By: Donald L Swanson

Oral arguments at the U.S. Supreme Court in Harrington v. Purdue Pharma L.P. happened on December 4, 2023.  Here is a link to the official transcript of such arguments.

My Impression

I’ve read that transcript—and still don’t know what the Court is going to do. 

But based on the comments/questions of the justices (which are summarized and compiled below), I do have one impression:

• that the Court’s ruling (whatever it may be) is unlikely to be a slam-dunk win on all points for the U.S. Trustee’s position that completely overturns the entire settlement.

Outline

What follows is a compilation of many substantive comments/questions from the Justices that are made during the three segments of oral arguments:

• during U.S. Trustee’s arguments;
• during Purdue Pharma’s arguments; and
• during Creditor Committee arguments.

But first is my summary of what the comments/questions of each of the justices might reveal about their thoughts on the merits of the case.

My Summary

First, two justices appear to be solidly in favor of the U.S. Trustee’s position without qualification.  Their representative comments from the compilation below are:

• “this is the problem that we’re creating here, that we have half of it inside the bankruptcy, that’s Purdue, and we have half of it outside the bankruptcy, that’s the Sacklers” (Justice Jackson, at 114); and
• “on the constitutional question, we have serious questions. We don’t normally say that a nonconsenting party can have its claim for property eliminated in this fashion without consent or any process of court . . . It would raise serious due process concerns and seventh amendment concerns” (Justice Gorsuch, at 73).

Second, at least four justices raise concerns about upending the deal.  Their representative comments from the compilation below are:

• “What if a bankruptcy court were faced with a situation where funds like this are not reachable? You’re saying that the bankruptcy court is powerless to do anything?” (Justice Alito, at 14);
• “what the opioid victims and their families are saying is you, the federal government, with no stake in this at all, are coming in and telling the families, no, we’re not going to give you payment, prompt payment, for what’s happened to your family, . . . in exchange, really, for this somewhat theoretical idea that they’ll be able to recover money down the road from the Sacklers themselves” (Justice Kavanaugh, at 20);
• “It’s overwhelming, the support for this deal, and among people who have no love for the Sacklers, among people who think that the Sacklers are pretty much the worst people on earth, they’ve negotiated a deal which they think is the best that they can get (Justice Kagan, at 22); and
• “And what exactly is the interest of the Trustee . . . in undoing this? . . . But the Trustee has a separate role, and I’m just wondering what exactly is that role and why is it that you’re able to come in and undo something that has such overwhelming agreement” (Justice Thomas, at 34).

Third, at least one justice focuses on derivative claims as, (i) being outside the scope of the U.S. Trustee’s can’t-release position, and (ii) comprising the vast bulk of the claims at issue.  Representative comments from the compilation below are:

• “I always thought that any release in bankruptcy would stop suits for derivative claims, correct? Fraudulent conveyance claims are derivative claims that belong . . . to Purdue and those can be settled by Purdue, correct? . . .  and I take it from the government’s brief that the settlement can include an extinguishment of all derivative claims” . . . “So you’re telling me that most claims are derivative and that there’s only a few direct claims” (Justice Sotomayor, at 77 & 104).

And finally, two justices are hard to read (although, I’d put their comments as more-favorable to the position of the victims than to the position of the U.S. Trustee).  Their representative comments from the compilation below are:

• “are you saying that you shouldn’t allow this because there’s going to be a better deal down the road?” (Justice Roberts, at 27); and
• “is this the best that we can do for the victims? Lots of victims have agreed to it for that reason . . . But, in any event, this is a very complicated problem in mass tort litigation that involves bankruptcy. So what happens to those other cases if you win? . . . I’m saying, going forward, depriving bankruptcy courts of this tool, what will be the effect going forward on other cases like this?” (Justice Barrett, at 53).

Compilation of Justices’ Comments/Questions

–Comments/Questions During U.S. Trustee’s arguments

JUSTICE ALITO: . . . As a practical matter, . . . the Sacklers, the bankruptcy court, the creditors, Purdue, and just about everybody else in this litigation thinks that the Sacklers’ funds in spendthrift trusts overseas are unreachable. Do you agree with that? And, if you do agree with that, is this the best deal that’s available for the creditors? . . . What if a bankruptcy court were faced with a situation where funds like this are not reachable? You’re saying that the bankruptcy court is powerless to do anything? [at 12 & 14]

