Supreme Court hears arguments on Purdue Pharma bankruptcy and Sackler family liability

The Supreme Court of the United States convened on December 4, 2023, to deliberate on the case of Harrington v. Purdue Pharma L.P., focusing on the contentious issue of third-party releases in bankruptcy proceedings. The discussions highlighted the complexities surrounding the legal interpretations of bankruptcy provisions and the implications for victims of the opioid crisis.

The session began with a presentation from counsel representing Purdue Pharma, who argued that the legal framework allows for third-party releases under specific conditions. They emphasized that the language in Section 1123(b)(6) of the Bankruptcy Code permits such releases as long as they are deemed "appropriate" and not inconsistent with applicable provisions. The counsel contended that the government had not identified any specific provisions that would conflict with the proposed third-party releases, asserting that the releases were necessary to facilitate compensation for victims.

Justice Ketanji Brown Jackson raised concerns regarding the potential consequences of allowing these releases, particularly in circuits that do not permit non-consensual third-party releases. She questioned whether such a ruling could hinder the settlement of mass tort cases, suggesting that it might lead to a scenario where victims receive no compensation if the bankruptcy efforts fail. The counsel responded by referencing historical cases where third-party releases were essential for achieving settlements in mass tort bankruptcies, arguing that without these provisions, meaningful recovery for victims would be unattainable.

The dialogue continued with Justice Sonia Sotomayor and Justice Jackson probing the implications of the Sackler family's financial situation, noting that if claims against them were pursued outside of bankruptcy, it could result in a "race to the courthouse" where individual claimants might deplete available assets, leaving nothing for others. The counsel reiterated that the structured agreement within the bankruptcy context was crucial for ensuring equitable distribution among victims.

In rebuttal, opposing counsel highlighted the plight of individual claimants, including a mother who lost her son to an overdose, arguing that the current framework unjustly releases claims without adequate compensation. They stressed the importance of distinguishing between direct and derivative claims, asserting that personal injury claims should not be subsumed under corporate bankruptcy protections.

The session concluded with a focus on the necessity of a balanced approach that considers both the legal framework of bankruptcy and the rights of victims seeking justice. The justices expressed a range of views on the implications of the case, indicating that the decision could have far-reaching effects on future bankruptcy proceedings and the treatment of mass tort claims. The court's ruling is anticipated to clarify the boundaries of third-party releases and their role in facilitating settlements in complex bankruptcy cases.