Bankruptcy for Smarties #3

You probably have read about the United States Supreme Court blocking, at least temporarily, the Confirmed Chapter 11 Plan in the Purdue Case.

Here is a summary of what’s going on.

 Purdue manufactured OxyContin, a pain-killing drug which many people used correctly and helped with their pain.  (When my wife Wendi was about to lose her leg from arterial disease, she took it, but not without a warning from her doctor that the problem needed to be corrected, or her leg removed, or she would become addicted.  Fortunately, the problem was corrected, but that’s a story for another post.)  Many entities, including states, and individuals sued both Purdue and members of the Sackler Family who owned Purdue, in different courts through the United States.

Purdue filed for relief under Chapter 11 essentially to put all the actions in one court.  The Sackler Family had benefited from ownership and withdrawn funds for years.

 After negotiation with lawyers representing all the parties, a “Plan” was agreed to and confirmed by the Bankruptcy Court.  The Plan had many details, but in essence it provided:

 ·       Purdue immediately would deposit $x into a pot for settlement of claims.

·       The Sacklers would do the same as well as pay sums over years.

·       The Sacklers would lose ownership of Purdue, which would then be owned by an entity owned by the Pot.

·       All claimants would make a claim against the Pot, and an independent party would divide up the funds.

·       The Sacklers would be exonerated from any further liability.

Except for a few stragglers and the United States Trustee (UST), which is an arm of the Department of Justice, the Plan was confirmed.

 The UST objected, even though it had no monetary interest, on the legal grounds that the Bankruptcy Court had no jurisdiction to exonerate the Sacklers. (“We are from the Government and we are here to help!”).

This type of release is known by different names, but let’s call it a “Third Party Release” because the Sacklers were not in Bankruptcy. 

 In general, the people and entities harmed by Purdue are unhappy with the UST’s position mainly because it means it will be at least another year before they receive any funds, and that’s if the Supreme Court doesn’t strike down the Plan.

There are many thoughts on what the Court will do.  From my perspective, I believe it’s likely that the Court will strike it down, perhaps even 9-0, because the Conservative Justices will agree that there is no statutory authority for third-party releases, and the three liberal justices will come out essentially against the Sacklers.

 If the Plan is struck down, there are many possibilities.  One is that the Plan will be confirmed with the Sacklers not putting in any money, allowing individuals and entities to sue them.  However, much of their money apparently is overseas and some of the plaintiff’s lawyers may tire of chasing them.

Another possibility is that the existing Plan is confirmed, but with a provision that all creditors get notice and have six months or so to “opt out,” in which case they would be free to sue but not receive any money from the pot.  My thought is that such a plan would involve a provision that the Sacklers only put their money in and receive a discharge if (for instance) less than x% of the claimants opted out.

I’m interested to know what my lawyer readers think!