Prof. Ralph Brubaker Speaks Up on Purdue Pharma

I, for one, applaud the Supreme Court’s decision to finally address the permissibility of so-called nonconsensual nondebtor (or third-party) “releases†and “channeling†injunctions that discharge the obligations of nondebtor entities who have not themselves filed bankruptcy. And I am grateful for the tenacity of the U.S. Trustee and DOJ in calling out the utter impropriety of nondebtor-discharge practice, which has tainted the bankruptcy system and incited public outrage. These nondebtor discharge provisions are illegitimate and unconstitutional, and the Supreme Court should emphatically repudiate them.

Courts’ approval of nondebtor discharge provisions contravenes the separation-of-powers limitation embedded in the Constitution’s Bankruptcy Clause, which gives Congress the exclusive power to authorize discharge of indebtedness and to prescribe the circumstances under which such a discharge is appropriate. The nonconsensual nondebtor “release†(i.e., discharge) jurisprudence of those courts permitting the practice is also an unconstitutional exercise of substantive federal common lawmaking, in violation of the federalism and separation-of-powers constraints established by Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Moreover, the Supreme Court’s jurisprudence for interpreting the Bankruptcy Code directly incorporates those constitutional limitations, which cogently elucidate why nothing in the Bankruptcy Code can plausibly be read to authorize nonconsensual nondebtor releases.

The desire to facilitate settlement of complex mass torts cannot justify nondebtor-discharge practice. With the nonconsensual nondebtor-release device, the federal courts have manufactured out of whole cloth the unique, extraordinary (and unconstitutional) power to impose a mandatory no-opt-outs “settlement†of a nondebtor’s mass tort liability on unconsenting tort victims through the bankruptcy proceedings of a co-defendant. The process by which nonconsensual nondebtor releases are negotiated, proposed, and approved violates nonconsenting claimants’ constitutional due process rights, both by denying them an adequate, unconflicted litigation representative, and by denying them any opportunity to exclude themselves from what is a mandatory no-opt-outs “settlement†process that is involuntarily imposed upon them. Moreover, nonconsensual nondebtor releases unconstitutionally abrogate nonconsenting claimants’ Seventh Amendment jury trial rights by extinguishing traditional private-rights damages actions against nondebtors for which claimants have constitutional rights to both jury trial and final judgment from an Article III judge. What’s more, the bankruptcy “necessity†that supposedly justifies this astounding and unique settlement power—to mandate nonconsensual no-opt-outs “settlements†that are otherwise impermissible and unconstitutional—is nothing more than empty, false rhetoric that is a product of (at best) naive credulity or (at worst) specious sophistry.

Nonconsensual nondebtor releases are not “necessary†for the bankruptcy process to facilitate efficient aggregate settlements of the mass tort liability of both bankruptcy debtors and nondebtor co-defendants. The bankruptcy jurisdiction, removal, and venue provisions of the Judicial Code already contain the essential architecture for mandatory, universal consolidation of tort victims’ claims against both bankruptcy debtors and nondebtor co-defendants. Bankruptcy can be an extremely powerful aggregation process that facilitates efficient (and fair) settlements of the mass tort liability of nondebtors, even (and especially) without nonconsensual nondebtor releases. Nondebtor releases are an illicit and unconstitutional means of forcing mandatory settlement of unconsenting tort victims’ claims against nondebtors, and the Supreme Court should resolve the longstanding circuit split over the permissibility of nonconsensual nondebtor releases by categorically renouncing them.

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