In re: Purdue Pharma L.P.

Case Type:
Case Status:
Reversed and Remanded
NOS. 22-110-bk (L), 22-113-bk, 22-115-bk, 22-116-bk, 22-117-bk, 22-119-bk, 10 22-121-bk, 22-299-bk, 22-203-bk (2nd Circuit, May 30,2023) Published
The U.S. Court of Appeals for the Second Circuit held that 11 U.S.C.§§ 105(a) and 1123(b)(6), and prior Second Circuit authority, permit Purdue Pharma L.P. and related entities to include non-consensual third-party claim releases of direct claims against non-debtors in their chapter 11 plan under the circumstances presented. The circuit court reversed the district court's contrary decision and affirmed the bankruptcy court's order confirming the plan. The Second Circuit also upheld lower court rulings rejecting certain Canadian creditors' arguments about their plan treatment.
Procedural context:
The U.S. District Court for the Southern District of New York vacated the bankruptcy court's order confirming the Purdue plan, concluding the bankruptcy court lacked express or implied statutory authority under the Bankruptcy Code to approve non-consensual releases of direct third-party claims against non-debtors. The district court also held the bankruptcy court lacked residual equitable authority to approve the releases, and that the bankruptcy court did not obtain authority to approve such releases because the plan required the releases for confirmation. The district court further found that existing Second Circuit authority did not contradict its conclusions. As to the Canadian creditors' plan objection regarding the classification of their claims, the district court held the Bankruptcy Code requires only a reasonable basis to differentiate between claims for class treatment and the Purdue plan properly and reasonably classified the Canadian creditors' claims differently than the claims of domestic claimants.
Purdue Pharma L.P. marketed and sold OxyContin, which "has been blamed for significantly contributing to one of the largest public health crises in this nation’s history: the opioid epidemic." Purdue and members of the Sackler family, which owned Purdue, faced mass tort litigation relating to the effects of OxyContin. "To settle the mass of civil claims, the parties, including Purdue and the Sacklers, agreed that in exchange for Purdue filing for bankruptcy, the Sacklers would personally contribute billions of dollars to the bankruptcy if all civil claims against them were released." Thus, Purdue and related entities filed chapter 11 bankruptcy petitions in the U.S. Bankruptcy Court for the Southern District of New York, and the Sackler family did not. After significant activity in the bankruptcy court, the court ultimately approved Purdue's proposed plan of reorganization with a non-consensual third-party "release of claims against the Sacklers . . . that directly affected the Debtors’ estate and for which Purdue’s conduct was a legal cause, or a legally relevant factor, of any released cause of action against the Sacklers. In exchange, the Sacklers agreed to contribute a total $5.5-6.0 billion to the bankruptcy." In addition, the plan classified claims of certain Canadian municipalities and First Nations separately from those of American non-federal governmental creditors and tribal entities. A number of parties, including the Office of the United States Trustee and the Canadian creditors, appealed the confirmation ruling to the district court.
Newman, Wesley, and Lee

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