JUSTICE SOTOMAYOR: Counsel, what does consent look like? I’ve been trying to imagine that in a case like this. You have the states and so they could consent. They are an identified party. But there’s, I don’t know, thousands, if not hundreds of thousands, maybe millions of personal injury claims. Is an opt-out consent? How do you get it? . . . We have a separate petition in Highland Capital, and the amici briefs . . . suggest that your argument here about nonconsensual third-party releases affects the question of exculpation clauses for professional services firms that work on a bankruptcy. Does it? . . . it appears you want a broad ruling that all third-party releases, unless they’re consensual, are not permitted. So how do we write this not to affect that case or any others. [at 15 & 37-38]

JUSTICE KAVANAUGH: . . . we have 30 years of bankruptcy court practice that have approved releases of this kind . . . [against] officers or directors of the company, where they’re indemnified, meaning that the claims against them are in effect claims against the company, . . . your opening never mentioned the opioid victims. The opioid victims and their families overwhelmingly approve this plan because they think it will ensure prompt payment. So, . . . for 30 years have been approving plans like this, and . . . why we would say it’s categorically inappropriate when the statutory term “appropriate” is one that takes account usually of all the facts and circumstances. . . . But, more broadly, I think what the opioid victims and their families are saying is you, the federal government, with no stake in this at all, are coming in and telling the families, no, we’re not going to give you payment, prompt payment, for what’s happened to your family, and . . . the federal government’s not going to allow all this money to go to the states for prevention programs to prevent future overdoses and future victims and in exchange, really, for this somewhat theoretical idea that they’ll be able to recover money down the road from the Sacklers themselves. [at 18, 19 & 20]

JUSTICE KAGAN: I mean, it’s 3 percent. You know, what if it were 1 percent, .1 percent? And your position would still say, well, no, the Trustee can come in here and blow up the deal and should blow up the deal. . . . It’s overwhelming, the support for this deal, and among people who have no love for the Sacklers, among people who think that the Sacklers are pretty much the worst people on earth, they’ve negotiated a deal which they think is the best that they can get. . . . your position rests on a lot of sort of hifalutin principles of bankruptcy law. But another hifalutin principle of bankruptcy law is you’re supposed to maximize the estate, and you’re supposed to do things that will effectuate successful reorganizations. And it seems as though the federal government is standing in the way of that as against the huge, huge, huge majority of claimants who have decided that, if this provision goes under, they’re going to end up with nothing. . . . What if there’s just liquidation of the company, which is what the other side raises the specter of? So there’s liquidation of a billion. There’s no contribution. And then everyone’s left with a lottery ticket to try to get something . . . in litigation years from now. . . . I take it there’s no amount that the Sacklers could have put on the table that would alter your position, is that right? . . . it seems that your basic position would still apply if there was one kind of nut-case holdout, and so I guess I’m wondering why one nut-case holdout should hold up something like this. . . . some of your rhetoric today has been that the Sacklers just haven’t put in enough . . . isn’t the discovery process that the bankruptcy court commissioned and oversaw that was very thorough . . . designed to ensure that the amount contributed . . . is an appropriate amount to increase the value of the res and therefore help the ultimate creditors and victims? . . . I think the problem and maybe the disconnect between you and the opioid victims is you’re implying or even saying, oh, if you just . . . reject this plan, there’s going to be more money available down the road from the Sacklers. And I don’t think you’re accounting for the uncertainty of liability, first of all, the uncertainty of the indemnification, insurance, contribution claims, and the uncertainty of recovery. And so the point of this provision as it’s been applied for 30 years is to take into account those uncertainties in thinking about whether this is a appropriate settlement and overall plan. . . . And the views of the opioid victims and their families . . . doesn’t matter? . . . I think your position is saying it doesn’t matter. [at 21, 22, 23, 26, 39, 41, 44 & 45-46, 47]

JUSTICE BARRETT: I  was just going to ask you what the United States’ position is going to be. Let’s say that you win and it goes back down. The Sacklers withdraw their offer to contribute all these billions of dollars. You have a super-priority claim that would deplete most of what’s on the table based on Purdue’s assets right now. Would you assert that claim, or would you withdraw that and allow the opioid victims to recover some — what’s left in Purdue’s estate? . . . let’s say that the bankruptcy wraps up, . . . and let’s imagine you win. Let’s imagine the bankruptcy wraps up. Then people do go after the Sacklers, and let’s say they secure judgments, and the Sacklers want to seek indemnification from Purdue. As I understand it, there’s a division of authority in the courts below about whether these would be prepetition or post-petition claims and so whether they would even be allowed. But I also am wondering, what’s left to get? So, if they’re bringing these indemnification claims . . . and Purdue has been restructured, where are they going to get money anyway? So I just don’t understand how it affects the res in the way that the Respondents say. . . . if it is available against them, what assets are there to get once Purdue is reorganized . . . what I’m saying . . . not much. . . . this is a very complicated problem for a lot of the reasons that . . . that people have been asking you about . . . is this the best that we can do for the victims? Lots of victims have agreed to it for that reason . . . But, in any event, this is a very complicated problem in mass tort litigation that involves bankruptcy. So what happens to those other cases if you win? Does this have ramifications for other victims of mass torts that would be negative in cases like the Johnson & Johnson litigation? . . . I’m not talking about the cases that are actually pending. I’m saying, going forward, depriving bankruptcy courts of this tool, what will be the effect going forward on other cases like this? [at 24-25, 49-50, 51, 52-53 & 54]

