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The Purdue Pharma Bankruptcy

posted by Melissa Jacoby

By filing a bankruptcy petition last week, Purdue Pharma is automatically protected against many types of collection and litigation by operation of federal law. Seeking to turn this already-potent shield into something more formidable, the company has asked a bankruptcy judge to enjoin state and local government actions that might qualify as police and regulatory, and to shield members of the Sackler family and other third parties from both government and private suits. The number of actions affected is long - the first request would affect 435 actions and the second 560 actions (see exhibits A and B to the law suit) - as is the proposed duration, 270 days. Purdue Pharma also has asked the court to impose a "voluntary injunction" on the company regarding its marketing practices and that the court waive the security requirement. The preliminary injunction hearing is scheduled for October 11, 2019, in White Plains, New York. The statutory authority for the requests is generic: section 105 of the Bankruptcy Code. The provision does not say they can do this for sure - it only opens the door for parties to ask for all sorts of things.

Although I am a generalist when it comes to federal courts/jurisdiction/civil procedure relative to colleagues like Elizabeth Gibson, Ralph Brubaker, Susan Block-Lieb, and Troy McKenzie, I am also a "senator" at an upcoming mock senate hearing on the equitable powers of the bankruptcy court at the annual meeting of the National Conference of Bankruptcy Judges.* Thus, I offer miscellaneous observations on the injunction questions below. The devastating subtext, the opioid crisis, already is well known.

One should start with basic principles. The standard for any federal court imposing even a temporary restraining order is high and fact-intensive because doing so is the exercise of significant government power - coercive in a literal sense, requiring the utmost care in a system that cares about due process and liberty. Federal court injunctions that cover large geographic territories provoke particular controversy. Consider, for example, the "Nationwide Injunction Abuse Prevention Act of 2019" recently proposed by Rep. Meadows from North Carolina and Senator Cotton of Arkansas. Add a request to enjoin states and their courts into the mix, and you've got a whole other level of federalism challenge on your hands, even if it isn't a strict issue of sovereign immunity. District judges charged with overseeing multi-district litigation, such as the National Prescription Opioid Litigation MDL, have not been given express authority by Congress to enjoin state courts, and have had a hard time finding other jurisdiction and authority to do so

Thanks to the Bankruptcy Code's automatic stay, bankruptcy-land has a high comfort level with injunctions. They are, literally, an everyday thing because Congress made them so. Beyond the scope of the automatic stay, though, you are back to very serious federal judicial business, to be treated with the utmost care - particularly when sovereign states are brought into the mix and pervasive public health issues are at stake. At the bare minimum, one must be starting with a valid bankruptcy case, with a valid bankruptcy purpose, and extra injunctions, if entered at all, should be carefully tailored. "Give us what we want or all the money goes away" may have become a common mode of argument in chapter 11 cases, but it is not a path forward on injunctions or a responsible premise for a federal bankruptcy system.

The ultimate end game of a preliminary injunction in bankruptcy is often something even more potent than a breathing spell: release of a third-party's liability that proponents want to bind even non-consenting parties. In this instance, the beneficiaries of the release would be the Sacklers, among others. Outside of the asbestos context, the Bankruptcy Code does not authorize such releases, leading parties again to call on equitable power (read Ralph Brubaker's work for his take on the problems with the practice). The U.S. Court of Appeals for the Second Circuit, the relevant circuit for the White Plains court in which Purdue Pharma filed, has tolerated some releases. Courts sometimes deny requests that ask for too much with too little basis. In the words of Judge Wiles, third-party releases are not merit badges or participation trophies for making a contribution to a restructuring. But the uses continue to expand in troubling and under-studied ways. Consider, for example, the use of a municipal bankruptcy to release individual officers for police brutality and other civil rights liabilities (something that the U.S. Court of Appeals for the Ninth Circuit said might be possible and then San Bernardino walked right through that door).

Applicable law on preliminary injunctions requires consideration of the public interest (a mixture of considerations and not a single objective). I appreciate Judge Shannon's observation in the Takata bankruptcy that, in many other chapter 11 cases, "the movant typically offers an anodyne statement that the injunction will promote reorganization and, therefore, is consistent with public policy."  That won't cut it in a case like Purdue Pharma, given the opioid crisis. But also, seeing defendants facing questions in a public setting, and the airing of grievances, is known to be an important public interest element even if those who allege they have been harmed lose their case in the end. If providing a day in court is truly infeasible, a perennial issue in mass tort situations, then other methods of promoting procedural justice must be provided.

*  *  *

*The witnesses are professors who have prepared academic papers for the event: Coordes, Dick, Markell and Westbrook. The "senators" are Jacoby, Klee, and Levin. Judge Harner and Emily Bryant-Álvarez have prepared a paper framing the issues that will be available in the event materials.

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