Judging Bankruptcy Without Distress

<p><em>In&nbsp;</em>Harrington v. Purdue Pharma<em>, the United States Supreme Court rejected the bankruptcy plan of OxyContin producer Purdue Pharma, which purported to settle claims against both Purdue (the bankruptcy debtor) and Purdue’s individual owners and managers, all members of the Sackler family who had not themselves filed for bankruptcy (the Sackler Release). Concluding that the United States Bankruptcy Code does not authorize settlement of claims against non-debtors without claimant consent, the&nbsp;</em>Harrington<em>&nbsp;Court appeared set to stem the tide of “bankruptcy without distress,” a flourishing practice in which solvent non-debtors (like the Sacklers) would settle their liabilities within the confines of an insolvent debtor’s bankruptcy case. Surprisingly, Justice Jackson was the only liberal Justice to join Justice Gorsuch’s strictly textualist majority opinion, even though her questions at oral argument and prior embrace of expansive bankruptcy law seemed more aligned with the functional approval of the Sackler Release found in Justice Kavanaugh’s dissent.</em></p> <p><em>This Article’s central claim is that the aggregate litigation scholarship, through extended analysis and debate over the Sackler Release, has developed what Justice Jackson was looking for: a functional case for rejecting the Sackler Release. Even though the academic consensus is closer to Justice Kavanaugh’s embrace of the Sackler Release, the Article presents a case against the Sackler Release using the same framework that justified the release in the minds of scholars and Justice Kavanaugh. And it argues that the seeds of this case can be found in Justice Jackson’s questions during the&nbsp;</em><span>Harrington</span><em>&nbsp;oral argument.</em><em></em></p> <p><em>In short,&nbsp;</em><em>nothing about the law or facts forced plaintiffs to settle with the Sacklers in Purdue’s bankruptcy without requiring the Sacklers to (1) give each plaintiff an opportunity to opt-out of the bankruptcy settlement and (2) guarantee ongoing funding of settlement awards using their post-bankruptcy wealth. In supporting the Sackler Release, which did not allow opt-out or guarantee funding, the scholars placed significant independent weight on the value of giving “closure” to the Sacklers. But the very appeal of the Sackler Release was that the Sacklers managed to remove the bulk of their personal wealth from the territorial reach of the United States. Due to the Sacklers’ refusal to circulate any personal wealth in the United States, a condition of their own making, the Sackler Release would not have generated any of the independent “closure” value expected by supporters of the Sackler Release.</em><em></em></p>