In late June the Supreme Court handed down Harrington v. Purdue Pharma L.P. a 5-4 decision in which the court made clear the decades-long practice of shielding non-debtors from future claims in exchange for their financial contribution to creditors’ recovery in a Chapter 11 bankruptcy plan was no more. The Sackler family—who long owned and controlled the now infamous maker of OxyContin—had negotiated a $6 billion contribution to Purdue’s bankruptcy as a “settlement” of all claims past and future against the family and its members, for their role in the opioid epidemic. In other words, providing the Sacklers with a liability shield in line with similar, negotiated third-party releases in other mass tort bankruptcies. The U.S. Trustee’s Office, the office within the Department of Justice charged with serving as a watchdog for the entire federal bankruptcy system, challenged this release and ultimately prevailed before the Supreme Court.
Underlying the majority’s reasoning was the concern that potential plaintiffs with claims against the Sackler family would lose their right to bring those claims without their consent; and that the Sacklers—who had not themselves filed for bankruptcy—would effectively reap the benefits of a discharge without having to place “virtually all their assets on the table for distribution to creditors.” Although this type of third-party release is expressly permitted for asbestos-related bankruptcies under the Bankruptcy Code, and has been regularly employed in other mass tort contexts, the scope of what was proposed for the Sacklers was broad, including prohibiting all future claims against them for fraud and willful and malicious conduct.
The decision threw into question the status of pending settlement negotiations between Purdue, the Sackler family, and the many claimants who have brought suit against the company and the family for their respective roles in the opioid epidemic: states, tribes, local governments, and individuals. But beyond its impact on the fate of that settlement, it also raised questions about future, high-profile mass injury bankruptcies where these types of third-party releases have historically been employed, including ongoing diocesan bankruptcies related to widespread allegations of sexual abuse within the Catholic Church.
The Purdue opinion expressly noted that it “does not address whether its reading of the bankruptcy code would justify unwinding reorganization plans that have already become effective and been substantially consummated,” referring to already confirmed plans like the Boy Scouts of America’s Chapter 11 plan, which it declined to stay in February pending the outcome of the Purdue decision.
But the prospective reach of that decision and its impact on third-party releases in yet-to-be-confirmed bankruptcy plans is still unknown, including for the Archdiocese of Baltimore, which filed for Chapter 11 in late September 2023. As of June 2024, 39 Catholic organizations had filed for Chapter 11 bankruptcy. Those plans have frequently employed third-party, nonconsensual releases for individual parishes, schools, and other Archdiocese-related entities in exchange for those entities’ contributions to the final amount of money paid out to survivors in the ultimate bankruptcy. Indeed, these releases have been so integral to the consummation of these bankruptcies that the United States Conference of Catholic Bishops filed an amicus brief in support of the Purdue plan noting the “critical role” such releases have played as “the only viable means for the Catholic infrastructure in many communities to survive what has become decades of mission-crippling litigation.”
The Archdiocese of Baltimore previously indicated its intent to seek these types of releases in exchange for contributions from parishes and schools, but that particular exchange—releases for additional contributions by non-debtor third parties—might well now be off the table after the Purdue decision.
When pressed at argument in the Purdue case regarding what impact prohibiting releases would have for other mass tort victims, the government’s lawyer responded that it was up to Congress to legislate an exception for such releases under certain circumstances or in particular types of bankruptcies, as in the asbestos-related bankruptcies context.
Because the decision did leave open the separate issue of consensual releases—i.e., providing claimants with the opportunity to opt out of third-party releases—that could remain an option for pushing a plan with similarly styled releases through, albeit with much more work required to obtain consent from all potentially impacted creditors.
The deadline for survivors to submit claims in order to be eligible for compensation from the Archdiocese of Baltimore passed recently on May 31, 2024. Since then, the bankruptcy case has proceeded to a second phase, in which assets available to be distributed to the claimants, including insurance policies, will be identified and the relative values of the claims will be evaluated.
Meaningful support for survivors is the desired outcome in mass tort bankruptcy cases like that of the Archdiocese of Baltimore. While no decision has been made on the future of this case and what it could mean for the affected child sexual abuse survivors, the outcome of the Purdue Pharma plan being handed down is a cause for concern.