Could Purdue's plan release the Sacklers without consent?

analysisThe 2021 plan's releases reached claims of third parties against the family, not only the estate's claims. As the District Court described it, the Section 10.7 Shareholder Release covered every living Sackler, their unborn descendants and the trusts, partnerships, companies and enterprises linked to them or formed for their benefit; Exhibit X to the 2021 settlement agreement listed more than 1,000 released parties. Claims derived from the estate's own were released under Section 10.6(b), which no one challenged as beyond the court's power; Section 10.7 released direct claims, including claims of fraud, misrepresentation and willful misconduct under state consumer-protection laws. The Second Circuit listed the released claims as including fraudulent and constructive fraudulent transfer, deceptive marketing, public nuisance, unfair competition, fraudulent misrepresentation, consumer-protection violations, civil conspiracy, negligence and unjust enrichment, some direct and some derivative. All appellants objected on that ground; as the District Court noted, no family member is a debtor. The District Court wrote that after the 2007 plea agreement, entered by a Purdue affiliate, the Sacklers, or at least those involved in running Purdue day to day, knew they were exposed to personal liability over OxyContin; it also noted that the release reached family members with no role in the company, against whom it knew of no suit, the only claims identified being the debtors' own claims against them as recipients of money moved from Purdue to family trusts, which Section 10.7 did not affect. ^{1 2 3}

analysisAppeals from the confirmation order were filed in September 2021 by U.S. Trustee William K. Harrington, who also appealed the Advance Order and the Disclosure Order; by eight states (California, Connecticut, Delaware, Maryland, Oregon, Rhode Island, Vermont and Washington) and the District of Columbia; by Canadian municipalities and First Nations led by the City of Grande Prairie, the Peter Ballantyne Cree Nation and the Lac La Ronge Indian Band; and by five individuals without counsel. The appellees defending the plan were the debtors, the UCC, the AHC, the PI Ad Hoc Group, the MSGE and the two family sides, the Mortimer-side Initial Covered Sackler Persons (Side A) and the Raymond Sackler Family (Side B). ¹

analysisOn 16 December 2021 Judge Colleen McMahon of the District Court for the Southern District of New York vacated the confirmation order and the Advance Order. She held that the Bankruptcy Court had 'related to' jurisdiction over the claims against the non-debtor family members, because they could affect the estate, but no statutory authority to release them without consent: not in the Code's text, not in its silence, and not in sections 105(a) or 1123(a)(5) and (b)(6). She upheld the separate classification of the Canadian appellants and did not reach the constitutional questions. The Second Circuit reversed her decision on 30 May 2023; the Supreme Court reversed the Second Circuit on 27 June 2024, reaching her conclusion on the statute. ^{1 2 3}

analysisTwo sets of findings about the family's position recur in the decisions. The District Court found that the family members named in the states' suits had served as officers, directors or managers of Purdue and so had a reasonable legal basis to claim indemnification, contribution and directors' and officers' insurance from Purdue under its limited partnership agreements, governed by Delaware law; whether bad faith barred indemnity was 'hotly disputed', and litigating it would cost the estate. Judge Drain, for his part, had treated collection from the family as a significant concern: the Second Circuit records his finding that the Sacklers are worth about $11 billion, held in widely scattered spendthrift trusts in the United States and offshore that bankruptcy can largely not reach, with some family members outside U.S. jurisdiction, and the District Court adds that many trusts are on the Bailiwick of Jersey, that many assets cannot readily be liquidated and that it is unclear whether Jersey law lets trusts funded by fraudulent conveyances be invaded; Judge Drain reached no final conclusion on these points. The District Court also observed that it was not clear which family members were contributing and in what amounts, the record suggesting that the contributing trusts benefit the whole family, although Judge Drain had found that the payment hinged on every member being released. ^{1 2}

analysisOn 30 May 2023 a Second Circuit panel of Circuit Judges Newman, Wesley and Lee reversed the District Court and affirmed the confirmation, including the March 2022 modification. It held that section 1123(b)(6) together with section 105(a) lets a bankruptcy court impose third-party releases, section 105(a) alone not being enough, and that the releases were not a discharge of the Sacklers' debts barred by section 524(e); it also held that the Bankruptcy Court lacked constitutional authority to approve them finally, so the District Court had rightly reviewed its decision as proposed findings. The court described the bargain this way: Purdue would file for bankruptcy and the Sacklers, who did not file, would contribute billions personally if all civil claims against them were released; as narrowed, the release covered claims directly affecting the estate for which Purdue's conduct was a legal cause or legally relevant factor, in exchange for $5.5 to $6.0 billion. The debtors, the UCC, the AHC, the individual victims' group, the MSGE and both family sides supported the plan. After the nine settled, only three groups still defended the District Court's ruling: U.S. Trustee William K. Harrington; Canadian municipalities and indigenous nations, whose cross-appeal on classification failed, the court noting among its reasons that Purdue Canada gave them another source of recovery; and several individuals without counsel. The Supreme Court reversed this judgment on 27 June 2024. ^{1 2}

