Late yesterday, Judge Colleen McMahon (SDNY), in a 142-page (!) opinion, reversed the plan confirmation order in the Purdue Pharma Chapter 11 appeal on the basis that its non-consensual third-party releases are improper under the Bankruptcy Code.

As quick background, Purdue Pharma manufactures OxyContin. It sought Chapter 11 bankruptcy protection in September 2019 in response to over 3,000 opioid-related lawsuits. Behind Purdue Pharma is the Sackler family who founded the company and whose members are widely-accused of enabling the opioid crisis in the U.S. They’re not debtors in bankruptcy.

The Chapter 11 plan was to serve as the vehicle for a $4.5 billion settlement of the opioid litigation that the debtor proposed the Sacklers would fund in exchange for sweeping non-debtor releases, a controversial plan feature that we’ve addressed before. As of today, it couldn’t be more controversial. The bankruptcy court confirmed the proposal. Judge McMahon reversed. Beyond the headline level, it gets very complicated.

First, if you had trouble locating the opinion—the SDNY appeared to be down earlier today—then click here.

(Thanks to Braden Copeland for tracking it down during the outage!)

Second, for the very best coverage, click here to follow Prof. Melissa Jacoby (UNC Law). She has followed this case tirelessly as it has evolved in the courts and, more than any other, has endeavored in real time to condense and summarize the issues.

I asked Prof. Jacoby for her quick take this morning and, so generously for our humble little blog, she had this to say:

This opinion should be a wake-up call to bankruptcy lawyers. This opinion illustrates why you can’t rely on the ends (the money will be used for opioid abatement) to justify the means (using bankruptcy to permanently shield a billionaire family and a thousand other related parties over the objection of claimants who have direct causes of action against those other parties). Bankruptcy is not a source of unlimited authority, especially when it comes to the system’s most extraordinary powers.

I’m a debtor’s lawyer and “supposed to” view the Code as that unlimited source of authority when it benefits a client. However, I and my colleagues have become more and more sober these days about non-debtor releases, channeling injunctions, and the like, even if we’re often duty-bound to explore and test their limits.

With that, I’m “excited” to read the opinion this weekend and see if Plan Proponent is up to the task of providing anything more than a “breaking blurb.” Maybe a 14.2-part series? Just kidding.

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