HARRINGTON V. PURDUE PHARMA L.P.

The Supreme Court in Harrington v. Purdue Pharma L.P. 603 U.S. 204 (2024) held that the Bankruptcy Code does not authorize non-consensual third-party releases of claims against non-debtors outside the specific situations expressly provided by Congress.

FACTS OF THE CASE

Purdue Pharma, the manufacturer of the prescription opioid OxyContin, faced extensive litigation from states, local governments, hospitals, tribes, and individual victims alleging that its marketing practices contributed to the nationwide opioid epidemic. In 2019, Purdue filed for Chapter 11 bankruptcy protection.

As part of a proposed reorganization plan, members of the Sackler family agreed to contribute billions of dollars to fund opioid-abatement programs and compensate victims. In exchange, the plan granted them broad releases from existing and future civil claims related to Purdue’s opioid activities. These releases applied even to claimants who did not consent to the arrangement.

Numerous creditors and victims supported the plan because it promised substantial funding and avoided years of litigation. However, the United States Trustee and other objectors argued that the Bankruptcy Code did not authorize a bankruptcy court to extinguish claims against non-debtors who had not themselves filed for bankruptcy.

ISSUE BEFORE THE SUPREME COURT

The principal issue before the Supreme Court was whether the Bankruptcy Code authorizes a Chapter 11 reorganization plan to grant non-consensual third-party releases that extinguish claims against non-debtor parties, such as corporate owners, without the consent of affected claimants.

FINDINGS OF THE SUPREME COURT

Justice Gorsuch, writing for the majority, focused on the text and structure of the Bankruptcy Code. The Court observed that bankruptcy ordinarily provides relief only to debtors who submit their assets to the bankruptcy process and accept the obligations imposed by the Code. In exchange, debtors may obtain a discharge of liabilities.

The Court found no general statutory provision authorizing bankruptcy courts to discharge the liabilities of non-debtors who have not themselves filed for bankruptcy. While Congress has expressly authorized limited third-party protections in certain contexts, most notably asbestos cases under Section 524(g), the Court reasoned that these specific provisions indicate that broader authority does not exist absent explicit congressional authorization.

The Court rejected arguments that bankruptcy courts possess equitable powers broad enough to approve such releases. Citing its prior decisions emphasizing adherence to statutory text, the Court concluded that courts may not create remedies that Congress has not authorized.

The majority stressed that the Sacklers sought the benefits of bankruptcy discharge without undertaking the burdens imposed on debtors. Allowing such releases would effectively permit non-debtors to obtain extraordinary protection from liability without complying with the requirements applicable to bankruptcy filers.

The Supreme Court established that Chapter 11 plans generally may not impose non-consensual third-party releases that extinguish claims against non-debtors unless Congress has expressly authorized such relief. Bankruptcy courts lack authority to grant a discharge-like protection to non-debtors merely through a reorganization plan.

SIGNIFICANCE OF THE JUDGMENT

The decision is one of the most important bankruptcy rulings in decades. It substantially limits the ability of companies involved in mass-tort litigation to use Chapter 11 proceedings as a vehicle for obtaining broad liability releases for owners, affiliates, officers, directors, and other non-debtors.

The ruling also reinforces the principle that bankruptcy relief is primarily reserved for debtors who submit themselves to the bankruptcy process. It strengthens the rights of tort claimants by preserving their ability to pursue claims directly against non-debtors unless they voluntarily agree to release those claims.

In addition, the case reflects the Supreme Court’s broader trend of insisting on strict adherence to the text of the Bankruptcy Code and rejecting expansive interpretations of bankruptcy courts’ equitable powers.

_____________________________________

Mukesh Suman is a lawyer and legal author based at Delhi, India. He has extensive experience in insolvency and bankruptcy matters. He also provides legal support services to USA based bankruptcy lawyers. Mukesh can be approached at mukesh_suman@outlook.com or +91 9717864570.