analysisThe Second Circuit found the releases essential because they settled the value of the estate, which would otherwise be drawn into litigating the Sacklers' indemnity and contribution claims, and because the estate was worth only about $1.8 billion, less than the government's $2 billion claim that would be paid first without a plan. The U.S. Trustee argued that the plan gave the debtors an improper quid pro quo and that the Sacklers, had they filed for bankruptcy, would have had to commit substantially all of an estimated $11 billion net worth rather than about $5.5 to $6.0 billion. The court answered that its only task was to decide whether the bankruptcy court erred in finding the contribution substantial, which it had not ('Five and a half billion dollars ... is a significant sum'); the Supreme Court later reversed on the statutory question. ^{1 2}

analysisJudge Wesley concurred only in the judgment, in a separate opinion that is not the court's holding. He wrote that the Shareholder Release had no carve-out for fraud claims, which a debtor itself could not discharge, did not channel the enjoined claims to a settlement fund but valued channelled personal-injury claims only by the claims against the estate, bound objectors without an opt-out and 'cloaks the Sacklers with blanket immunity'; he agreed only because the circuit's 1992 precedent in In re Drexel Burnham Lambert Grp., Inc. bound the panel, and wrote that the question would benefit from a nationwide answer by the Supreme Court. ^{1 2}

analysisThe indemnity behind these arguments dates from 2004. The Second Circuit recorded that at the end of that year Purdue's board of directors voted to indemnify, among others, its directors and officers against claims arising from their service (the 'Sackler-Purdue Indemnity Agreement'), covering expenses, settlements, judgments, fines and penalties, advancing defence costs, continuing after service ended and binding successors and estates, but not covering matters in which a final court decision found that the person had not acted in good faith. The court treated the Sacklers' coverage as a reasonable basis for indemnity claims against the debtors and stressed that the agreement was made well before bankruptcy was contemplated. ¹

analysisOn 27 June 2024 the Supreme Court decided Harrington, United States Trustee, Region 2 v. Purdue Pharma L.P., No. 23-124, on the U.S. Trustee's petition against Purdue Pharma L.P. and others. By five votes to four, in an opinion by Justice Gorsuch joined by Justices Thomas, Alito, Barrett and Jackson, it held that the bankruptcy code does not authorise a release and injunction that, as part of a Chapter 11 plan, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants, and it reversed and remanded. The Court called the decision narrow: it did not call consensual third-party releases into question, did not decide what counts as consent or how a plan paying such claims in full would be treated, and, the plan having been stayed, did not decide whether plans already in effect could be unwound. On remand the parties negotiated a new plan, whose releases the Bankruptcy Court found consensual and compliant with Harrington when it confirmed it on 18 November 2025; it took effect on 1 May 2026. ^{1 2 3}

analysisThe majority read the catchall in section 1123(b)(6) in context as giving no 'radically different' power to discharge a nondebtor's debts without consent, and noted that the code generally reserves discharge for a debtor who puts substantially all its assets on the table. The Sacklers, it wrote, had not offered anything approaching their full assets, yet sought to extinguish virtually all claims against them, including for fraud, willful injury and wrongful death, without consent, seeking 'to pay less than the code ordinarily requires and receive more than it normally permits'; their additional $1.175 to $1.675 billion offered on appeal still fell well short of the $11 billion they received from the company between 2008 and 2016 and would be paid over many years. The parties' wider arguments were recorded but not decided. The U.S. Trustee argued that the family's legal exposure might bring a better consensual deal, as its increase of more than $1 billion to win over the eight objecting states suggested, and pointed to the concession that the 2004 indemnity does not apply if a court finds the Sacklers did not act in good faith, and to the courts' power to disallow or subordinate such claims. The plan proponents answered that the Sacklers would return no funds without the release, leaving victims without recovery; the District Court had recorded that the family offered to pay only if every member could 'achieve global peace', and its 2024 decision describes the family's position until Harrington as requiring 'total peace'. ^{1 4 5}

analysisJustice Kavanaugh dissented, joined by Chief Justice Roberts and Justices Sotomayor and Kagan; the dissent is the minority's view, not the Court's. He described the confirmed plan as distributing an estimated $7 billion or more through nine trusts, including $700 to $750 million for individual victims and their families at $3,500 to $48,000 each, with the Sacklers' $5.5 to $6 billion payment quadrupling the estate, more than 95 percent of voters in favour and all 50 States later on board; without it, he wrote, the Bankruptcy Court found liquidation of a $1.8 billion estate most likely, with the United States' $2 billion superpriority claim taking everything. He argued that under the 2004 indemnity, opioid claims against the Sacklers could be paid from the same Purdue funds as claims against Purdue; recounted findings that the Sacklers closely controlled and were indemnified by the company and faced claims resting on essentially the same facts and legal theories as those against Purdue; noted that fraudulent-transfer claims worth $11 billion against the family were among the estate's more substantial assets, settled under the plan together with creditors' derivative claims; and recounted the Bankruptcy Court's findings, after a six-day trial with 41 witnesses, that suits against the family faced weaknesses and collection problems abroad and in spendthrift trusts and that the settlement and releases were fair. The majority held that none of this supplied authority the code does not give, and it left the indemnity dispute undecided. ¹

