We're back just a few days after our last episode to dive in to Harrington v. Purdue Pharma, a 5-4 decision about the power of the bankruptcy system to release claims against third parties.
We're back just a few days after our last episode to dive in to Harrington v. Purdue Pharma, a 5-4 decision about the power of the bankruptcy system to release claims against third parties.
[Divided Argument theme]
Will: Welcome to Divided Argument, an unscheduled, unpredictable Supreme Court podcast. I'm Will Baude.
Dan: And I'm Dan Epps. So, who would have predicted two episodes in a week?
Will: Well, we like to keep them guessing.
Dan: Yeah. So, we are trying to keep grinding them out for a while. When are you going away again? August?
Will: Mid-August.
Dan: Okay. So, we should be able to clear a lot of back-log before then.
Will: I think so if we don't-- [crosstalk]
Dan: Then later in August, maybe we're thinking about some other kinds of episodes that would be a little bit of a change of pace before the term starts, so keep listening.
Will: Yeah. Unpredictable content. All right. Not much has happened since our last episode, right?
Dan: [chuckles]Yes. Could they just do this all the time? I mean, what if we just shut the whole thing down for a couple years? You and me can just go through opinions from the last five or six terms that we wanted to think about more and just get a huge back catalog done, and then we can let them start up again.
Will: I think. Do you know Biden's people, [Dan chuckles] if they want to propose some sort of Supreme Court reform, a partnership with Supreme Court podcasters?
Dan: Yes. Because I think that the lamest of lame duck presidential proposals to reform the court during a period of time when Congress is divided is certainly going to get the job done. Yeah, but speaking of Supreme Court reform, we're trying not to abolish this as a lengthy opening segment on the show, but just one interesting thing to note. So, Justice Kagan was recently speaking to the Ninth Circuit Judicial Conference, and she speculated, didn't seem to clearly come down, but she was talking about the court's recently self-imposed ethics principles. I don't know if it's fair to call them rules or guidance-- [crosstalk]
Will: A code. It's a code of conduct.
Dan: A code, yeah. And she suggests, “Gosh, maybe it would better to have some kind of actual means of enforcing these, someone who would figure out basically adjudicate violations of the rules.” She says, “It would be bad for us to do it to each other.” She speculated maybe there could be a committee of lower court judges who could consider ethics complaints against sitting Justices. And she made clear she was just speaking solely for herself. But kind of interesting that she was willing to put that on the table.
Will: That's a little more talking out of school than I normally expect or associate from her. I mean, these remarks at the Judicial Conference are always interesting for them because I think they're usually not recorded and broadcast. So, it's always interesting what we get out of them. Of course, Justice Alito has said things too, to the contrary. So maybe she feels the need to make clear people are getting--
Dan: I mean, she's not leaking anything. She's just saying, “These are my thoughts.”
Will: That's interesting.
Dan: So, my guess is there wouldn't be a ton of support among her colleagues to have a bunch of Second and Fifth Circuit judges weighing in on ethics complaints but maybe, maybe.
Will: I think if they get to pick the judges, they should just all be done out of Amarillo, I think. [laughs] And I guess if this is legislation, then, of course, legislation could require it, and then the court would have to figure out whether it's going to try to fight it or something, yeah, that’s fair.
Dan: I mean, I assume you could have legislation that would permit some non-binding findings. I don't think you could-- It's not clear how you could have legislation that would enable any enforcement.
Will: I'm not sure--[crosstalk]
Dan: Most of us like take away, take away their law clerks or something. Make them have a worse office.
Will: No Justice should be eligible to sit in a case in which-- Well, they might not be--
Dan: Kind of like forcible recusal or something.
Will: Yeah. But there is always this one Supreme Court argument that if anybody else reviews the Supreme Court, then they do not know the Supreme Court--
Dan: Yeah.
Will: If you want to get really fancy, you combine it with the term limits thing, because usually when you do term limits by statute, you have to pretend that the term limit Justices are still Justices and give them something to do. So, what you could do is make them the ethics committee.
Dan: There you go. Not bad. I like it.
Will: [chuckles] I mean, that would mean Clarence Thomas and Chief Justice Roberts would be the ethics committee right now. And I'm not sure everybody would like that, but it could be fun.
Dan: Well, but it would also mean that Biden would have made at least one more appointment.
Will: Yeah. I think the usual statutory proposals actually have a phase in, so.
Dan: Okay.