CHIEF JUSTICE ROBERTS: . . . are you saying that you shouldn’t allow this because there’s going to be a better deal down the road?. . . So you would be here making the same argument if everything was as the way it is except that in terms of the claimants who do not want to be bound by the order of the bankruptcy court, there was just one of them. [at 27 & 28]

JUSTICE THOMAS: . . . under your reading of these provisions of the Bankruptcy Code, are consensual agreements or releases acceptable? . . . What’s the difference — on what provision in the code do you rely for that? . . . So you’re saying that the mere fact that they consent gives the bankruptcy court authority? . . . Conceptually, though, what’s the difference between a consensual and a nonconsensual release? . . . from the standpoint of the bankruptcy court resolving that, I don’t see what the difference is. . . . And what exactly is the interest of the Trustee . . . in undoing this? . . . But the Trustee has a separate role, and I’m just wondering what exactly is that role and why is it that you’re able to come in and undo something that has such overwhelming agreement. [at 6, 7 & 34]

JUSTICE GORSUCH: Even if they put all their assets on the table, they still wouldn’t get a release for fraud, right? . . . : That’s not if somebody were willing to pursue that claim after the bankruptcy. . . . And so that their assets not just in the past but in the future would be potentially attachable by creditors, correct? [at 42]

JUSTICE JACKSON: . . . I’m trying to understand why this would be laid at the feet of the one nut-case holdout, as Justice Kagan puts it. . . . even if you have a group of people who do not consent, the Sacklers could still give the money. They could still fund the victims who do consent. And so it’s not the holdouts. It’s the Sacklers’ insistence on getting releases from every single person that’s causing this problem, correct? . . . And your only point is that they may still, if the Court says no, go ahead and settle with all of the people who are willing or interested in doing this? [at 58-59]

–Comments/Questions During Purdue Pharma arguments

JUSTICE KAGAN: . . . I thought that one of the government’s stronger arguments is this idea that there’s a fundamental bargain in bankruptcy law, which is you get a discharge when you put all your assets on the table to be divided up among your creditors. And I think everybody thinks that the Sacklers didn’t come anywhere close to doing that. And the question is why should they get the discharge that usually goes to a bankrupt person once they’ve put all their assets on the table without having put all their assets on the table? . . . what I’m suggesting is that this is a fundamental principle of bankruptcy law, and when we’re trying to read this provision and figure out what powers it gives to the bankruptcy court and what not, it would be a kind of extraordinary thing if we gave the power to basically subvert this basic bargain in bankruptcy law. . . . in some ways, they’re getting a better deal than the usual bankruptcy discharge because . . . they’re being protected from claims of fraud and claims of willful misconduct. So, yeah, in some ways, they’re getting not quite as much, but in some ways, they’re getting much more . . . without putting . . . their entire pot of assets on the table. [at 63, 64, 65]

JUSTICE JACKSON: But, even if they could be authorized, . . . why would this be an appropriate situation to allow it? . . . they’re not putting all of their assets on the table, . . . [and most of the assets we’re talking about were originally in the company and that they actually took the assets from the company, which started the set of circumstances in which the company now doesn’t have enough money to pay the creditors. So even if there was a world in which categorically we wouldn’t say you can never do these kinds of releases, why wouldn’t this be a clear situation in which we would not allow it? . . . Only because the Sacklers have taken the money offshore, right? I mean, it’s not like by operation of law it’s necessary to do this. It is necessary to do this because the Sacklers have taken the money and are not willing to give it back unless they have this condition.  . . . if (b)(6) is as broad as you say it is, then what are (b)(1) through (5) doing there? In other words, I mean, right before we have a bunch of specific grants of authority, and if (b)(6) means what you say, then why did Congress have to put those in? . . . haven’t we normally said in our jurisprudence with respect to statutory interpretation that a catchall that ends after a list is sort of like in the same nature of the list? It can’t be just a totally different, huge thing. . . . With respect to “inconsistent” in (b)(6), what is your view of the work of “inconsistent”? I mean, can a plan provision that conflicts with the principles underlying the Bankruptcy Code be inconsistent, or is it your view that it has to be inconsistent with a particular provision? [at 66-67, 68, 90, 91]

