Narrow SCOTUS Majority Prohibits Nonconsensual Third-Party Releases in Bankruptcy

On June 27, the Supreme Court of the United States issued an opinion in Harrington v. Purdue Pharma, L.P. addressing the issue of whether certain types of releases of nondebtor third parties are permissible in bankruptcy plans of reorganization. Justice Neil Gorsuch, in a decision joined by Justices Clarence Thomas, Samuel Alito, Amy Coney Barrett and Ketanji Brown Jackson, wrote that the Bankruptcy Code does not permit nonconsensual third-party releases. To put it another way, absent a claimant’s consent to release its claim against a nondebtor third party, the protective discharge that a Chapter 11 debtor receives upon plan confirmation cannot be extended to parties other than the debtor.The case addressed a plan of reorganization in the Purdue Pharma bankruptcy case whereby members of the Sackler family — which owned Purdue Pharma — were slated to receive a global release of liability in exchange for the Sackler family providing billions of dollars that would have flowed to the victims of the opioid crisis. The result of the Court’s 5-4 decision is that the bankruptcy plan will not be confirmed and the deal with the Sacklers — at least as it is currently structured — will not go forward. Justice Brett…