Will: Another thing from last episode, it's only been up in less than 24 hours, but we did get an important correction. J.D. Vance did a clerkship for Judge David Bunning in the Eastern District of Kentucky, I believe, at the same time that his wife, Usha Vance was clerking for Judge Thapar.
Dan: Okay. So that obviously was the formative experience of his career that his equipped him to be vice president.
Will: I was looking up Judge Bunning on Wikipedia and saw that in September 2015, he issued a contempt of court ruling against Kim Davis for refusing to issue marriage licenses to same-sex couples.
Dan: Oh, yeah.
Will: I'm pretty sure that Vance would have clerked in 13-14, but for a minute, I thought, “Oh, this is interesting,” [crosstalk]
Dan: You would have unlocked the thing that would have unraveled the whole election. It turned out that he was secretly advancing gay marriage litigation. He was drafting things, sanctioning her.
Will: I mean, you can believe that Kim Davis should have been required to do her job without sanctioning all of the gay marriage litigation but-- [crosstalk]
Dan: Youcan but Trump country believe that?
Will: Anyway, I don't think there's anything there, but it's interesting.
Dan: Okay. So close to a scoop. That would have been great.
Will: Well, story of our life-- [crosstalk]
Dan: Today, yeah, that was from, can we give credit to that finding for listener Nick Curcio? Hopefully, I'm pronouncing that correctly. And he also said, “Noted that maybe neither of us have read Hillbilly Elegy.” I have not. Have you?
Will: I have not. I believe I own a copy at home.
Dan: Am I supposed to read it? Do I have to read it now?
Will: I'm going to read it.
Dan: Okay. All right.
[crosstalk]
Will: As soon as I finish reading the-- [crosstalk]
Dan: My favorite thing I've read about J.D. Vance recently is someone was interviewing one of his friends, apparently, who said that Vance, because he was anti-Trump for a while, he really turned against elites and made his Trumpy turn. After all the bad reviews for the movie version of Hillbilly Elegy- [laughs]
Will: I saw that
Dan: -made him hate the elites. I don't know if it's true. I hope it is, I can only get--
Will: I saw that. My favorite thing is that he championed the idea of weighted votes for parents. The parents would get more votes based on the number of children they have, which is the extensively argued and serious proposal of a new law review article by Steve Sachs and Josh Kleinfeld.
Dan: Yeah, this was just brought to my attention earlier today.
Will: I mean, they didn't invent it either. I think there have been earlier law review articles in political science about this. A little part of what they do is try to really work out the details, like, what do you do if the parents disagree? What do you do with noncustodial children, etc., etc.
Dan: Yeah, I'm just going to say, I think this would create a lot of complexities and problems and a little curious that this is an idea coming from the right, which is normally very worried about election fraud and things like that. And I think it would create a lot of room for mischief, but interesting. I would get more votes than you.
Will: Yeah, you'd get a lot of votes.
Dan: Yeah.
Will: Yeah.
Dan: If you have multiple children, do you split them? Do the parents just split them?
Will: Yes. So, each parent gets half votes. If you have two parents who are eligible to vote, if you have-- [crosstalk]
Dan: I would get three votes and you would get two votes.
Will: Yeah. That's how this podcast works anyway. [laughs]
Dan: You control the money, right?
Will: Such as it is.
Dan: You can shut it down.
Will: You control the website, Dan. I can barely-- [crosstalk]
Dan: Yeah, you don't-- Actually, it's not clear how to move all the levers and upload the episodes. You last couple attempts to upload the episodes have gone quite smoothly. But you did have that earlier in the--[crosstalk]
Will: I checked the episode last night, like five times, and then as I was checking it, and each time I checked it out, I was worried I was messing it up. “Did I somehow mess it up by checking it?”
Dan: Was it correct all five times?
Will: Yes.
Dan: Okay.
Will: Okay.
Dan: Well, I'm going to take a look at that article, and listeners who are interested should check it out. It's called “Give Parents the Vote” forthcoming in Notre Dame Law Review. Today's episode has a little bit of a Hillbilly Elegy connection.
Will: You mean because it's about the opioid crisis?
Dan: Yeah. So, today we are going to be talking about Harrington v. Purdue Pharma, which is a case arising out of the bankruptcy of Purdue, which is a company that bears a lot of responsibility for the opioid crisis that has caused hundreds of thousands of deaths in America, a lot of suffering beyond that, which is also in part of the story in Hillbilly Elegy, at least, so I'm told, not having read it.
Will: [crosstalk] -for the movie.
Dan: Movie is apparently bad. [laughs]
Will: That's just what the elites want you to think.
Dan: Okay, well, but I am an elite, right? Am I or am I not? Ish?
Will: I think you're an elite. [crosstalk]
Dan: Yeah. I'm no longer as elite because I used to back when it still mattered, I had a blue check on Twitter, as did you, and it was this from people on the right, it was this derisive term like, “Oh, the blue checks are saying this,” and then they decided that to have a blue check, you just needed to give money to Elon Musk. And now the valence of having a blue check is totally flipped. I mean, it's embarrassing to have one.
Will: Yeah.
Dan: Do you have one?
Will: No. I don’t know.
Dan: You pay. You don't pay for X?
Will: No, I don't. We're both mid-westerners. That makes us a little less elite, right?
Dan: Yeah, we're men of the people.
Will: All right. The Purdue pharma went bankrupt because, well, people wanted billions and billions of dollars from them in response for all their responsibility, for all their misdeeds. And the bankruptcy involves roughly, what? Billions of dollars, $11 billion-ish more?
Dan: Well, I mean the-- [crosstalk]
Will: The whole bankruptcy--
Dan: The claims are for potentially untold amounts beyond that.
Will: Yes, that's right.
Dan: Because it depends on what you mean.
Will: Yeah. Okay. We have this massive bankruptcy of the Purdue corporation that's a global settlement involving all the states and huge classes of all the potential claimants, both in the past and the future of various, who suffer from the opioid crisis in various ways. And the whole thing went to a bankruptcy court, which ultimately approved it, and went up to the Second Circuit, which also approved it. And then the solicitor general, the US trustee, told the Supreme Court that actually they should not approve it. This was not a good bankruptcy.
And so, the Supreme Court agreed to review it, and five to four agreed it was not a good bankruptcy. I mean, there's a lot going on here. But the central legal controversy is that the bankruptcy includes, alongside all the questions about how to settle-- how to dole out the limited amount of money to all the different classes of claimants: What to do with the Sacklers, who are the family behind Purdue Pharma, who, some of whom participated in more and less direct ways in all the various misdeeds. So, they are therefore themselves potentially liable both to look at the derivative claim by the company and also independent claims. And they agreed to pony up several billion dollars of their own money to the bankruptcy in exchange for being backdoor, included in the bankruptcy in exchange for a global release of all claims against them.
Dan: Although you may have skipped over perhaps a salient part of the story, which is before the bankruptcy, the family had been not dependent, you can use a pejorative word or not, siphoning money, “milking” is a word that was used in the record below, money out of the company over a period of years, pulling a bunch of assets out, $11 billion of assets, moving it to family-controlled trusts and so forth.
Will: Yes. Right. That's the $11 billion I was talking about, which is just the set of money that's been moved out. And they agreed to kick back approximately.
Dan: Some of that.
Will: Yeah. Some of that. Less than half of that in exchange for getting off themselves.
Dan: Yeah. And just to be clear, are any of them in the bankruptcy?
Will: No.
Dan: Yeah. They're not going bankrupt, right?
Will: Right.No, they want to keep-- when you go bankrupt, you have to give up all your money, and they are giving up only-- [crosstalk]
Dan: Subject to certain exceptions, right?
Will: Yeah. Some of their money. On the other hand, the central dilemma is their money is very far away and hard to reach. A lot of it is in the Jersey Islands, and some of it are in various forms of trusts and spendthrift trusts that can't necessarily be reached as ordinary assets. Obviously, there are jurisdictional, competitive laws, all sorts of legal rules. Those are all formalisms, sometimes you can pierce, sometimes you can't. Sometimes piercing them is itself very expensive. And if there is a race for their money, it's the same dynamic you might face with a company where-- okay, there's $6 billion hidden in a Jersey island spendthrift trust, whoever gets there first gets massive punitive damages to get a huge amount of it and then you have many different lawyers spending hundreds of millions of dollars, sort of a race for that.
So, you can see why there's a dilemma. On the one hand, you might think they shouldn't be entitled to any relief. We should be, whatever extraditing them all to the United States and forcing them to stand trial or whatever it is we'd be doing or you could think, “Look, it's great we got $4.3 billion out of them, and we should be grateful for that and call that a win.”
