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In re: Purdue Pharma L.P., No. 22-110
This amicus brief explains how and why the nondebtor releases granted to the Sackler family, and a large and indeterminate number of other persons and entities in the chapter 11 reorganization of opioid-maker Purdue Pharma, were "abusive" as that term has historically been understood in bankruptcy.
In the 2005 Metromedia opinion, the Second Circuit warned that a nondebtor release "lends itself to abuse" because it “operates as a bankruptcy discharge arranged without a filing and without the safeguards of the Bankruptcy Code.” Liabilities arising from fraudulent transfers, as well as “willful and malicious injury,” have been considered classic examples of "abuse" in bankruptcy.
Although there were credible allegations that certain members of the Sackler family engaged in fraudulent transfers--they apparently stripped over $10 billion in assets out of Purdue after its first criminal plea--and may have had direct and independent liability for willful and malicious injuries, the bankruptcy court nevertheless approved broad nondebtor releases shielding the Sacklers from such liability, on the theory that Purdue Pharma's plan of reorganization represented a "settlement" of such claims. However, only 20% of creditors actually voted on the plan. Moreover, they had no practical choice, and little information about the merits of the claims they were "releasing." Thus, neither the vote on the plan, nor the Sacklers' proposed contribution to creditors--essentially returning half of their ill-gotten gains--would cleanse the abuse.
Foohey, Pamela, "Brief of Amici Curiae Law Professors in Support of Appellees Regarding the “Abuse” Standard" (2022). Amicus Briefs. 32.