In the news is the Supreme Court's acceptance of the petition for cert by the United States government in the mass tort chapter 11 case of Purdue Pharma.
The Oxycontin/Purdue Pharma chapter 11 bankruptcy case presents what law professors sometimes call a "tragic choice." You could let a few of the many, many thousands of claimants recover judgments for actual and punitive damages--in large amounts--but later claimants would be SOL, with no assets left there from which to recover. Or (this is the core of the theory of bankruptcy) you could marshall all the assets and provide that each and every claimant receive his, her, or its fair and proportionate share of that pool of assets. As a bankruptcy lawyer, this does not strike me as a tragic choice; the latter has always seemed the rational and superior option to me.
Now to the point of the "releases of liability" that the Sacklers would receive under the Purdue chapter 11 plan, the amount of Purdue's assets alone is insufficient to pay all the claims, but Purdue, on behalf of itself and its creditors, has claims against the Sacklers for, among other things, breaches of fiduciary duties, mismanagement, and fraudulent transfers. The representatives of Purdue as a debtor in bankruptcy could (a) sue the Sackleters on all those claims to recover all the assets the Sacklers took or received or (b) compromise and settle those claims for cash and assets to be received essentially right away or soon. Litigation of those claims would take a long time, and no litigation is ever a slam dunk; plus once a judgment is recovered, then a lot of work and time is required to execute the judgment and actually grab those assets. It is entirely reasonable to me that the representatives of Purdue, in the best interest of all--each and every one--of the claimants, decided to pursue such a settlement. The vast majority of the creditors agreed, the bankruptcy judge agreed, and so did the Second Circuit Court of Appeals. The ONLY party appealing to the Supreme Court is the United States, arguing for "policy reasons" that the Purdue plan, despite its clear benefits to all of the claimants, is not authorized by the Bankruptcy Code. I disagree. (And the Supreme Court hardly ever gets a bankruptcy appeal right--the justices just do not understand this area of the law -- just ask bankruptcy lawyers and the bankruptcy law professors of the nation.)
On July 30, 2021, I published an op-ed in Law360 on this topic. I stand behind it:
