A federal judge's decision to unravel a settlement shielding members of the Sackler family from future opioid litigation could upend a controversial corner of U.S. bankruptcy law: protecting third parties who have not filed for Chapter 11 themselves.
In a written opinion late Thursday, U.S. District Judge Colleen McMahon said federal law did "not authorize" so-called nondebtor releases granted in September to Sackler family members in the court restructuring of their company, OxyContin maker Purdue Pharma LP.
"This, if it stands, will completely upend Chapter 11 practice," said Lindsey Simon, an assistant law professor at the University of Georgia's law school. "It effectively takes nondebtor releases off the table." Critics argue the releases allow rich and powerful companies, directors, executives and investors to latch onto a bankruptcy case and extinguish their legal liability without subjecting themselves to their own Chapter 11 filing.
Federal appeals courts over the years have issued conflicting decisions on whether such releases are allowed, with extra attention paid to whether they are being granted without permission from creditors. In return, those insurers received nondebtor releases to prevent asbestos victims from turning around and suing them after collecting from the trust.
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