JUSTICE BARRETT: . . . I take your point about 40 percent of the money that they took from the corporation going to the payment of taxes, but . . . the 97 percent of the money after tax that they’re contributing is all money that they took out of the corporation. And to your point to Justice Kagan about, well, this is a corporate restructuring and so the fraud position doesn’t apply, . . . but if the Sacklers went into individual bankruptcy, which is what this is saving them from, those fraud exceptions would apply. . . . if 1123(b)(6) is as broad as you say, did Congress need to enact 524(g) to give bankruptcy courts special authority to handle these problems in the asbestos context? . . . Was that just clarifying or was it necessary? [at 68-69, 88, 89]

JUSTICE GORSUCH: . . . So we’re being asked to interpret 1123(b)(6), and you’d agree that the term “appropriate” doesn’t mean anything goes, right? . . .   It has some limits. And we would normally look for those limits, for example, in the structure of the Bankruptcy Code and other surrounding provisions, right? . . . As a federal interpretive matter. . . . How about statutory context? . . . And we might look at historic equity practice. . . . And we might look at background constitutional concerns. . . . we wouldn’t turn a blind eye to the Constitution of the United States when interpreting a statute? . . . When we look at the background structure of the Bankruptcy Code, it has a couple of important provisions, right? One is you got to put everything on the table, . . . right? . . . And the other is that at least with respect to individuals, you don’t get off the hook for fraud, right? . . . And then when we look at historic equity practice, I think you got a couple of cases from the 1600s and a couple of district court cases more recently and pretty much nothing else. . . . There’s a lot running the other way, right? . . . You got a lot running against you, don’t you? . . . What was that case from the 1600s again? . . . Tiffin. . . . And then on the constitutional question, we have serious questions. We don’t normally say that a nonconsenting party can have its claim for property eliminated in this fashion without consent or any process of court . . . This would defy what we do in class action contexts. It would raise serious due process concerns and seventh amendment concerns, as the government highlighted. . . . But we’re not in bankruptcy. That’s the whole point, is your clients aren’t in bankruptcy. If the they were, then equity would kick in . . . With respect to a debtor, that would be traditionally the case, but we’re talking about a nonconsensual claim against a nondebtor. . . . And that, normally, we’d have serious due process and Seventh Amendment concerns.  [at 69, 70, 71, 72, 73, 74 & 75]

JUSTICE SOTOMAYOR: Counsel, can we talk a little bit about what is direct and what’s derivative? . . . neither side has satisfied me in answering that. I always thought that any release in bankruptcy would stop suits for derivative claims, correct? Fraudulent conveyance claims are derivative claims that belong — those claims belong to Purdue and those can be settled by Purdue, correct? . . .  and I take it from the government’s brief that the settlement can include an extinguishment of all derivative claims. . . . you’re still not helping me with the definition, as that that issue has to be resolved below, and it would be resolved in future lawsuits as to whether or not the bankruptcy agreement extinguished that particular type of derivative. . . . I’m trying to understand if it’s your view that the Sacklers could condition their funding of this estate on anything that the code does not expressly prohibit . . . but you define “necessary” . . . as anything the Sacklers require . . . So what does “necessary” mean in your view? . . .  Only because the Sacklers wouldn’t give the money back, right, under those circumstances? They are conditioning their willingness to fund this estate on the releases. . . . So it’s only necessary insofar as they are requiring it. . . . I guess I don’t understand why. Why isn’t — since the linchpin fact here, as you’ve just articulated it, is the Sacklers’ willingness to put money into the estate, why can’t they — and that it’s necessary insofar as the Sacklers are demanding it in this situation — . . . why can’t they demand anything and let that be necessary? I don’t understand why there’s a difference as to it being necessary, you know, in a different way.  [at 77, 79, 80, 81, 82, 83]

