024, during the court's October 2023-2024 term. The case was argued before the Supreme Court of the United States on December 4, 2023.

The Court reversed and remanded the decision of the United States Court of Appeals for the Second Circuit in a 5-4 ruling, holding that the U.S. "bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seek to discharge claims against a nondebtor without the consent of affected claimants."[1] Justice Neil Gorsuch delivered the majority opinion of the court. Justice Brett Kavanaugh filed a dissenting opinion, joined by Justices Chief Justice John Roberts, Sonia Sotomayor, and Elena Kagan.[1] Click here for more information about the ruling.


HIGHLIGHTS
  • The issue: The case concerned Chapter 11 of the Bankruptcy Code. Click here to learn more about the case's background.
  • The questions presented: "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."[2]
  • The outcome: In a 5-4 ruling, the Supreme Court of the United States reversed and remanded the decision of the United States Court of Appeals for the Second Circuit.


    • The case came on a writ of certiorari to the United States Court of Appeals for the Second Circuit.[3] To review the lower court's opinion, click here.

    Timeline

    The following timeline details key events in this case:

    • December 4, 2023: The U.S. Supreme Court heard oral arguments.
    • August 10, 2023: The U.S. Supreme Court agreed to hear the case.
    • July 28 2023: U.S. Trustee William K. Harrington filed a petition for a writ of certiorari with the U.S. Supreme Court.
    • July 28 2023: U.S. Trustee William K. Harrington filed an application for a stay of the Second Circuit's mandate pending the filing and disposition of a petition for a writ of certiorari.
    • May 30, 2023: The United States Court of Appeals for the Second Circuit reversed the decision of the United States District Court for the Southern District of New York and affirmed the United States Bankruptcy Court for the Southern District of New York's approval of Purdue's proposed reorganization plan that would include remaking it into a nonprofit that addresses issues caused by the opioid epidemic.
    • June 27, 2024: The Supreme Court of the United States reversed and remanded the decision of the lower court in a 5-4 ruling.

    Background

    In 1996, drug manufacturer Purdue Pharma released Oxycontin, an addictive prescription opioid billed for use as a painkiller. The Sackler Family owns Purdue Pharma. The company pleaded guilty in 2007 and 2020 to federal criminal charges related to the deceptive marketing of the drug. According to the U.S. Court of Appeals for the Second Circuit opinion's factual background, "In 1995, Purdue developed, and the Food and Drug Administration ("FDA") approved, OxyContin, a controlled-release semisynthetic opioid analgesic. At that time, and for years following, Purdue advertised that the time-release formulation prevented OxyContin from posing a threat of abuse or addiction. OxyContin's FDA label reflected a purportedly low risk of addiction. From 1996 to 2001, Purdue aggressively marketed OxyContin to patients and doctors while downplaying growing addiction concerns. Over this time-period, both prescribed and illegal use of OxyContin increased across the country."[3][4][5]

    Purdue Pharma was sued based on the claim that the Sackler Family profited from the opioid epidemic between 1999 and 2019 as a result of the marketing—the family withdrew $11 billion from the company. Purdue Pharma filed for bankruptcy in 2019 in order to shield itself from liability. According to the Second Circuit opinion's factual background, "Three days after the bankruptcy filing, the Debtors sought an injunction halting all other lawsuits (almost 3,000 actions against Purdue and over 400 actions against the Sacklers concerning liability for OxyContin). On October 11, 2019, the bankruptcy court enjoined all litigation. At the time, claims against the Debtors and Sacklers were estimated at more than $40 trillion."[3] Purdue Pharma proposed a company reorganization into a nonprofit focused on solutions to address the epidemic. The Sacklers would pay $4.5 billion toward the reorganization and would no longer be liable for claims against Purdue Pharma.[3][4][5]

    In 2021, the Southern District of New York bankruptcy court confirmed the plan. SCOTUSblog reported, "U.S. Bankruptcy Judge Robert D. Drain called the confirmation a “bitter result,” but said that the settlement was the only way to provide funding for communities to address the problems caused by opioids."[4] U.S. Trustee William K. Harrington—a U.S. Department of Justice appointee tasked with supervising administration of bankruptcy cases—opposed the plan. Later that year, the United States District Court for the Southern District of New York rejected the plan.[3][4][5]

    On appeal in May 2023, a three-judge panel of the United States Court of Appeals for the Second Circuit reversed the district court's ruling and affirmed the bankruptcy court's decision, holding:[3]

    “ We conclude that two sections of the Bankruptcy Code, 11 U.S.C. §§ 105(a), 1123(b)(6), jointly provide the statutory basis for the bankruptcy court's authority to approve a plan that includes nonconsensual releases of third-party claims against non-debtors. In addition, this Court has recognized that in specific circumstances—such as those presented by this appeal—bankruptcy courts are permitted to approve of restructuring plans that include such releases. We accordingly hold that the bankruptcy court's approval of the releases here is permissible both statutorily and under this Court's case law. We further hold that the bankruptcy court's inclusion of the releases is equitable and appropriate under the specific factual circumstances of this case, and we articulate several factors to guide the analysis as to when to allow similar releases in reorganization plans.


