Recent Developments in Bankruptcy Litigation 2025

Editor

§ 3.1. Supreme Court

Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024).

In a landmark 5–4 decision, the Supreme Court ruled that non-debtors can no longer use a debtor’s chapter 11 plan to secure for themselves non-consensual third-party releases.

Purdue Pharma is the maker of OxyContin, an opioid pain relief drug. Purdue was owned and controlled by the Sackler family, with members of that family serving as president and chief executive officer, dominating the board, and being heavily involved in the firm’s marketing strategy. In 2007, an affiliate of the company pled guilty to a federal felony for misbranding OxyContin. Thousands of lawsuits ensued. Following the plea agreement, the Sacklers began to take as much as 70% of the company’s revenue per year, with distributions between 2008 and 2016 totaling approximately $11 billion. These distributions left Purdue Pharma in a significantly weakened state.

In 2019, Purdue Pharma sought chapter 11 bankruptcy protection. In connection with this bankruptcy, the Sacklers proposed to return to the estate $4.325 billion of the $11 billion they had withdrawn from the company. This repayment was to be made over the course of a decade. In exchange for this prepayment, the Sacklers sought to end the lawsuits brought against them by opioid victims. This latter relief was termed by the Supreme Court as the “Sackler Discharge.” The Sackler Discharge included both a release and an injunction barring not just current claims, but future ones, whether or not the claimant participated in the bankruptcy proceeding. Purdue, as debtor in possession, agreed to these terms and included them in its proposed plan of reorganization. This plan sought to reorganize the company as a “public benefit” company, dedicated to opioid education and abatement. The plan also proposed payments of between $3,500.00 and $48,000.00 to those harmed by the company’s products.

While most of the creditors who returned ballots supported the plan, fewer than 20% of eligible creditors participated. The United States Trustee, along with eight states, the District of Columbia, the City of Seattle, and various Canadian municipalities and tribes joined with a number of opioid victims in opposing the plan. The bankruptcy court overruled these objections and confirmed the plan, including its provisions relating to the Sackler Discharge. The district court promptly vacated that decision, holding that nothing in the law authorized the bankruptcy court to extinguish claims against the Sacklers without the consent of the victims who brought those claims. The plan proponents and others appealed that decision to the Second Circuit.

While the appeal was pending, the plan proponents advised that the Sacklers were willing to contribute an additional sum if the eight states and the District of Columbia would be willing to withdraw their objections. Even with this additional sum, the Sacklers’ proposed contribution still fell short of the $11 billion amount they received pre-bankruptcy and would still be structured as installment payments. Nonetheless, the states and the District of Columbia agreed to drop their objections. However, a number of …