Episode description

In this case, the court considered this issue: Does the Bankruptcy Code authorize a court to approve, as part of a plan of reorganization under Chapter 11 of the Bankruptcy Code, a release that extinguishes claims held by non-debtors against non-debtor third parties, without the claimants’ consent?

The case was decided on June 27, 2024.

The Supreme Court held that the Bankruptcy Code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seek to discharge claims against a nondebtor without the consent of affected claimants. Justice Neil Gorsuch authored the 5-4 majority opinion of the Court.

Applying the ejusdem generis canon of statutory interpretation to Section 1123(b)(6), which is a catchall provision allowing "any other appropriate provision" in a bankruptcy plan, the Court reasoned that this provision should be read in light of the specific provisions that precede it, all of which concern the debtor's rights and responsibilities. Therefore, Section 1123(b)(6) cannot be fairly read to grant the radically different power to discharge debts of non-debtors without affected claimants' consent.

The broader context of the Bankruptcy Code further supports this conclusion. Discharges are generally reserved for debtors who place their assets in the bankruptcy estate, and even then, certain types of claims (like fraud or willful injury) cannot be discharged. The Sacklers, as non-debtors, seek greater protection than the Code typically allows for actual debtors, without meeting the Code's usual requirements. Congress has only explicitly authorized third-party releases in asbestos-related bankruptcies, suggesting that such releases are not generally permissible in other contexts. Therefore, Section 1123(b)(6) does not authorize the nonconsensual release of claims against the Sacklers, who are non-debtors in Purdue Pharma's bankruptcy case.

Justice Brett Kavanaugh authored a dissenting opinion, in which Chief Justice John Roberts and Justices Sonia Sotomayor and Elena Kagan joined.

The opinion is presented here in its entirety, but with citations omitted. If you appreciate this episode, please subscribe. Thank you.