Court Administration

The U.S. Supreme Court, in rejecting Purdue Pharma LP’s bankruptcy plan, definitively shut down third-party litigation shields that don’t have consent from creditors. Now it’s up to bankruptcy courts to determine what, exactly, counts as “consent,” Bloomberg reported. The answer is likely going to boil down to judges’ views on the specific language and presentation of documents sent to creditors who are entitled to vote on a company’s bankruptcy exit plan. The proposed liability releases for members of the billionaire Sackler family who own Purdue under a $6 billion litigation settlement would have protected the family against lawsuits accusing it of improperly pushing opioid sales. The Sacklers have long denied wrongdoing. Justice Neil Gorsuch’s June 27 opinion for a 5-4 majority in William K. Harrington v. Purdue Pharma LP made clear that nonbankrupt parties can still obtain liability releases as long as they are obtained consensually. The task now before bankruptcy judges arises from the Supreme Court’s decision not to define “consensual” releases. Gorsuch said that the court didn’t “have occasion today to express a view on what qualifies as a consensual release or pass upon a plan that provides for the full satisfaction of claims against a third-party nondebtor.” With nonconsensual third-party releases off the table, “tremendous” questions for courts remain, including whether silence equals consent in a bankruptcy plan.