Purdue Pharma: An Analysis of the Supreme Court Decision Barring Third-Party Releases

7 Min Read By: Dylan Trache

A sharply divided Supreme Court in Harrington v. Purdue Pharma L.P. has barred the issuance of nonconsensual third-party releases in Chapter 11 bankruptcy plans.[1] In a 5–4 decision, the 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.”

Purdue Pharma L.P. (“Purdue” or the “company”) was a manufacturer of the opioid OxyContin. Purdue was a “family company” owned and controlled by the Sacklers. Sales of OxyContin soared as it became the most prescribed brand-name narcotic medication. However, Purdue ultimately became a defendant in thousands of lawsuits claiming injuries resulting from deceptive marking practices. During this time period, the Sacklers received distributions from the company of approximately $11 billion, about $4.6 billion of which was designated to pay taxes.

Faced with mounting liabilities related to litigation claims, Purdue filed for relief under Chapter 11 of the United States Bankruptcy Code. It proposed a Chapter 11 plan that included payment by the Sacklers in the amount of $4.325 billion in return for a release of any and all claims of the debtors and from third parties. Specifically, the Sacklers sought to end the growing number of lawsuits brought against them by claimants with damages resulting from the company’s products (particularly OxyContin), referred to in the Supreme Court opinion as “opioid victims.” The proposed plan would have provided recoveries for the individuals harmed by the company’s products ranging from $3,500 to $48,000, depending upon the severity of the injuries.

The United States Trustee opposed the plan, as did certain government entities. The bankruptcy court overruled these objections and confirmed the plan.[2] On appeal, the district court vacated confirmation. It held that the bankruptcy code did not allow the release of third-party claims without consent of the claimants. Thereafter, the plan proponents (i) appealed the decision to the Second Circuit; and (ii) increased the proposed Sackler payment in exchange for the withdrawal of certain objections. While the additional payment was sufficient to cause certain states to withdraw their objections, the U.S. Trustee, Canadian creditors, and other individuals continued their opposition to the plan.

A divided panel of the Second Circuit reversed the district court and approved the plan as modified by the additional proposed payment.[3] The U.S. Trustee sought a stay of confirmation, which was granted by the Supreme Court and treated as a petition for writ of certiorari to address the issue of whether the bankruptcy code authorized nonconsensual releases of third-party claims.

Writing for the majority, Justice Gorsuch focused the Purdue opinion on Section 1123(b) of the bankruptcy code, which addresses permissible components of a Chapter 11 plan. Among these provisions, the only one that could allow for third-party releases was Section 1123(b)(6), which authorizes a plan to “include any other appropriate provision not inconsistent with the applicable provisions of this title.” Gorsuch first rejected the argument that paragraph 6 authorizes any provision not expressly prohibited as long as the judge deems it appropriate. Rather, the Court interpreted this catch-all paragraph in light of its surrounding context so as to “‘embrace only objects similar in nature’ to the specific examples preceding it.”[4] Finding that all the preceding provisions concern the debtor and its relationship with creditors, the Court concluded that the paragraph “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.”[5] In doing so, the Court noted that the text could have permitted anything not expressly prohibited, but it does not.

It next addressed the purpose of bankruptcy plans. While acknowledging that bankruptcy law serves to address some collective-action problems, it rejected the argument that this would allow a bankruptcy court to resolve all such problems to extinguish claims of third parties without their consent. The Court then looked at other provisions of the bankruptcy code, including the discharge, that applies only to debtors, and found no other provision of the code that would allow for the third-party releases. Finally, the Court looked to the history of bankruptcy law and concluded that such history provided no support for third-party releases.

The Court declined to address the policy and ramifications of unwinding the plan, including the possibilities that the opioid victims in this case may have no viable path to recovery anytime soon. However, according to the Court, Congress is the appropriate forum to address those concerns.

In his dissent, Justice Kavanaugh (joined by Chief Justice Roberts, Justice Sotomayor, and Justice Kagan) focused on the practical ramifications of the decision, stating that it “makes little legal, practical, or economic sense” to find such releases categorically outside the ambit of an “appropriate” Chapter 11 plan.[6] The dissent focused on the history of utilizing the bankruptcy process to solve collective-action problems in mass tort cases and similar situations. It criticizes the majority for “jettison[ing] a carefully circumscribed and critically important tool that bankruptcy courts have long used and continue to need to handle mass-tort bankruptcies going forward.”[7]

The decision is framed as narrow and addresses only nonconsensual third-party releases. The Court expressly does not address or call into question consensual third-party releases or what would qualify as consent to a third-party release under a plan. It also does not address the impact this decision will have on plans that include such releases that have already been substantially consummated. The Court held “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.”[8]

While it is clear that nonconsensual third-party releases are not permissible, how the Purdue decision impacts consensual third-party releases is less clear. Consensual third-party releases are presumed to be valid. But exactly what constitutes “consent” is far from apparent. Some courts have concluded that a creditor that votes in favor of a plan has consented to a release. Other courts have held that even where a creditor does not vote in favor of the plan (either by voting “no” or by failing to return the ballot) but fails to affirmatively opt out of the release, they may be deemed to have consented to such release. The area of consensual releases is likely to continue to divide courts post-Purdue.

The Purdue decision also did not address exculpation provisions that are often included in bankruptcy plans. These provisions are generally more limited and protect professionals, committee members, and employees who were involved in the bankruptcy case. While exculpation provisions may be distinguishable on some bases, the rationale of Purdue may call those provisions into question and result in future litigation.

In addition, the Supreme Court was clear that the Purdue decision did not address plans that were confirmed long ago that include nonconsensual third-party releases. It seems that such releases are likely to be enforceable under principles of res judicata. However, some parties may seek relief from nonconsensual third-party releases, particularly in fairly recent plans.

Moreover, the Purdue decision is likely to influence motions or complaints seeking to extend the automatic stay to third parties. Chapter 11 debtors sometimes seek to extend the automatic stay to their officers and directors in order to allow them to focus on reorganizing the company. Recently, the United States Bankruptcy Court for the Northern District of Illinois granted a motion to enjoin creditors from pursuing a debtor’s officers but noted that such an injunction can no longer be premised on the likelihood of a third-party release under a confirmed plan.[9]

Finally, the reasoning of the Purdue decision is likely to influence courts as they make rulings under other provisions of the Bankruptcy Code that include broad language. For example, the Third Circuit recently cited Purdue in a decision regarding what constitutes “other cause” under Section 350(b) of the bankruptcy code, noting Purdue’s statement that “pre-code practice may sometimes inform our interpretation of the code’s more ‘ambiguous’ provisions.”[10]


  1. Harrington v. Purdue Pharma L.P., 603 U.S. ___ (2024).

  2. In re Purdue Pharma, 635 B.R. 26 (S.D.N.Y. 2021).

  3. In re Purdue Pharma LP, 69 F. 4th 45 (2nd Cir. May 30, 2023).

  4. Harrington v. Purdue Pharma L.P., 603 U.S. at 2.

  5. Id.

  6. Harrington v. Purdue Pharma L.P., 603 U.S. (Kavanaugh, J., dissenting) at 3.

  7. Id. at 54.

  8. Harrington v. Purdue Pharma L.P., 603 U.S. at 4, 19.

  9. See In re Coast to Coast Leasing, LLC, 2024 WL 3454805 (Bankr. N.D. Ill. July 17, 2024).

  10. In re Congoleum Corp., 2024 WL 3684376 (3rd Cir. August 1, 2024).

By: Dylan Trache

Connect with a global network of over 30,000 business law professionals

18264

Login or Registration Required

You need to be logged in to complete that action.

Register/Login