Dan: Yeah, it's interesting. I understand what happened here. It's like, they got some of the benefits that would normally be associated with going bankrupt themselves. A bankruptcy, you go bankrupt and you have to give stuff up, but at the end, you get this global release, right?
Will: Yes.
Dan: It's like you just say, “I declare bankruptcy.” Have you seen The Office episode where Michael Scott tries to go bankrupt, and he thinks that you just have to shout, “I declare bankruptcy,” and then-- [crosstalk]
Will: Like, I plead the fifth, you just go like, yeah--
Dan: But basically, you go through the process, and then you're free and clear, subject to obviously, there's exceptions about what you can discharge, but for the most part, you're free and clear. Basically, they're getting to be free and clear. But they didn't have to go bankrupt themselves. And the people whose claims are being eliminated did not all agree to this. This isn't some voluntary settlement.
Will: Although many of them agreed.
Dan: Yeah. I mean, many of them did, as a body, the classes of creditors voted to approve this settlement, but there are some people whose claims are getting voluntarily extinguished.
Will: Right.
Dan: Involuntarily extinguished.
Will: There are relatively small percentage, but there are people who say, “No, I do not consent to this. I want to still be able to sue Sacklers. I don't want this bankruptcy judge wiping out my claim.”
Dan: It's kind of like a class action settlement within the context of a bankruptcy court.
Will: Yes. Good. Exactly. So, I'll just put my cards on the table and say two of my colleagues, or one of my colleagues and one of my, until recently colleagues who just left for another law school, Tony Casey and Josh Macey, had written an article that I remember reading and talking about while they were working on it before this went to the court, called “In Defense of Chapter 11 for Mass Torts.” And their basic thesis is everybody complains that the mass tort system doesn’t do a great job at the things it’s supposed to do, and you hear its goals. Turns out the bankruptcy system is actually doing that better than the mass tort system.
And so, it’s a good thing that the bankruptcy system has found a way to be the place where we can efficiently resolve these mass torts with discretion in the hands of a sensible, neutral party and various review and so on.
Dan: And you’ve been persuaded by this?
Will: Well, we can talk about that. But I certainly come in thinking they make a lot of persuasive policy arguments about why things worked out pretty well in this case. And their article is cited repeatedly by Justice Kavanaugh's dissent.
Dan: Yeah. So basically, bankruptcy has this advantage of being this process that's superior to everything else and can just provide these global peace in a way that other parts of the legal system just can't.
Will: Yeah. And that in part, and this is a law and economics perspective, what you'd like, is you'd like to take as much money as we can and give it to the people who deserve it and waste, [crosstalk]
Dan: Oh, sorry.
Will: You want to talk about your-
Dan: [unintelligible [00:17:38]
Will: -your opioid habit, we can go [Dan laughs] into that but-- and you want to waste as little money as possible on the process itself. But when there's a limited amount of money to go around. There's a natural feeding frenzy that happens where whoever gets to the judgment first wins or whoever can figure out the way the first wins and tries to claim damages that exceed everybody else and other people try to race in and get it. And so, a good thing about the way this bankruptcy went down, they argue, is it did a pretty good job of maximizing the amount of money available to pay claims and spending very little of it on things like a race to the courthouse and the deal with the Sacklers is of a piece of that.
Dan: Yeah.
Will: Realistically, they think you couldn't have gotten $4 billion out of the Sacklers by just suing them a lot. It's not clear you can get any, depending on what you think about all the various jurisdictional issues. But if you can get something, you're probably not going to be able to actually get that much money deliverable to the clients. And that's one of the dilemmas you have in class actions as well.
Dan: Part of the thing I like about this case is it's actually a little philosophy mini seminar because it's really utilitarianism versus deontology because on the one hand, it probably is the case that the people that got harmed are probably better off doing this. On the other hand, it seems unfair because the Sacklers are just-- they're having to give up some money, but they're just getting away with it. They siphoned all this money out. They put it all in their special trusts, and now they're going to be able to pay something in order to be totally free and clear and still have billions of dollars in the bank, right?
Will: I like that framing a lot. I do think that's definitely part of it. When you ask a University of Chicago Law and Economics professor about the settlement and they defend it, they're thinking about in utilitarian terms.
Dan: Yeah.
Will: And we think about the politics that made the SG need to seek cert from this, I think it's much more the deontological thing. There's some sense this is a good settlement for the bad guys and therefore it's bad because the bad guys should suffer.
