Harrington v. Purdue Pharma L.P.

The Supreme Court ruled 5-4 that the Bankruptcy Code does not allow a court to wipe out legal claims against people who have not filed for bankruptcy themselves. This decision specifically stopped a plan that would have protected the Sackler family, the owners of Purdue Pharma, from future lawsuits related to the opioid crisis. The Court found that because the Sacklers did not put their own assets into the bankruptcy estate, they cannot get the same legal 'discharge' (release from debt) that the company received.

This ruling prevents wealthy individuals from using a company's bankruptcy to permanently shield themselves from personal liability without the consent of the victims. For example, thousands of people who suffered from opioid addiction can now potentially sue the Sacklers directly, but it also puts a $6 billion settlement for victims and states in jeopardy. Other companies facing massive lawsuits for things like defective products may no longer be able to offer 'global settlements' that protect their executives.

For years, bankruptcy courts have used 'third-party releases' to resolve massive legal battles involving thousands of victims. This case highlights a clash between the need for efficient settlements and the right of individuals to have their day in court. It also focuses on whether the Bankruptcy Code, written decades ago, was ever intended to provide such broad protection to people who are not actually bankrupt.

In a 5-4 decision, Justice Gorsuch wrote the majority opinion, joined by Justices Thomas, Alito, Barrett, and Jackson. Justice Kavanaugh wrote a dissent joined by Chief Justice Roberts and Justices Sotomayor and Kagan.

“The Bankruptcy Code does not authorize a release and injunction that... effectively seek to discharge claims against a nondebtor without the consent of affected claimants.”

“The Court’s decision today is wrong on the law and devastating for more than 100,000 opioid victims and their families.”

The Supreme Court blocked a bankruptcy deal that would have protected the Sackler family from opioid-related lawsuits without the consent of the victims.

The case will return to the lower courts to determine if a new reorganization plan can be created without the illegal legal shields. Negotiators must now decide if they can reach a deal that victims agree to or if the Sacklers will face a wave of individual trials. Observers will also watch to see if Congress passes new laws to explicitly allow or ban these types of bankruptcy protections.

The dispute centered on whether a bankruptcy court could force victims to give up their right to sue the Sackler family. The Sacklers offered billions of dollars only if they received total immunity from future opioid lawsuits.

Victims may lose immediate access to settlement money intended for treatment and recovery programs. However, they regain the legal right to sue the Sackler family members personally for their role in the crisis.

The Court used the 'ejusdem generis' rule, meaning general terms in a law should be interpreted like the specific terms before them. Since the law focuses on debtors, it cannot be stretched to cover non-debtors.

The case is remanded (sent back) to the lower courts for further proceedings. Purdue Pharma must now try to find a new way to reorganize that follows the Supreme Court's ruling.

The ruling limits a growing trend where wealthy individuals used corporate bankruptcy as a 'get out of jail free' card. It reinforces the idea that bankruptcy protections require personal financial sacrifice.