The application for a stay, brought by the U.S. Department of Justice, was presented to Justice Sonia Sotomayor and referred by her to the wider court, which agreed to hear argument on whether the nation’s bankruptcy laws allow a court to approve, as part of a plan of reorganization under Chapter 11, a release from litigation for third parties who are not themselves filing for bankruptcy.
A bankruptcy court judge had approved the reorganization plan for Purdue Pharma that reconstituted the company under another name while paying out billions of dollars to cities, states and Native American tribes afflicted by the opioid crisis — and insulated the descendants of the founding Sackler brothers from liability claims.
A federal judge in New York initially blocked the reorganization, however, ruling that bankruptcy laws do not allow liability shields to be given to parties that aren’t actually filing for bankruptcy.
An appellate court disagreed, reinstating the bankruptcy plan, and the DOJ asked the U.S. Supreme Court to intervene.
In a statement, Purdue Pharma