{"id":3893,"date":"2024-05-09T10:53:31","date_gmt":"2024-05-09T14:53:31","guid":{"rendered":"https:\/\/www2.law.temple.edu\/10q\/?p=3893"},"modified":"2024-05-09T10:53:31","modified_gmt":"2024-05-09T14:53:31","slug":"3893-2","status":"publish","type":"post","link":"https:\/\/law.temple.edu\/10q\/3893-2\/","title":{"rendered":"Purdue Pharma and the Sacklers: Unraveling Bankruptcy&#8217;s Third-Party Release Debate"},"content":{"rendered":"<p>May 9, 2024<\/p>\n<p>Nonconsensual third-party releases have been at the forefront of bankruptcy debates for decades, growing in popularity as mass tort bankruptcies have become more frequent. The permissibility of nonconsensual third-party releases is at the core of the <em>In re Purdue Pharma L.P<\/em>. chapter 11 reorganization, the subject of a pending appeal before the U.S. Supreme Court.<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn1\"><sup>[1]<\/sup><\/a> Given the hotly contested nature of the releases in Purdue Pharma\u2019s plan of reorganization, and the varying standards across the circuits, the U.S. Supreme Court granted certiorari on August 10, 2023.<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn2\"><sup>[2]<\/sup><\/a><\/p>\n<p>There is arguably no bigger gap in the Bankruptcy Code than the lack of express guidance on nonconsensual third-party releases. The U.S. circuit courts are split on the permissibility of such releases and offer varying interpretations of the Bankruptcy Code to justify their positions. A few circuits interpret \u00a7 524(e) literally and hold that discharge is strictly limited to the debtor.<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn3\"><sup>[3]<\/sup><\/a> Other circuits rely on the equitable powers conferred upon bankruptcy courts under \u00a7 105(a) to grant any \u2018necessary or appropriate\u2019 order to carry out the provisions of the Bankruptcy Code\u2014nonconsensual third-party releases are accordingly permissible per the bankruptcy court\u2019s discretion.<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn4\"><sup>[4]<\/sup><\/a><\/p>\n<p>Where statutory gaps and ambiguity exist in the Code, the Supreme Court has instructed courts and practitioners to rely on pre-Code guidance.<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn5\"><sup>[5]<\/sup><\/a> The precursor to \u00a7 105(a) is \u00a7 2a(15) of the 1898 Act; \u00a7 105(a) contains analogous language and functionally grants bankruptcy courts the same equitable discretion that \u00a7 2a(15) did.<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn6\"><sup>[6]<\/sup><\/a> One of the seminal cases discussing the authority conferred upon bankruptcy courts through \u00a7 2a(15) is <em>Continental Illinois Nat. Bank v. Chicago, Rock Island &amp; Pacific Railway Co<\/em>.<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn7\"><sup>[7]<\/sup><\/a> This case has been cited as support for the assertion that bankruptcy courts are courts of equity and are thus authorized to grant nonconsensual third-party releases where they deem such releases necessary to the reorganization.<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn8\"><sup>[8]<\/sup><\/a> <em>Continental Illinois\u2019 <\/em>instruction does not reach that far. While it is true that <em>Continental Illinois <\/em>established bankruptcy courts as courts of equity,<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn9\"><sup>[9]<\/sup><\/a> <em>Continental Illinois <\/em>does not stand for the presumption that this equitable power can be imposed outside of the scope of the debtor\u2019s reorganization. On the contrary, <em>Continental Illinois <\/em>specifically states that the extent of this equitable authority is limited to making orders as necessary to enforce the Act and enable a reorganization.\u201d<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn10\"><sup>[10]<\/sup><\/a> Other pre-Code cases have also echoed this principle<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn11\"><sup>[11]<\/sup><\/a>\u2014alteration of a non-debtor\u2019s liability is not necessary to a debtor\u2019s reorganization;<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn12\"><sup>[12]<\/sup><\/a> alteration of a non-debtor\u2019s liability does not interfere with the debtor\u2019s assets;<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn13\"><sup>[13]<\/sup><\/a> \u00a7 2a(15) could not be used to grant relief to non-debtors who had not subjected themselves to the bankruptcy process; consequently neither can \u00a7 105(a).<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn14\"><sup>[14]<\/sup><\/a> Pre-Code case law simply did not contemplate the concept of third-party releases and does not provide support for them.<\/p>\n<p>Congress did not contemplate the release of non-debtor third-parties when it wrote the Code\u2014using \u00a7 105(a) to read this substantive right into the Code would be contrary to the purpose of Chapter 11 as Congress envisioned it.<a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftn15\"><sup>[15]<\/sup><\/a> Consequently, the Supreme Court should find that nonconsensual third-party releases are an impermissible abuse of the Bankruptcy Code.