Just call me the third-party release clause groupie.
In the Ninth Circuit, non-consensual third-party releases are not allowed in a Chapter 11 plan, with a few very limited exceptions of course. Purdue Pharma’s plan did just that. But how can a corporate chapter 11 plan order all creditors in the world to leave the insiders alone forever thereafter? Well, responded Purdue Pharma, the insiders were contributing $4 billion to the pot, the creditors voted in favor of the plan, and it was clear creditors were getting a lot more from the plan than they would get if the company failed. The bankruptcy court confirmed the plan and issued the order. The Second Circuit affirmed in Purdue Pharma v. The City of Grande Prairie (In re Purdue Pharma), 69 F.4th 45 (2nd Cir. 2023). The Supreme Court granted cert. I decided to go to oral argument set for December 4, 2023.
I first checked the Supreme Court website for guidance on how to visit. The advice was to get there early i.e., 7:30 a.m. I had the spirit so I decided to take the notorious Spirit Airlines to Baltimore, a flight that left at 5pm from LAX to arrive in BWI Baltimore at 12:30 am the morning of the argument. I took a taxi down to the Supreme Court, 1 First Street NE. As we drove, I explained to the driver that there were likely people waiting in line outside of the Court even in the middle of the night. He was skeptical to say the least. We arrived at 3:16 am to a line of people waiting. I was concerned that even at this early hour I might not get a seat.
I was standing in the cold, with no one to bankruptcy nerd out with. My new line friends were polite and we took pictures of each other to pass the time. I met two bankruptcy lawyers from Michigan who were generous with their time, knowledge and even coffee. They regaled me with stories of arguing before the sixth circuit court of appeals. This was such an amazing opportunity to talk shop and share war stories. Most of the people in front of us were from Bates White Economic Consulting, experts in economic consulting in large chapter 11 cases, assisting helping with mass tort claims valuation, contested business and securities valuations, financial statement, credit and solvency analysis, fraud investigation, and opinions on settlements.
Another new friend arrived, counsel for the Purdue Pharma creditor’s committee who told us he spent just shy of six thousand hours working on the case including helping prepare Pratik A. Shah, Esq. to argue his eighteenth case before the Supreme Court. We wished him luck. We were in awe of how cool and relaxed Mr. Shah was before he entered the courthouse. We agreed that we would probably be vomiting and sweating if in the same position.
Our enthusiasm was strong but we were human. Nothing was open. I wondered, was there a business opportunity here to sell drinks and snacks to people. After two hours or so, Starbucks opened. One veteran of the Supreme Court line process knew to count people in line and shame the line cutters and line place holders. I was number nineteen. Having been counted, one of my new friends went to Starbucks and bought coffee for which we were grateful as it tasted like nectar from the gods!
The wait continued and continued. Protestors who opposed the third-party release started to protest in front of the Court. The 7:30 am time on the Supreme Court website passed and the wait continued.
Just when the press came to interview one of my new friends, we started walking towards the Court. Each of us were given a purple card with our line number and we were expected to line up in that order when we entered the upper floor. We were taken in little groups through security.
No quarters were needed for the lockers. I put my phone, overcoat, gloves, hat and bag into the locker no problem. I lined up and before we were allowed to enter the upper floor, a security official explained the rules. One rule was that the Supreme Court is not Congress. People who interrupt and protest congressional hearings are typically cited, temporarily detained and released. In the Supreme Court, those who interrupt and protest in the middle of the hearing spend a guaranteed night in the D.C. Central Jail in addition to facing a year in prison. The point was if anyone had any signs that they wanted to show the Court or plans to interrupt oral argument, those plans/signs/placards should be put away. We were also instructed on how to leave if we wanted to leave the oral arguments. All electronics were to be put away in the lockers and no pictures were to be taken.
After another security check and metal detector, we were in and I had a seat where I could see all of the justices in their glory! We rose when the justices came in. Chief Justice John Roberts began the proceeding by giving a tribute to the recently deceased Sandra Day O’Connor who had died on December 1, 2023. After the tribute was completed, the Chief Judge admitted new lawyers to the Supreme Court bar. After these introductory matters were completed, the fireworks began, oral argument which lasted an hour and forty-three minutes.
Arguing for the Petitioner, the unhappy creditors, was Curtis E. Gannon, Deputy Solicitor General, a career position. Arguing for the Respondent, the debtor, Purdue Pharma, was Gregory G. Garre, a former Solicitor General. Arguing also for Purdue Pharma was Mr. Shah, the creditors committee counsel we had met.
Two proverbs stand out in my mind to describe the arguments in this case and in many bankruptcy scenarios:
(1) “a bird in the hand is worth two in the bush”
(2) “pigs get fed but hogs get slaughtered”
The Petitioner position seemed to be that the released parties are hogs taking more than they are entitled to and the bird is not in the hand because the rejection of an earlier settlement led to an increase in the settlement payment, notwithstanding the bankruptcy court’s findings of fact. The Respondent argued that settlement is the bird in the hand and non-consenting claimants wanting more makes those claimants hogs.
Any predictions, my guess is that the Respondent will have Kavanaugh, Barrett, Alito and Thomas and the Petitioner will have Jackson, Gorsuch, Kagen and Sotomayor. The tie-breaker will be Justice Roberts and I’m not sure what direction he will go. The votes I feel the most comfortable in predicting are Kavanaugh for the Respondent and Jackson and Gorsuch for the Petitioner.
When oral arguments finished, I went to the gift shop where I saw some of my line friends. We ate at “We the Pizza” and took a tour of the capital building. I saw the old Supreme Court room in the basement and was grateful I did not need to wait in line for that room because if I had been number 19 then, I would not have had a seat. I then went back to the airport and took the Spirit home, I was in the middle seat, and yet I slept an hour! As I said to my new friends, some people have Woodstock, Burning Man, others have Black Friday, we have Supreme Court camping! As physically exhausting as it was, it was totally worth it and I highly recommend it.