Dan: Yeah.And we have a majority opinion by Justice Gorsuch, which we'll get to in a minute. But, I mean, I will say this opinion is dripping with contempt for the Sacklers. And even the dissent by Justice Kavanaugh is accepting that everybody thinks the Sacklers are scum. It describes them as despised at one point.
Will: Yeah.
Dan: So, yeah, I mean, and that's why--
Will: Another way to think of the framing though, is this is a case about whether to let the perfect be the enemy the good. I think what the dissent would say is, “Don't let the perfect be the enemy of the good. This is a good settlement.” And then what people might say is, “Yes, but it's not good enough because it's too nice to the bad guys. Let's try for something more.”
Dan: Yeah.
Will: And one of the practical questions is going to be, now the court has unraveled the settlement. Like, what happens next? What does happen to the Sacklers? The SG tried to suggest, “Look, maybe the Sacklers will kick in more money now.” On the other hand, they might kick in less because now they can't get global peace. And there's also a debate about, well, how much would they pay for 97.5% peace? And we'll find out.
Dan: I'm surprised they're like, enterprising district attorneys haven't prosecuted some of them or tried to.
Will: Well, the company did plead guilty to something-- [crosstalk]
Dan: No, but I mean, the individuals, right?
Will: Yeah. Although-- are they extraditable?
Dan: I mean, that's not a reason not to charge somebody. Are they all fugitives from Justice? I didn't think so.
Will: Yeah, I'm not sure. I mean, I think some of them also who have the money don't-- [crosstalk]
Dan: Some of them weren't involved in the decision making, obviously, but--
Will: Even if they receive the money and there are multiple generations.
Dan: But there is this concept of fraudulent transfer adjacent to bankruptcy, which is you're not allowed to just take an entity, scoop out all the assets for yourself, and then have that entity then say, “Declare bankruptcy.”
Will: Although you can scoop out the assets before it's insolvent, right?
Dan: Well, I think that's the question about when you're allowed to do that. And there's a point at which if it's insolvent, then yes, it becomes a fraudulent transfer. There's this thing that we're not going to get into today, there's this thing called the Texas Two Step. Have you heard of this?
Will: Oh, yeah. That's also in the Casey-Macey article.
Dan: Yeah. Where basically companies have figured out a way, they can go do this in Texas somehow, they can make a company basically take out all the assets and leave all the liabilities behind [laughs] and declare bankruptcy, it's the thing that I assume the court might need to get to eventually. It sounds to me totally bogus.
Will: There are versions of it that are less bogus. You can take out not all the assets, but you can leave behind enough assets to pay the claims.
Dan: Yeah, but I think that the reason that these things are attractive, so I'm told, is that they often leave behind stuff to fund a trust. But the point is that it's not enough. That's why it's an attractive option.
Will: Sometimes, they're attractive just as a way of capping and dealing with uncertainty, though, like interpleader. If you wanted to be able to say to the mass tort system, “Look, this should be $2 billion in claims. Here's $2 billion. Leave us alone, or else we're on the productive part of the company, rather than worrying that as we make more money, the amount of money that you want will suddenly increase.” But all right, so– [crosstalk]
Dan: Last thing about the framing thing. It reminds me there are these social psychology experiments where you can give people a choice between accepting a slightly worse deal where they get something, but they'll kind feel like [crosstalk]--What?
Will: The ultimatum game.
Dan: Yeah, but they feel like they're getting screwed by the other person, or they can just like, nobody gets anything. People tend to, they have this drive towards Justice and fairness, and they'd rather just say, “You don't get anything, even if it's worse for me.” It's kind of like that.
Will: They give me a pot of money and I get to divide it into two piles, one for me and one for you, and then you get to decide whether to take the deal or blow it up. And so game theory would say, “I give you a dollar and me $99,” and you're like, “Well, I'll take a dollar,” but psychology suggests that at that point, you just get mad and blow it up.
Dan: Yeah, that's what's happening here.
Will: And I think the result is, though, that I can usually get away with something slightly better than 50-50. Obviously 50-50, you think that's fair. But if I go like 55-45, a lot of people won't blow that up, even though they'll be annoyed.
Dan: I'd blow it up if you gave yourself anything, just out of personal animosity.
Will: Even 50-50 blow up?
Dan: I blow up 99-1 in my favor. You have too much.
