SCOTUS Term in Review: Live and in Person -- and Thoughts About the Purdue Pharma Bankruptcy Case
On Thursday of this week (Aug. 1), I'll be participating in the Practicing Law Institute (PLI) Supreme Court Review full-day conference in New York City (and also streaming via the web and then later available on-demand). This is the 26th annual version, and I've been a panelist every year. I'll be on every one of the panels, sharing the spotlight with co-chairs Erwin Chemerinsky and Marty Schwartz as well as a star-studded group of law professors (e.g., Cristina Rodriguez and Burt Neuborne), Supreme Court litigators (e.g., former Acting Solicitor General Jeff Wall), a judge (Jed Rakoff of the SDNY), and a journalist (Joan Biskupic).
The PLI SCOTUS Review is organized by topic areas. For each panel, one speaker has primary responsibility for introducing and discussing an important case (or, for the first panel, an overview of the Term), followed by commentary by the other panelists. I'm the primary presenter on three topics: the overruling of Chevron deference in the Loper Bright case (plus a comment on the Corner Post case); the Second Amendment ruling in Rahimi and the statutory ruling on bump stocks in Garland v. Cargill; and the invalidation of bankruptcy court authority to settle non-debtor claims in the Purdue Pharma case.
I've already offered my views of the Term as a whole (here) and the two Trump cases that rightly loom over the Term as a whole (here and here). I've also offered thoughts about Loper Bright and the two firearms cases (here and here). Accordingly, in the balance of today's essay, I answer a question that no doubt has been top of mind for my readers: what does Dorf, who has never practiced, taught, or even taken a class in bankruptcy law, think about the scope of a bankruptcy court's power under Section 1123(b)(6) of Chapter 11 of the Bankruptcy Code?
Let's start at the top. Purdue Pharma is a privately held company owned entirely by members of the Sackler family. It generated huge profits from the mid-1990s through early 2010s by marketing OxyContin as ostensibly less addictive and less subject to abuse than other opioid drugs, even though, as was readily apparent to anyone paying attention (including within Purdue Pharma) OxyContin is extremely addictive. Purdue's relentless promotion of OxyContin itself caused tens of thousands of deaths, ruined many more lives, and played a key role in fueling the wider opioid epidemic that still bedevils individuals, families, and communities throughout the United States.
After years of inaction, the United States brought civil and criminal charges against Purdue the company (but not the Sacklers), resulting in a guilty plea and a $2 billion forfeiture, but meanwhile, the Sacklers had undertaken a successful effort to bleed the company of approximately $11 billion of its assets. Eventually, lawsuits filed or with the potential to be filed by state governments, Native tribes, countless individuals, and others made clear that Purdue's liabilities would greatly exceed its assets, and it filed for Chapter 11 bankruptcy. Painstaking negotiations produced a reorganization plan under which Purdue would emerge as a public benefit company devoted to combating opioid addiction, the Sacklers would provide nearly $6 billion in exchange for the release of all claims against them (including by the estate to recoup fraudulent conveyances and by tort plaintiffs) arising out of their leadership of Purdue, and most of the resulting money would be distributed to victims and creditors of Purdue. The district court initially accepted the plan, then rejected it, but then was reversed by the Second Circuit, which was in turn reversed by the U.S. Supreme Court.
The Purdue case yielded an ideologically heterodox SCOTUS lineup. The majority opinion was written by Justice Gorsuch and joined by Justices Thomas, Alito, Barrett, and Jackson. The dissent was by Justice Kavanaugh, joined by Chief Justice Roberts and Justices Sotomayor and Kagan. The key point in dispute was, as I cheekily indicated above, how to read 11 U.S.C. § 1123(b)(6), a catchall statutory provision that authorizes a bankruptcy judge to approve a reorganization plan that "include[s] any other appropriate provision not inconsistent with the applicable provisions of" the rest of the Bankruptcy Code. According to the majority, release of claims against non-debtors like the Sacklers is not authorized without the consent of the claimants.
Why not? As in some other cases last Term, the Purdue majority relied on the ejusdem generis canon of statutory construction, under which a catchall takes its meaning from the context of the specifically enumerated items. According to the majority, the kinds of things that a bankruptcy judge is authorized to do in items 1 through 5 of subsection 1123(b) all "concern the debtor—its rights and responsibilities, and its relationship with its creditors." (By "debtor," the majority and dissent mean the debtor in bankruptcy rather than any party who might owe a debt to some other party.) Thus, the majority said, there's no authority to release claims against the Sacklers, who did not file for bankruptcy or offer up all of their Purdue-derived assets.
There's more to the majority opinion, but that's the heart of it. It is unpersuasive for a whole raft of reasons, all laid out in Justice Kavanaugh's dissent. Here I'll just briefly list some leading ones before offering a thought about the lineup.
