Chicago — In a landmark case, the U.S. Supreme Court recently ruled on a highly contentious bankruptcy settlement involving Purdue Pharma L.P., the maker of OxyContin, and its $6 billion proposal intended to resolve lawsuits spurred by the opioid crisis. At the heart of this legal battle was a key paragraph in the Bankruptcy Code, pivotal in determining how the courts could use bankruptcy to address mass-tort claims both swiftly and equitably.
Purdue Pharma, under the ownership of the Sackler family, touched off a legal and moral storm with a proposal that included a condition granting them immunity from further lawsuits in exchange for their multibillion-dollar contribution. While over 90% of claimants supported the settlement, significant legal questions led to a district court striking down the plan, arguing that bankruptcy judges do not have the authority to grant liability releases to non-debtors without unanimous claimant consent. However, this decision was later overturned by the Second US Circuit Court of Appeals, thereby reinstating the settlement and setting the stage for Supreme Court scrutiny.
The Supreme Court’s involvement drew particular attention from legal scholars, including Anthony J. Casey, the Donald M. Ephraim Professor of Law and Economics at the University of Chicago. Casey’s expertise in the convergence of bankruptcy law and mass torts provided him with unique insights into the implications of such legal battles. His recent law review article, co-authored with Joshua Macey and titled “In Defense of Chapter 11 for Mass Torts,” supported using bankruptcy as a mechanism for resolving mass claims, aligning closely with the principles contested in the Purdue settlement.
Casey articulated the importance of the bankruptcy system in these contexts, noting that it structures a global settlement that prevents a frenzied scramble for limited assets, which typically leaves victims with diminished recoveries. The focal point of the case was the interpretation of Section 1123(b) of the Bankruptcy Code. Known as the “catch-all” clause, it is ambiguously worded to allow for the inclusion of “any other appropriate provision” in Chapter 11 plans.
Casey, alongside his colleagues, submitted an amicus brief advocating a broader interpretation of this clause. The brief argued that third-party releases have been essential in resolving complex bankruptcies over the past three decades, and curtailing this tool could disrupt established practices significantly. In an effort to sway public opinion, Casey also co-authored an op-ed in a major newspaper, underlining the critical test this case posed for the future of bankruptcy in resolving large-scale disputes.
In a tight 5-4 decision, the Supreme Court ultimately rejected the settlement. Justice Neil Gorsuch, writing for the majority, stated that the catch-all provision did not extend to allowing non-debtor releases without explicit consent from all affected parties, branding such an interpretation as a departure from traditional bankruptcy principles.
The dissenting opinion, authored by Justice Brett Kavanaugh and joined by Chief Justice John Roberts and Justices Sonia Sotomayor and Elena Kagan, highlighted the devastating impact of the majority’s interpretation on over 100,000 opioid victims. Kavanaugh’s dissent extensively cited Casey’s scholarship and the amicus brief, emphasizing their significant influence on the bankruptcy field and their foundational role in the handling of mass tort claims in bankruptcy courts.
Reflecting on the decision, Casey expressed a mix of feelings, acknowledging the satisfaction of seeing his and his colleagues’ arguments taken seriously, despite the outcome being contrary to his hopes. He noted the direct impact this has on academic scholarship, demonstrating its relevance beyond academia and into the realms of practical, impactful legal proceedings.
Looking ahead, both the majority and dissent in the Supreme Court noted it was now up to Congress to address the use of bankruptcy for resolving mass torts comprehensively, a development Casey hopes will be informed by continued scholarly contribution.
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