Will: Okay. I'm going to make another joke with this podcast, but I'm not going to do. [Dan chuckles] All right, so this case ends up with a 5-4 lineup, that's an interesting lineup. Justice Gorsuch delivers the opinion of the court in which Thomas, Alito, Barrett, and Jackson join. [chuckles] Kavanaugh files a dissenting opinion in which Roberts, Sotomayor and Kagan join. So, it's not right versus left.
Dan: Yeah. It's also not formalist, functionalist exactly.
Will: Exactly. I don't know where Alito is.
Dan: Yeah. Alito is less formalist.
Will: Kagan is sometimes far more formalist.
Dan: Yeah. Kagan is more formalist than Sotomayor. Gorsuch is super formalist. Thomas is super formalist. Jackson, I guess we're still figuring out.
Will: Yeah.
Dan: Barrett still figuring out, more formalist than Alito. Maybe less than--
Will: Yeah.
Dan: [crosstalk] Gorsuch.
Will: I don't know what's going on with that lineup.
Dan: Yeah.
Will: And, yeah, it's an interesting lineup. And it involves the following legal provision. We should try to talk about the law for a second.
Dan: Are we supposed to do that?
Will: Well, they're supposed to do that. So, the powers of the bankruptcy court to implement this kind of plan are governed by section 1123(b), which directs that a plan may do six different things, impair or leave unimpaired any class of claims, provide for the settlement or adjustment of any claim or interest belonging to the debtor or to the estate, provide for the sale of assets, modify the rights of holders of secured claims. None of these apply to these releases and six: include any other appropriate provision not inconsistent with the applicable provisions of this title. And so, everybody in this suit agrees that's what this comes down to, is whether these kinds of including what's called a third-party release.
So, a release of claims against somebody who's not the person in bankruptcy where the first person doesn't consent, a nonconsensual third-party release, is that an appropriate provision not inconsistent with the applicable provisions of this title.
Dan: And so, how are we supposed to figure that out?
Will: Well, this is where I start to get confused. What Justice Gorsuch says, as far as I can tell is, “Look, appropriate doesn't just mean like anything you want to do, we got to read appropriate in light of the other things in the list and light of the bankruptcy code as a whole. And the general theme of the other things in the list is those are all things about the debtor and people who have claims against the debtor. And the general theme of bankruptcy as a whole is there's a bargain.” You put all your assets on the table and you get global peace in exchange. And so, these releases involve somebody who's not the debtor, and they don't satisfy the bargain, and therefore it's never appropriate to have these kinds of third-party releases non-consensually.
What the dissent says instead is like, “Look, see if it's appropriate, you got to look and see what the deal looks like.” Right?
Dan: Yeah.
Will: And sometimes this could make all the claimants better off and be consistent with the purposes of bankruptcy. And when that happens, it's appropriate.
Dan: Can I just note for a second that the majority opinion is barely 20 pages. It's 19. And then a couple sentences over onto the 20th page.
Will: Yeah.
Dan: The Kavanaugh dissent is 54 pages, and he's actually not a Justice who's often long winded. I feel like he's actually gotten comfortable writing pretty short opinions and short concurrences that get to the point quickly.
Will: His dissent also has on page five, a roadmap, like a large article.
Dan: [chuckles] Yeah.
Will: Part one, pages 5 to 18, discusses why non debtor releases are often appropriate and essential to clean mass tort bankruptcies. Part two explains why non debtor releases were appropriate and essential in the Purdue bankruptcy. Part three engages the court's contrary arguments and why or especially disagree with these arguments. Part four sums up.
Dan: Are we going to start seeing more of these?
Will: Only in 54-page defenses.
Dan: Are we going to then start seeing tables of contents. If you look at read old law review articles, there's this trend where they start getting longer, and then at one point someone starts putting in the roadmaps, and then at some point they actually start doing the tables of contents. So, when I go back and read old law review articles that don't have the tables of contents, I'm totally at sea.
Will: Yeah, I like tables of contents. I actually don't like, if you have a good table of contents, you shouldn't need the roadmap.
Dan: You don't need the roadmap. Yeah. You can just integrate the roadmap into the intro in a way that accomplishes the goals of the intro, I think.
Will: Yeah, I agree with that too. Well, I do wonder, I will say at argument, at argument it did not seem to me that this was going to be a 5-4 case. It seemed like there were a lot of Justices who were very skeptical of this deal and didn't totally seem to think it was some scam. And so, I wonder if this is one of those dissents that picked up steam as it went along. And the-- [crosstalk]
Dan: Just didn’t get quite over the finish line.
