U.S. Supreme Court Removes Nonconsensual Releases From The Bankruptcy Plan Quiver

On June 27, the U.S. Supreme Court announced a 5-4 decision rejecting the nonconsensual releases of the Sackler family in the Purdue Pharma bankruptcy case.  The split is an interesting alignment of Justices: Gorsuch writing the majority opinion, joined by Thomas, Alito, Barrett and Jackson; Kavanaugh for the dissent, joined by Roberts, Sotomayor and Kagan.  

The majority opinion notes several times that the Sacklers – who withdrew $11 billion from the company between 2008 and 2016 – “have not placed virtually all of their assets on the table for distribution to creditors, yet they seek what essentially amounts to a discharge.”  This does not necessarily mean the Court would have ruled otherwise had the plan contribution offered by the Sacklers approached the $11 billion figure, rather, it could reflect the Justices’ view that a larger sum would have led to consensual third party releases, a concept the Court does not take issue with. 

The ruling today resolves one significant bankruptcy Circuit split, but expressly avoids another: equitable mootness.  The opinion notes, “we do not address whether our reading of the bankruptcy code would justify unwinding reorganization plans that have already become effective and been substantially consummated.”