<\/p>\n<p><em>&nbsp;<\/em><\/p>\n<p><em>Jasnoor Hundal is a 3L at Temple University Beasley School of Law. You can read her full article for Temple Law Review <\/em><a href=\"https:\/\/www.templelawreview.org\/will-the-supreme-court-grant-the-sackler-family-a-discharge-of-their-debt-through-purdue-pharma-l-p-s-bankruptcys-plan\/\"><em>here<\/em><\/a><em>.<\/em><\/p>\n<p>&nbsp;<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref1\"><sup>[1]<\/sup><\/a> Jonathan C. Lipson, <em>The Rule of the Deal: Bankruptcy Bargains and Other Misnomers<\/em>, 97 AM. BANKR. L.J. 41 (2023); 633 B.R. 53 (Bankr. S.D.N.Y. 2021), <em>vacated<\/em>, 635 B.R. 26 (S.D.N.Y. 2021), <em>rev\u2019d in part sub nom<\/em>, Purdue Pharma, L.P. v. City of Grande Prairie, 69 F.4th 45 (2d Cir. 2023), <em>cert. granted sub nom<\/em>, Harrington v. Purdue Pharma, L.P., No. 23-124, 2023 WL 5116031 (Aug. 10, 2023).<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref2\"><sup>[2]<\/sup><\/a> Harrington v. Purdue Pharma L.P., No. 23-124, 2023 WL 5116031 (Aug. 10, 2023).<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref3\"><sup>[3]<\/sup><\/a> Feld v. Zale Corp., 62 F.3d 746, 760 (5th Cir. 1995); <em>In re<\/em> W. Real Est. Fund, 922 F.2d 592, 602 (10th Cir. 1990).<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref4\"><sup>[4]<\/sup><\/a> 11 U.S.C. \u00a7 105(a).; Airadigm Commc\u2019ns Inc. v. FCC, 519 F.3d 640, 657 (7th Cir. 2008).<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref5\"><sup>[5]<\/sup><\/a> Kelly v Robinson, 479 U.S. 36 (1986); Pa. Dept. of Pub. Welfare v. Davenport, 495 U.S. 552 (1990).<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref6\"><sup>[6]<\/sup><\/a> Adam J. Levitin, Toward a Federal Common Law of Bankruptcy: Judicial Lawmaking in a Statutory Regime, 80 Am. Bankr. L.J. 1, 32 (2006); 1 Collier on Bankruptcy \u00a7 2(15),&nbsp; at 327\u201339 (14th ed. 1976); 11 U.S.C. \u00a7 105(a).<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref7\"><sup>[7]<\/sup><\/a> 294 U.S. 648 (1935).<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref8\"><sup>[8]<\/sup><\/a> <em>See<\/em> <em>In re <\/em>Johns-Manville Corp., 68 B.R. 618, 625 (Bankr. S.D.N.Y. 1986).<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref9\"><sup>[9]<\/sup><\/a> <em>See Cont\u2019l Ill. Nat\u2019l Bank<\/em> , 294 U.S. at 676.<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref10\"><sup>[10]<\/sup><\/a> <em>Id.<\/em><\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref11\"><sup>[11]<\/sup><\/a> <em>See generally<\/em> <em>In re <\/em>Nine N. Church St., 82 F.2d 186 (2d Cir. 1936); <em>In re<\/em> Diversey Bldg. Corp., 86 F.2d 456 (7th Cir. 1936).<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref12\"><sup>[12]<\/sup><\/a> <em>In re<\/em> Nine N. Church St., 82 F.2d at 188; <em>In re<\/em> Diversey Bldg. Corp., 86 F.2d at 458.<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref13\"><sup>[13]<\/sup><\/a> <em>In re<\/em> Diversey Bldg. Corp., 86 F.2d at 457; <em>In re<\/em> Nine N. Church St., 82 F.2d at189.<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref14\"><sup>[14]<\/sup><\/a> <em>In re<\/em> Diversey Bldg. Corp., 86 F.2d at 458; <em>see also In re<\/em> Nine N. Church St., 82 F.2d at 188 (holding that bankruptcy courts are exceeding the limits of their equitable power when they alter a non-debtor\u2019s liability through the use of bankruptcy tools and at the detriment of objecting creditors)<\/p>\n<p><a href=\"https:\/\/word-edit.officeapps.live.com\/we\/wordeditorframe.aspx?WOPISrc=https:\/\/wopi.dropbox.com\/wopi\/files\/oid_361413975664558592&amp;new=1&amp;ui=en-us#_ftnref15\"><sup>[15]<\/sup><\/a> <em>In re<\/em> Purdue Pharma, L.P. 635 B.R. 26, 98 (Bankr. S.D.N.Y. 2021) (explaining that Section 105(a) does not allow the bankruptcy court \u201cto create substantive rights that are otherwise unavailable under applicable law\u201d(quoting Deutsche Bank AG v. Metromedia Fiber Network, Inc., 416 F.3d 136, 142 (2d Cir. 2005))), <em>rev\u2019d in part sub nom<\/em>, Purdue Pharma, L.P. v. City of Grande Prairie, 69 F.4th 45 (2d Cir. 2023), <em>cert. granted sub nom<\/em>, Harrington v. Purdue Pharma, L.P., 216 L. Ed. 2d 1300 (2023).<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>May 9, 2024<br \/>\nJasnoor Hundal, a third-year law student at Temple Law, examines the Purdue Pharma bankruptcy and its pending Supreme Court appeal, exploring the discrepancies among circuit courts and the absence of clear statutory guidance concerning nonconsensual third-party releases. <\/p>\n","protected":false},"author":33,"featured_media":3894,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[47,17],"tags":[2813,77,337,2814,1473,2815,221],"coauthors":[2812],"class_list":["post-3893","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-bankruptcy","category-student-authored","tag-appeal","tag-bankruptcy","tag-chapter-11","tag-nonconsent","tag-purdue-pharma","tag-third-party-releases","tag-u-s-supreme-court","masonry-post","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.2 - 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