What a Difference a Few Days Make

Morgan Lewis
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Morgan Lewis

Not so long ago US Bankruptcy Judge Robert Drain of the Southern District of New York had his time in the barrel—pilloried in the media for approving releases to members of the Sackler family as part of a bankruptcy plan that would settle global opioid-related claims against Purdue Pharma, a bankruptcy debtor, and affiliated family members and other persons who were not bankruptcy debtors.

The dispute was a familiar one to bankruptcy practitioners. How much can a bankruptcy court settle? The family members had not subjected themselves and their assets to the bankruptcy system. What power did a bankruptcy judge have to strip from third parties claims that those third parties could otherwise bring against them? But on the other hand, the bankruptcy court offered—at least potentially—a single forum to resolve a sprawling dispute, cutting out the massive time, uncertainty, and waste generated by myriad lawsuits. And if settlement required the non-debtor’s money, what non-debtor would offer it without closure?

If bankruptcy judges have a bias, it may be for practical solutions. Efficiency spoke loudly: Approve the release and the plan and see billions of dollars distributed to creditors. Judge Drain came down in Purdue Pharma where many of his colleagues have come down in other, less celebrated cases.

And those who recently pilloried him before may now be reconsidering. We can fairly speculate that procedural efficiency was not the only thing at work in the court’s thinking. It wasn’t simply that leaving third parties to their separate litigations across 50 states would be inefficient. The litigation might fail altogether. Recent weeks have seen successive and dramatic losses for plaintiffs in opioid cases, as a trial court in California and an appellate court in Oklahoma (People of the State of Cal. v. Purdue Pharma; State ex rel. Hunter v. Johnson & Johnson) held that the alleged social harms of opioid misuse fall outside the law of “public nuisance.”

Judge Drain foresaw that litigation is long, expensive, and uncertain; but he likely foresaw something else too. The saga might end not with a bang, but with the whimper of defendants’ verdicts.

Bankruptcy courts are practical places.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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