JUSTICE KAVANAUGH: . . . On the statutory point of the term “appropriate,” which, to me, is key, in isolation, that’s a broad term and really helps you, but, . . . we, in interpreting statutes like that that assign broad authority to usually regulatory agencies, here, the bankruptcy court, we’ve been cautious, especially in recent years, about reading those to give too much authority, . . . And I’m curious why in this case that those principles which go way back in this Court’s jurisprudence as I see it wouldn’t apply here and say, yeah, “appropriate’s” a broad term, but we should read it narrowly because that would be a question of great economic significance that we won’t assume Congress lightly assigned. . . . The U.S. Trustee doesn’t have standing in your view, and I think that’s a strong argument. But Ellen Isaacs would have standing. So do we need to get into the U.S. Trustee’s standing given that Ellen Isaacs would have standing? [at 84-85, 87]

–Comments/Questions During Creditor Committee arguments

JUSTICE THOMAS: Well, let’s assume that the Sacklers actually filed for bankruptcy. What would it look like? [at 95]

CHIEF JUSTICE ROBERTS: Here, you have basically the, what is it, 3 percent we’re talking about of the individual claimants. What if you have a situation where the 97 percent is a particular type of claimant, individual claimants, but the 3 percent that is holding out are different — have different claims altogether, commercial claims? Could the individuals and the bankruptcy court force the commercial claims into the bankruptcy settlement? . . . under the code, is there something that requires it to be a supermajority of every class? . . . In one sense, you do have different classes. . . . But then you have a class that prefers to see the claims go forward, the money isn’t enough or however you want to phrase it. They have different interests. . . . And yet you have a supermajority of the one . . . Supermajority of each class? [at 96, 97, 98, 99]

JUSTICE KAGAN: . . . [U.S. Trustee’s counsel] suggests that if we rule for him, it actually gives victims greater leverage in this kind of situation. . . . there’s something to what [U.S. Trustee’s counsel] says. You rule for him, then you have another tool in your toolbox when when the people that you represent sit around the table with Purdue and the Sacklers. [at 100-101]

JUSTICE SOTOMAYOR: I know you’re making this very dramatic, but I read your brief, and . . . you argue that all personal injury claims against the Sacklers are derivative of claims against Purdue. And so only a small subset of claims fall into the nonconsensual third-party release of direct claims at issue in this case. . . . So you’re telling me that most claims are derivative and that there’s only a few direct claims. So, if there’s only a few direct claims, how is that going to leave the estate? . . .  Tell me what direct claims exist . . . Yeah, but the states are all willing to settle with you. . . . if all the states are saying consensually we’re going to agree, so we’re not going to sue you, . . . you’re telling me that the individual claims are mostly derivative . . . like personal injury and others. . . . you’re talking about a small subset, using your own words, of claims that are direct will survive. How is that going to be an inducement to the Sacklers to pull out of this deal? [at 104, 105, 106]

JUSTICE KAVANAUGH: What about individual suits against the Sacklers that could happen if you lose this case, there’s a liquidation, so you get nothing from the estate. [at 107-108]

JUSTICE JACKSON: So my one nagging concern about your emphatic presentation is I’m thinking about those circuits that do not permit third-party nonconsensual releases. . . . And I think, if I agree with you or if I believe your forecast about what’s supposed to happen or what might happen in this situation . . . that there would never be a settlement of mass tort cases arising in those circuits, and the government has given several examples here of situations in which, once there’s a rejection of a bankruptcy effort to take care of this, parties settle in tort. So how do you explain that if you’re right about what’s likely to happen in this situation? . . . this is the problem that we’re creating here, that we have half of it inside the bankruptcy, that’s Purdue, and we have half of it outside the bankruptcy, that’s the Sacklers. . . . And what’s troubling me is the sort of shifting between those two as we think about what’s going to happen. You say in a suit against the Sacklers, if this gets blown up and people are suing the Sacklers as soon as one victim gets money, then it’s wiped out for everybody else. . . . But I don’t understand why that’s so, because the Sacklers would not be in bankruptcy unless they file for bankruptcy at that point. Is that where your hypothetical is going?  . . . I mean, they have at least $11 billion or something. And so why would it be, unless a particular claimant gets that amount of money, there wouldn’t be anything left for anyone else in suits against them? . . . But are we looking at what is collectible or not through the lens of bankruptcy? And they’re not in bankruptcy, so I don’t understand how we know.  [at 113, 114, 115, 116]

Conclusion

It’s impossible to predict what, exactly, the U.S. Supreme Court will do in this Purdue Pharma case.

But it seems unlikely that the two justices expressing unqualified support for the U.S. Trustee’s position will be able to get three more votes to reach a hard-line ruling that upends the existing deal in its entirety.

But only time will tell.

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