analysisThe preliminary injunction that protected the non-debtor Related Parties dates from 2019. As set out in the Bankruptcy Court's Second Amended Order of 6 November 2019 (Adv. Dkt. No. 105), it bars actions against the debtors and against former or current owners, directors, officers and associated entities of Purdue Pharma L.P., including, as the District Court noted in 2024, the family members who owned and controlled Purdue and trusts they own or benefit from. The named Related Parties include The Purdue Frederick Company Inc., The P.F. Laboratories Inc., Purdue Pharma Technologies Inc., the PLP Associates Holdings, BR Holdings Associates and Rosebay Medical Company partnerships and corporations, Beacon Company, PRA Holdings Inc., Pharmaceutical Research Associates Inc., Purdue Holdings LP, Rhodes Pharmaceuticals Inc., Rhodes Technologies Inc., Coventry Technologies L.P. and MNP Consulting Limited; Richard S. Sackler, Jonathan D. Sackler and his estate, Mortimer D.A. Sackler, Kathe A. Sackler, Ilene Sackler Lefcourt, Beverly Sackler and her estate, Theresa Sackler, David A. Sackler, Marianna Sackler, the estates of Mortimer and Raymond Sackler and Raymond Sackler family trusts; Paulo Costa, Cecil Pickett, Ralph Snyderman, Judith Lewent, Craig Landau, Mark Timney, Stuart D. Baker, Frank Peter Boer, John Stewart and Russell Gasdia; and dozens of other named individuals. The order stays litigation; it is not a release or a finding about any of them. The District Court affirmed it and its first extension on 11 August 2020. ¹

analysisAfter Harrington the State of Maryland challenged the continuing injunction. Maryland, one of the non-consenting states, had agreed to abide by the order and paused the administrative proceeding it began in May 2019 against Purdue and certain Related Parties, but it withdrew its consent from the extension of 6 September 2024, arguing that Harrington left no basis for an injunction protecting non-debtors. On 26 November 2024 Judge McMahon, in State of Maryland v. Purdue Pharma L.P., et al., No. 24-Civ-7042, affirmed Judge Sean H. Lane's Thirty-Seventh, Thirty-Eighth and Thirty-Ninth Amended Orders of 6 September, 27 September and 1 November 2024. The debtors and the UCC, as appellees, argued that mediation was making material progress and that lifting the stay would start a rush to the courthouse and drain the estates through contribution and indemnification claims; Maryland called that harm speculative, and almost all other mediation parties, including the other 49 states, opposed or did not support reversal. She held that Harrington had not removed the Bankruptcy Court's power to stay suits against non-debtors temporarily while a consensual plan was negotiated, and that litigation against the Sacklers touches the estate: family members can claim indemnity and contribution from the company, and the company has claims worth billions against them, including for fraudulent conveyance. She found no abuse of discretion in the continued extensions. Maryland said it would appeal a further extension, but no such appeal was found in the retained records; the debtors' 2025 Disclosure Statement lists further extensions on 23 December 2024, 27 January 2025 and 28 February 2025, the last to 30 May 2025. ^{1 2}

analysisWeighing the public interest, Judge McMahon also wrote about the family, which was not a party to the appeal. The Sacklers, she said, had not been involved with the debtors for nearly six years and were unlikely ever to sell opioids again ('that was their plan all along—take the money and run'), and the Voluntary Injunction already barred them from the U.S. opioid business; if mediation failed, the debtors and creditors would face long litigation with Related Parties 'who will assert jurisdictional defenses and who have secreted their assets abroad', a point on which she deferred to the findings of Judges Lane and Drain. These are characterisations in the reasons for an interlocutory decision, not findings of liability against any family member. She warned that 'all thirty-nine (perhaps now forty) extensions' had stalled all litigation against the Sacklers for over five years, that some victims would never consent to releases, and that without agreement soon the injunction factors would stop favouring further delay. ¹

analysisThe mediation she allowed to continue was the post-Harrington negotiation before Judge Lane, with retired Judge Shelley Chapman and Professor Eric Green as mediators. On 12 November 2024 they reported agreements in principle among all but one of the Sackler family groups, the debtors, the UCC, the AHC, the MSGE and the 15-member negotiating committee of state attorneys general on the total cash to be paid by the settling parties, its schedule and certain non-monetary terms. The settlement page follows the plan that resulted. ¹