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Yesterday, the Second Circuit overturned Judge McMahon’s December 2021 decision rejecting the Purdue Pharma bankruptcy on the grounds that the Bankruptcy Code did not permit releases of third-party direct claims against non-debtors. As we previously covered, Judge McMahon’s opinion found that the bankruptcy court lacked authority to issue releases in favor of the Sackler family. 

While acknowledging that both sides put forth arguments “about fairness and accountability, particularly as it relates to the Sacklers, in releasing parties from liability for actions that cause great societal harm” the Second Circuit concluded that the only questions it needed to resolve were (1) whether the Bankruptcy Code permits nonconsensual third-party releases of direct claims against non-debtors, and (2) if so, were such releases proper here in light of all equitable considerations and the facts of this case. The Court answered both questions in the affirmative:Continue Reading Second Circuit, Reversing Judge McMahon’s Order, Affirms Purdue Pharma Bankruptcy

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:
Continue Reading Judge McMahon: Bankruptcy Court Lacked Authority to Release Sackler Family as Part of Purdue Settlement

In an order yesterday in the appeal of the Purdue Pharma bankruptcy case, Judge McMahon invited briefing, due Monday at 9:00 a.m., on whether the Sackler family, which contributed $4.5 billion to the Purdue estate in exchange for releases, abused the bankruptcy system by distributing excessive profits to themselves in the years immediately prior to the bankruptcy:
Continue Reading Judge McMahon Asks for Briefing on Whether Purdue Pharma’s Profit Distributions to Sackler Family Were “Abusive”

Last week, the government of Puerto Rico filed a petition for relief under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA).  PROMESA gave Chief Justice John Roberts authority to select a U.S. district court judge to preside over the case, and last week he selected SDNY’s Judge Laura Taylor Swain.

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In his latest MF Global ruling, issued today, Judge Marrero denied PriceWaterhouseCooper’s motion to dismiss a $1 billion malpractice and negligence suit brought by the bankrupt brokerage firm’s plan administrator. PwC had acted as an outside auditor and accountant for MF Global before it went bankrupt.  The plan administrator alleged that PwC “engaged in…

In an opinion dated Sunday, July 6, Judge Rakoff ruled that the trustee administering Bernie Madoff’s defunct investment firm could not invoke the Bankruptcy Code to recover funds transferred between two foreign entities. Citing Morrison v. Nat’l Austria Bank Ltd., Judge Rakoff held that Section 550 of the Bankruptcy Code, like other federal statutes,…

In an opinion yesterday, Judge Rakoff rejected a motion from the trustee of Bernard Madoff’s securities firm to void a $410 million settlement between the New York Attorney General and certain Madoff feeder funds associated with Ezra Merkin. Judge Rakoff found that the trustee had simply waited too long:
Continue Reading Judge Rakoff Denies Madoff Trustee’s Attempt to Halt NYAG Settlement With Feeder Fund

In a fraudulent transfer case brought by the trustee for Thelen LLP against law firms where former Thelen partners took work, Judge Pauley ruled today that the billable matters (as compared to contingency cases) were not “property” of the bankruptcy estate. Although “unfinished business” is generally an asset of a dissolved partnership, Judge Pauley concluded that “applying the unfinished business doctrine to pending hourly fee matters would result in an unjust windfall for the Thelen estate, as compensating a former partner out of that fee would reduce the compensation of the attorneys performing the work.” He also observed that deeming billable matters “property” to be shared with the estate would conflict with ethical rules against dividing fees, and “would have bizarre consequences”:
Continue Reading Judge Pauley Rules that Dissolved Law Firm’s Hourly Matters Are Not Property of Bankruptcy Estate; Certifies Issue for Interlocutory Appeal