First, release of claims against the Sacklers in fact "concerns the debtor" and so should satisfy even the majority's limit on the catchall. It does so because the claims are entirely derivative of Purdue's liability. (If someone was injured in a collision with an automobile driven by a member of the Sackler family, the personal injury claim arising out of that collision is not touched by the Purdue case). In addition, by contract, Purdue is obligated to indemnify the Sacklers for Purdue-derived liability, so claims agains the Sacklers are de facto claims against Purdue. True, it's possible (as the majority says) that a court could find that the indemnification obligation is invalid as a result of self-dealing, but that's hardly guaranteed, and, in any event, still wouldn't undercut the conclusion that the release of the claims against the Sacklers "concerns" Purdue.
Second, the majority's logic would imply that a bankruptcy court lacks the power to release claims agains non-debtors even with consent. Yet the majority acknowledges that the court has that power, thus undermining the ejusdem generis conclusion.
Third, as Justice Kavanaugh points out, for decades, releases of claims against non-debtors have been essential to resolving mass-tort bankruptcies "ranging from asbestos, Dalkon Shield, and Dow Corning silicone breast implants to the Catholic Church and the Boy Scouts." The majority's formalistic reading of § 1123(b)(6) will do real damage to the ability of the bankruptcy courts to address the fundamental group action problem that motivates the bankruptcy code: when a debtor's liabilities exceed its assets, absent intervention and global resolution, payments will go only to whoever wins the races to the courthouse and to judgment; because of the complexities of such cases, often a release of claims against non-bankrupt third parties is essential to reaching a satisfactory resolution.
Fourth, that was certainly true here. Absent the Sacklers' contributions, there would have been no money at all to pay victims, because the $2 billion owed to the U.S. government takes priority over all other claims. And the Sacklers certainly were not going to kick in $6 billion without a release.
Fifth, as the dissent emphasizes, the plan--including the release of claims against the Sacklers--was overwhelmingly approved by victims and creditors of Purdue, including, eventually, all 50 states. Surely the parties who agreed to the deal were better positioned than the Court's majority to gauge whether a better deal could be had.
I could go on, but I've said enough to explain why the majority opinion comes across as an exercise in petty sticklerism. To be sure, there are passages in which the majority appears motivated by justified outrage that the Sacklers get to keep billions of dollars--which is indeed, a grave injustice. However, as the dissent repeatedly points out, this was the best deal available; the alternative of litigation against the Sacklers would take many years, would not be certain to result in liability for more money, and even if it somehow eventually did, would pose challenges in executing judgments, given the dispersal of the assets among many people and holdings around the globe.
Put differently, if the majority is not engaged in petty sticklerism for its own sake, then it is engaged in a kind of childish denialism--except that unlike a child who refuses a good deal in the vain hope of a better one and thus gets nothing, the Justices in the majority do not pay the price for their refusal to face reality; Purdue's victims do.
Finally, how do we explain the lineup? I'm not certain, but it does arguably reveal something about jurisprudence.
A Supreme Court Justice's jurisprudential druthers are often difficult to assess because, in ideologically divisive cases, motivated reasoning takes over. Commitments to principles of judicial restraint, textualism, originalism, federalism, or any other abstraction tend to be flexible, especially when the ideological stakes are high. And because those abstractions are highly under-determinate of actual outcomes anyway, Justices can profess a consistent methodology, even when their ideological druthers are doing the real work.
The Purdue case had no obvious ideological valence. It's evident that no one in the majority or the dissent has any love for Purdue or the Sacklers. Meanwhile, it's hard to say what counts as a "liberal" or "conservative" view of the scope of a bankruptcy judge's power under 11 U.S.C. § 1123(b)(6). Purdue is thus a decent test case of jurisprudential druthers.
To my mind, the lineups make sense. With the possible exception of Justice Barrett (who is herself a Scalia disciple), each of the conservatives in the majority--and especially Justices Thomas, Alito, and Gorsuch--is a petty stickler. Justice Alito advertised his sticklerism in the bump stock case, in which he frankly admitted that reading the statute in question there could not possibly serve any purpose Congress would have pursued. But we're stuck with the text, he said--even though the dissenters explained why it was perfectly sensible to read the text completely contrary to how he did.
Why did Justice Jackson join the pettiest, stickleriest Justices in the Purdue case? More than Justice Sotomayor or Justice Kagan, and more than recent liberals like Justices Ginsburg and Breyer, Justice Jackson has embraced originalism and textualism. She did so in her confirmation hearing, she has done so in oral arguments, and she does so in her opinions. In high-stakes cases (like last year's affirmative action case), she invokes originalist arguments for liberal ends. Strong ideological druthers of liberals, no less than of conservatives, overtake jurisprudential druthers. But it is becoming increasingly evident that Justice Jackson is not simply playing at formalist commitments. At least that's my tentative impression after two Terms.