In an opinion delivered yesterday, Judge McMahon struck down the Purdue Pharma bankruptcy settlement because she found the bankruptcy court lacked the power to issue discharges in favor of the Sackler family. (See our previous coverage here.) The family members had “offered to contribute to a settlement, but if – and only if – each family member could ‘achieve world peace’ of all civil (non-criminal) disputes ), including litigation by Purdue to recover money that had been withdrawn from the company.
But Judge McMahon found there was no authority in bankruptcy law for those releases. This is a matter that has been the subject of a “long-standing dispute between the circuits that have decided the matter”, with no clear answer yet from the Second Circuit.
Among the reasons cited by Judge McMahon for siding with circuits that have refused to find authority for third-party dismissals is the fact that Congress in 1994 authorized third-party dismissals in the specific context of the asbestos, the Judiciary Committee noting: “How the new statutory mechanism works in the area of asbestos can help the Committee judge wor the concept needs to be extended to other areas.” This statement suggested to Judge McMahon that a broader authority to issue third-party authorizations in “other areas” did not exist in the first place, especially since Congress has not acted on the matter since. :
The silence that speaks volumes is the twenty-seven years of unbroken silence that has passed since Congress said, “We’re limiting this to asbestos for now, and maybe when we see how this works in this context, we will extend it later. ”
The notice concludes by acknowledging the disruption of the well-intentioned settlement:
I . . . recognize that invalidating these releases will almost certainly result in the undoing of a carefully crafted plan that would lead to many wonderful things, including funding for desperately needed programs to address opioid addiction. But just as “a court‘s ability to grant finality to a third party is defined by its jurisdiction, not by its good intentions”, so is its power to award relief to a non-debtor against non-debtor claims. derivatives of third parties “can only be exercised within the limits of the Bankruptcy Code.