What a difference a few days make | Morgan Lewis

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Not so long ago, US bankruptcy judge Robert Drain, of the Southern District of New York, was running out of time – he was pilloried in the media for seeking the releases of members of the The Sackler family had approved against Purdue Pharma, a bankruptcy debtor, and related family members and other individuals who were not bankruptcy debtors.

The dispute was known to insolvency administrators. How much can a bankruptcy court decide? The family members had not submitted themselves or their assets to bankruptcy proceedings. What powers did a bankruptcy judge have to evade third party claims that these third parties might otherwise assert against you? On the flip side, the bankruptcy court provided – at least potentially – a single forum for resolving a large-scale dispute, avoiding the tremendous time, uncertainty, and waste caused by myriad legal proceedings. And if the settlement required the non-debtor’s money, which non-debtor would offer it with no closure?

When bankruptcy judges have a bias, practical solutions can come up. Efficiency spoke out loud: Approve the release and plan and see billions of dollars paid out to creditors. Judge Drain was killed at Purdue Pharma, where many of his colleagues have fallen on other, less famous cases.

And those who recently pilloried him may think again now. We can certainly speculate that it was not just procedural efficiency that was at work in the court’s thinking. It wasn’t just that leaving third parties in their separate litigation in 50 states would be inefficient. The litigation could fail entirely. In the past few weeks, plaintiffs in opioid cases, as a trial court in California, and an appeals court in Oklahoma (Cal State people. v. Purdue Pharma; Condition ex rel. Hunter v. Johnson & Johnson) stated that the alleged social harms of opioid abuse do not fall under the “public harassment” law.

Judge Drain foresaw that litigation would be lengthy, expensive, and uncertain; but he probably foresaw something else as well. The saga might end not with a bang, but with the whimpering of the accused’s verdicts.

Bankruptcy courts are convenient places.

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