In an opinion yesterday, Judge McMahon vacated the Purdue Pharma bankruptcy settlement because she found that the bankruptcy court lacked authority to issue releases in favor of the Sackler family. (See our previous coverage here.) The family members had “offered to contribute toward a settlement, but if—and only if—every member of the family could ‘achieve global peace’ from all civil (not criminal) litigation, including litigation by Purdue to claw back the money that had been taken out of the corporation.”
But Judge McMahon concluded that there was no authority in the bankruptcy law for those releases. This is an issue that has been the subject of “long-standing conflict among the Circuits that have ruled on the question,” with no clear answer yet from the Second Circuit.
Among the reasons that Judge McMahon cited for siding with the Circuits that have refused to find authority for third party releases is the fact that Congress in 1994 authorized third-party releases in the specific context of asbestos, with the Judiciary Committee noting: “How the new statutory mechanism works in the asbestos area may help the Committee judge whether the concept should be extended into other areas.” This statement suggested to Judge McMahon that a broader authority to issue third-party releases in “other areas” did not exist in the first place, particularly given that Congress has not acted on the question since:
The silence that speaks volumes is the twenty-seven years of unbroken silence that have passed since Congress said, “We are limiting this to asbestos for now, and maybe, when we see how it works in that context, we will extend it later.”
The opinion concludes by acknowledging the disruption of the well-intentioned settlement:
I . . . acknowledge that the invalidating of these releases will almost certainly lead to the undoing of a carefully crafted plan that would bring about many wonderful things, including especially the funding of desperately needed programs to counter opioid addiction. But just as, “A court’s ability to provide finality to a third-party is defined by its jurisdiction, not its good intentions,” so too its power to grant relief to a non-debtor from nonderivative third party claims “can only be exercised within the confines of the Bankruptcy Code.”