Supreme Court Rejects Attempt to Discharge Claims Against Third Parties Through Bankruptcy Proceedings

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On June 27, 2024, the United States Supreme Court rejected the Chapter 11 reorganization plan previously approved by the bankruptcy court in Harrington v. Purdue Pharma L.P. The reorganization plan of Purdue Pharma, a pharmaceutical company that filed for bankruptcy in the wake of the opioid crisis, provided for the discharge of legal claims against the Sackler family, the owners of Purdue Pharma, without the consent of affected claimants.

In rejecting the plan, the Court found that the U.S. Bankruptcy Code does not provide a legal basis for allowing third parties, like the Sacklers—who have not filed for bankruptcy—to be released from liability through the bankruptcy proceedings of an organization with which they are affiliated. The Court noted:

The Sacklers seek greater relief than a bankruptcy discharge normally affords, for they hope to extinguish even claims for wrongful death and fraud, and they seek to do so without putting anything close to all their assets on the table…Nor is what the Sacklers seek a traditional release, for they hope to have a court extinguish claims of opioid victims without their consent.

It remains to be seen how the Court’s decision may impact a number of bankruptcy proceedings across the country, including the more than two dozen Catholic dioceses that have filed for bankruptcy in recent years.

The United States Conference of Catholic Bishops, which filed an amicus brief in support of the Purdue Pharma reorganization plan, argued that prohibiting the discharge of third parties would result in Catholic organizations being forced into a “destructive” choice: payment of less money to survivors while allowing “piecemeal litigation” to continue against other related entities, or, conversely, the filing of multiple additional bankruptcies by related entities that would otherwise have been discharged through the bankruptcy proceedings of the diocese.

If you have any questions regarding this decision or its impact on your organization, please contact Michael A. Airdo at (312) 506-4480 or mairdo@airdowerwas.com or Sean D. Hurley at (312) 506-4455 or shurley@airdowerwas.com.

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