    Accordingly, we REVERSE the district court's order holding that the Bankruptcy Code does not permit nonconsensual releases of third-party direct claims against non-debtors, AFFIRM the bankruptcy court's approval of the reorganization plan, and REMAND the case to the district court for such further proceedings as may be required, consistent with this opinion. We also AFFIRM the district court's denial of the Canadian Creditors' cross-appeal.[6]

    		”

    Writing for SCOTUSblog, Amy Howe described the U.S. government's concerns with the bankruptcy plan's approval—"Representing the U.S. Trustee, [U.S. Solicitor General Elizabeth] Prelogar told the justices that the plan provides the Sackler family with a “release from liability that is of exceptional and unprecedented breadth.” If the plan is approved, Prelogar warned, it will create a back door that will allow the “wealthy and powerful” to evade liability for wrongdoing without having to declare bankruptcy themselves. But more broadly, Prelogar cautioned, nothing in the Bankruptcy Code gives bankruptcy courts this kind of “sweeping power.” Moreover, she added, allowing the plan to go forward would “raise serious constitutional questions by extinguishing private property rights” – potential claims against the Sackler family – “without providing an opportunity for the rights holders to opt in or out of the release.”"[4]

    The U.S. government requested the Second Circuit to hold its judgment in the case pending review from the U.S. Supreme Court, and the court rejected the request. In July 2023, the U.S. government petitioned SCOTUS to stay, or put a hold on the Second Circuit's order allowing the bankruptcy plan to proceed as the Court considered the petition for a writ of certiorari to review the legality of the bankruptcy plan.[7] SCOTUS granted the government's request on August 10, 2023.[3][5]

    Questions presented

    The petitioner presented the following questions to the court:[2]

    Questions presented:
    “ 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.[6] ”

    Oral argument

    On December 4, 2023, the U.S. Supreme Court heard arguments in the case.

    Audio

    Audio of oral argument:[8]




    Transcript

    Transcript of oral argument:[9]

    Outcome

    In a 5-4 opinion, the court reversed and remanded the judgment of the United States Court of Appeals for the Second Circuit, holding that the U.S. "bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seek to discharge claims against a nondebtor without the consent of affected claimants."[1] Justice Gorsuch delivered the opinion of the court.[1]

    Opinion

    In the court's majority opinion, Justice Neil Gorsuch wrote:[1]

    “

    As important as the question we decide today are ones we do not. Nothing in what we have said should be construed to call into question consensual third-party releases offered in connection with a bankruptcy reorganization plan; those sorts of releases pose different questions and may rest on different legal grounds than the nonconsensual release at issue here... Nor do we have occasion today to express a view on what qualifies as a consensual release or pass upon a plan that provides for the full satisfaction of claims against a third-party nondebtor. Additionally, because this case involves only a stayed reorganization plan, we do not address whether our reading of the bankruptcy code would justify unwinding reorganization plans that have already become effective and been substantially consummated. Confining ourselves to the question presented, we hold only 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. Because the Second Circuit ruled otherwise, its judgment is reversed and the case is remanded for further proceedings consistent with this opinion. [6]

    		”
    —Justice Neil Gorsuch

    Dissenting opinion

    Justice Brett Kavanaugh filed a dissenting opinion, joined by Justices Chief Justice John Roberts, Sonia Sotomayor, and Elena Kagan.

    In his dissent, Justice Kavanaugh wrote:[1]

    “

    Today’s decision is wrong on the law and devastating for more than 100,000 opioid victims and their families. The Court’s decision rewrites the text of the U. S. Bankruptcy Code and restricts the long-established authority of bankruptcy courts to fashion fair and equitable relief for mass-tort victims. 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 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...

    In short: 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 opioid victims and their families are deprived of their hard-won relief. And the communities devastated by the opioid crisis are deprived of the funding needed to help prevent and treat opioid addiction. As a result of the Court’s decision, 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 as the Bankruptcy Court explained, 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. I respectfully but emphatically dissent.

    [6]

    		”
    —Justice Brett Kavanaugh

    Text of the opinion

    Read the full opinion here.

    October term 2023-2024

    See also: Supreme Court cases, October term 2023-2024

    The Supreme Court began hearing cases for the term on October 2, 2023. The court's yearly term begins on the first Monday in October and lasts until the first Monday in October the following year. The court generally releases the majority of its decisions in mid-June.[10]


    See also

    External links

    Footnotes

    1. ↑ 1.0 1.1 1.2 1.3 1.4 1.5 Supreme Court of the United States, HARRINGTON, UNITED STATES TRUSTEE, REGION 2 v. PURDUE PHARMA L. P, decided June 27, 2024
    2. ↑ 2.0 2.1 U.S. Supreme Court, "23-124 HARRINGTON V. PURDUE PHARMA, L.P.: QUESTION PRESENTED," accessed August 17, 2024
    3. ↑ 3.0 3.1 3.2 3.3 3.4 3.5 3.6 U.S. Court of Appeals for the Second Circuit, Purdue Pharma. v. The City of Grande Prairie (In re Purdue Pharma.), decided May 30, 2023
    4. ↑ 4.0 4.1 4.2 4.3 4.4 SCOTUSblog, "Justices put Purdue Pharma bankruptcy plan on hold," August 10, 2023
    5. ↑ 5.0 5.1 5.2 5.3 SCOTUSblog, "Court conflicted over Purdue Pharma bankruptcy plan that shields Sacklers from liability," December 4, 2023
    6. ↑ 6.0 6.1 6.2 6.3 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
    7. ↑ U.S. Supreme Court, "Harrington v. Purdue Pharma L.P. APPLICATION FOR A STAY OF THE MANDATE OF THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT PENDING THE FILING AND DISPOSITION OF A PETITION FOR A WRIT OF CERTIORARI," filed July 2023
    8. ↑ Supreme Court of the United States, "Oral Argument - Audio," argued December 4, 2023
    9. ↑ Supreme Court of the United States, "Oral Argument - Transcript," argued December 4, 2023
    10. ↑ SupremeCourt.gov, "The Supreme Court at Work: The Term and Caseload," accessed January 24, 2022
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