Supreme Court Hears Challenge to Bankruptcy Releases Shielding Sacklers in Purdue Settlement

The Supreme Court heard argument in Harrington v. Purdue Pharma over whether a Chapter 11 plan may include a nonconsensual release that would bar claims against nondebtors, principally members of the Sackler family, who did not themselves seek bankruptcy protection. The United States Trustee told the Court that such releases "are not authorized by the bankruptcy code," arguing they extinguish property rights that are not part of the bankruptcy estate and raise serious due‑process and Seventh Amendment concerns ("nonconsensual third party releases are not authorized by the bankruptcy code," said Mister Gannon, counsel for the U.S. Trustee). Respondents and creditor representatives said narrowly tailored releases are authorized by the plain text of 11 U.S.C. §1123(b)(6) and by decades of bankruptcy practice and were necessary here to secure a multi‑billion‑dollar settlement for victims.

The core legal dispute focused on the reach of §1123(b)(6), the catchall provision that permits "any other appropriate provision" in a reorganization plan. The United States Trustee argued the provision must be read in context and limited to the debtor–creditor relationship; allowing the proposed injunction would, counsel said, give nondebtors the "functional equivalent of a discharge" without undergoing bankruptcy protections. "It permits the Sacklers to decide how much they're going to contribute," Mister Gannon said, and it "extinguishes personal property rights" held by claimants who are not parties to the Sacklers' alleged transfers.

Respondent counsel countered that the statute's broad language, plus a long history of limited third‑party releases in mass‑tort reorganizations, supports the bankruptcy court's authority to approve a plan that channels claims to a trust and prevents duplicative litigation that would deplete the estate. Counsel argued that, absent the releases, creditors and victims face a "victim‑against‑victim race to the courthouse" that would threaten recovery. As the official committee's counsel summarized during argument: "Without the release, the plan will unravel. Chapter 7 liquidation will follow, and there will be no viable path to any victim recovery" (Mister Shaw, counsel for creditor constituencies).

Justices probed both sides about practical consequences and statutory limits. Several asked whether an opt‑in consent mechanism could solve due‑process concerns, and whether ‘‘appropriate’’ should be read narrowly in light of the Court's major‑questions jurisprudence. The government emphasized that the U.S. Trustee occupies a statutory "watchdog" role under §307, presses statutory inconsistency with provisions such as §524(e) (discharge does not affect liability of others), and said many claimants did not affirmatively consent to be bound. Respondents pointed to findings below that a global settlement—backed by state attorneys general, creditor classes, and multiple victims—was the practical means to secure substantial abatement funding and prompt payments.

The arguments also turned on claim classification. Counsel and the justices debated which claims are "derivative" (property of the estate) and which are "direct" (individual personal‑injury or state consumer claims). Respondents maintained the plan's releases were limited to claims dependent on Purdue's conduct and thus properly channeled; the Trustee disputed that characterization for a subset of direct claims.

Both sides acknowledged the broader policy stakes for mass‑tort bankruptcies. Respondents warned that rejecting nonconsensual third‑party releases could undercut settlements that have been used in other large reorganizations; the government said those policy concerns cannot override statutory limits and constitutional protections. After rebuttal from the U.S. Trustee, the Court announced the case submitted.

The decision will determine whether bankruptcy courts may, in certain cases, approve plan provisions that bar third‑party claims against nondebtors as part of a reorganization and will shape how future mass‑tort settlements are structured.