From cancer-causing talc in baby powder to defective ear plugs sold to the military, to sexual assault in the Catholic Church, bankruptcy courts are increasingly becoming the default venue for mass torts.  Scholars have sharply debated whether bankruptcy courts are the right venue to decide questions of accountability, to apportion blame, and to set compensation for victims of large-scale corporate wrongdoing.  On the one hand are traditional litigation values—discovery of information, accountability, assignment of blameworthiness.  On the other side are what might be called bankruptcy values—efficiency, finality, a fresh start for the debtor.  And, importantly in mass tort, bankruptcy values are likely to provide a quick recovery for the victims.  

Against this background comes Harrington v. Purdue Pharma, which the Supreme Court decided yesterday, where the Court revealed itself to be just as fractured as the legal academy.  In a 5-4 decision, the Court invalidated non-consensual third-party releases that would have protected the Sackler family from any future liability for the opioid crisis.  This result, though a slim victory for the provision’s challengers, suggests there may be moral limits on the application of bankruptcy values.  

The Sackler family’s company, Purdue Pharma, created a drug that fueled an epidemic that killed hundreds of thousands of Americans.  Because of the wild success of that drug, spurned by Purdue’s flamboyant and illegal marketing practices, the family became stupendously wealthy.  Before long Purdue was at risk of being consumed by a flood of litigation over the harm it had done.  The company would eventually file for bankruptcy, but not before the Sackler family was able to “milk” the company—withdrawing billions of dollars before the filing.

Bankruptcy requires that a debtor essentially empty its pockets and put all its assets on the table—this becomes the bankruptcy “estate.”  The debtor and its creditors then come up with a plan, to be approved by the court, for how that estate will be distributed.  Bankruptcy courts have broad equitable powers to govern the process and the relief provided in a bankruptcy case, subject to the restrictions of the bankruptcy code.  Once the plan is approved by the court, the debtor receives a “fresh start” in the form of a discharge of all liability for pre-bankruptcy claims, except as dictated by the approved plan.  Generally, the discharge is given only to a debtor. 

In Purdue, the role of the Sackler family was somewhat complicated.  The family had profited handsomely off the company’s misdeeds, some as officers and directors of the company and the rest simply as beneficiaries of its financial success.  They extracted billions even after the true toll of opioids had been revealed.  And yet, the family was not the party in bankruptcy.  They were not required to make the whole of their assets available to creditors.  Instead, the Sacklers settled with Purdue’s estate, agreeing to contribute to approximately $6 billion to the estate to be distributed to creditors.  It was a devil’s bargain.  In exchange, the Sacklers asked that the bankruptcy plan in the Purdue case provide them blanket releases permanently and forever barring them from being subject to any civil action for any opioid related claim, including claims for fraud or wrongful death.  The releases would—in essence, bar suits against the Sacklers without getting the consent of all of those who might sue.  Over the objections of the U.S. Trustee and a number of opioid-harmed tort creditors, the bankruptcy court confirmed the plan.  The Second Circuit affirmed.  And the Supreme Court took up the U.S. Trustee’s challenge to the plan.  

In a sharply divided opinion, the Court invalidated the Sackler releases, seemingly on pure textualist grounds.  These issues that do not fall neatly along ideological lines, resulting in some strange bedfellows.  Justice Gorsuch (joined by Thomas, Alito, Barrett, and Jackson) invoked the canon of ejusdem generis in finding that the section of the bankruptcy code that lists the provisions required for or allowed in a bankruptcy plan could not have contemplated broad releases involving non-debtors and non-parties in allowing for “any other appropriate provision not inconsistent with the applicable provisions of this title.”  But this narrow textualism followed a scathing description of the harm the Sacklers caused and the enormity of their greed and blameworthiness.  That the Sacklers were scoundrels hardly provides a justification for the application of a particular canon of textual interpretation, but the inclusion of those facts in the opinion does suggest that the Court may have seen some deep injustice in letting the family pay out a small fraction of their ill-gotten gains and to ride off into the sunset scot-free.  

In dissent, Justice Kavanaugh (joined by Roberts, Sotomayor, and Kagan) found fault with rejecting a bird in the hand. Purdue’s bankruptcy plan provided for modest, but not insubstantial, recoveries for individual opioid claimants, state and local governments, and others harmed by Purdue’s actions.  The dissent pointed to the “history of bankruptcy practice” in approving and allowing releases like the one at issue in Purdue.  To the dissent, the kinds of releases granted to the Sacklers were essential to the success of the Purdue deal, and to the success of mass tort bankruptcy more broadly.  Imperfect as they may be, they are essential to getting a deal done. 

As the dissent recognized, non-consensual, third-party releases like the one at issue in the Purdue case are not unheard-of, though until today were always somewhat legally dubious.  In many cases, though, they involve corporate debtors pitted against moneyed commercial actors such as hedge fund buyers of distressed debt.  Purdue—a case with a clear victim and a clear villain—may have forced the Court’s hand because of the extraordinary moral stakes.  The clause on which the plan proponents’ argument relied invoked the bankruptcy court’s equitable power, but it strains the definition of equity to imagine it as serving the interest of wealth preservation for a family like the Sacklers.  

The Purdue decision shows that there are moral limits to these bankruptcy values (efficiency, finality, a fresh start), even in bankruptcy court.  Rightly or wrongly, bankruptcy courts will have an important role in determining how corporations pay for the harms they inflict on society.  Purdue suggests that decisions made under the bankruptcy court’s broad equitable power may be limited—perhaps up to the point where the application of the bankruptcy court’s values shock the conscience. 

Elise Bernlohr Maizel is an Assistant Professor at Michigan State University College of Law.

[6/29/2024 Editor’s Note: Shortly after publication, a public relations representative for members of the Sackler family reached out to the author and requested the change in two factual assertions. The author does not believe the changes are necessary, but agrees that the changes have no meaningful effect on the substance of the post. Accordingly, the following changes have been made: (1) “a drug that led to an epidemic” has been changed to “a drug that fueled an epidemic”; (2) “withdrawing approximately $11 billion before the filing” has been changed to “withdrawing billions of dollars before the filing.”]