Opioid Victims Victorious in Battle Against Sackler 'Bailout'

The U.S. Supreme Court has recently ruled that bankruptcy courts do not have the authority to grant sweeping releases of liability for third parties in the context of bankruptcy. This ruling came in the context of a contentious bankruptcy proceeding involving thousands of claims by victims of the opioid epidemic against the Sackler family and their associated entities. The Sackler family, owners and controllers of the pharmaceutical company Purdue Pharma, had attempted to negotiate a deal with the bankruptcy court that would have granted them immunity from further litigation related to the opioid epidemic in exchange for a multi-billion dollar payout to the bankruptcy estate.

The controversy centered around the bankruptcy court's authority to grant such a wide-ranging release of liability to a third party, in this case the Sackler family, who were not themselves debtors in the bankruptcy proceeding. The Supreme Court ruled that bankruptcy courts do not have this authority and that releases of this nature must be agreed to by the parties directly affected, in this case the opioid victims. This ruling sets an important precedent that will likely have significant implications for similar bankruptcy proceedings in the future.

The majority opinion of the court, written by Justice Elena Kagan, stated that "the bankruptcy court simply has no general power to dispose of claims belonging to non-debtors. Its authority is tailored to the debtors who invoke it." The court rejected the argument that the bankruptcy court had the authority to grant the sweeping release of liability as a means of facilitating the reorganization plan of the debtor, Purdue Pharma.

The court also rejected the notion that the victims of the opioid epidemic, who were not parties to the bankruptcy proceeding, would be bound by the terms of the reorganization plan even without their consent. This ruling marks an important victory for the victims of the opioid epidemic, who have been fighting for years to hold the Sacklers and other responsible parties accountable for their role in the crisis.

The impact of this ruling will be felt beyond the immediate parties involved, as it establishes an important precedent for the limits of bankruptcy court authority and the rights of victims in these types of proceedings. The idea that bankruptcy courts can simply override the rights of victims and other non-debtor parties is simply not supported by the text of the bankruptcy code and the structure of the bankruptcy system.

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