Will: Not quite. But part of its point was to put all the arguments on the table, and it's easy in a bankruptcy case, I mean, you may know people who are more into bankruptcy than the average person, but it's easy in a bankruptcy case to be like, “I don't know, this is complicated and what's going on,” which is certainly my attitude to most of these.
Dan: Yeah. Although it's obviously one where the stakes seem really high, and it's also one that if you're not familiar with the area of law, if someone just describes to you what's going on here, your reaction might be like, “What? You're really allowed to do that?”
Will: Yeah.
Dan: I mean, bankruptcy has some weird things like this. I think we may have talked about this intermittently, but equitable mootness.
Will: Yeah. Isn't that becoming less of a thing?
Dan: Yeah. I don't know what the latest is, but, I mean, for a long time it was this idea that in bankruptcy cases where appellate courts could just say the case isn't moot, but let's just treat it as if it's moot.
Will: So, as I understand equitable mootness, mootness is where if it's impossible to order relief, then the case is moot. Equitable mootness is in bankruptcy, if the appellate court looks at it and says, “Boy, I really don't want to unwind this.” [laughs]
Dan: Yeah. This seems unfair. [crosstalk]
Will: [laughs]Then you say, “I don't want to order relief,” therefore it's equitably moot. Yeah. Anyway, I did a deep dive into this as I was trying to update the mootness section of the Hart and Wechsler’s book, and there has been, I think, some movement against equitable mootness, but there's not--[crosstalk]
Dan: In the lower courts. Yeah, it seemed like one of those things where it would be great to get the Supreme Court to weigh in.
Will: I agree. There's a Supreme Court case involving mootness in the child custody context, like one of these Hague Convention cases where the court rejects a similar mootness argument, where it's like the case is moot because we don't really want to move the child after five years. And the court said, “Look, that's a merits argument, not a mootness argument.” And I've seen that cited sometimes as it's like the same move that you'd want to make in the equitable mootness context, but they haven't actually had it. And I think anytime you have a really specialized area of law, especially a specialized area of law with specialized courts and lawyers, that area of law sometimes evolves its own folkways that may or may not be consistent with the general principles of law. And that may be true of bankruptcy.
Dan: Yeah, think about this, I think there might be something to be said here about different little niches or enclaves where the law is primarily made by specialists. So, bankruptcy law, we have special bankruptcy judges who are doing a lot of the day-to-day. Tax. We've got a tax court. We've got tax lawyers. I'm confident there's a bunch of weird stuff like this in tax.
Will: Yeah, patent law in the federal circuit.
Dan: Oh yeah, patent law. I mean, I feel like patent law is one where the Supreme Court for a number of years has been tuned into this, where they have case after case where the Fed Circuit does something weird and the court is just like, “That's not actually how American law works,” but they have maybe done a little bit less of this in some other areas.
Will: Yeah. It'd be interesting to think through. I think sometimes it's a specialized court, sometimes it's a specialized bar. There are different ways you can have the specialty, but there are these ways exactly in which these enclaves of their own way of doing things evolve and depending-- [crosstalk]
Dan: And there might be room for those things to get cleaned up for better or for worse.
Will: And I think there'd be people who would defend those enclaves who would say, no, these are times when there are actually people who know what they're doing, who have worked out a nice, workable, sensible system of law and the-- [crosstalk]
Dan: And we aregoing toblow the world up.
Will: Yeah. Like anticolonialism as applied to enclaves of those of law. But is this even a case where the bankruptcy thing doesn't comply with the law? So, I guess so just to come back to the question of like, “The question in this case is this appropriate? And the question is, should we decide appropriateness on an all or nothing basis? Should we categorically say this is a tool that's never appropriate because you can't get some of the benefits of bankruptcy without being bankrupt? Or should we try to figure out whether they're appropriate and what their purposes are and whether they're bad?”
Dan: Let's walk through the Kavanaugh position on appropriateness. He's going to read this as not imposing any categorical bar. It's more of a case by case. And he's going to pick up a test. So, he looks to Second Circuit jurisprudence, which I guess has developed a bit of a test or a set of factors, non-exhaustive factors to determine whether non debtor release is appropriately employed and appropriately tailored. So, first, critically, the court must determine whether the release party is closely related to the debtor. Then the court must determine if the claims against the non-debtor are factually and legally intertwined with claims against the debtor. Third, the court must ensure that the scope of the releases is tailored only to the claims that must be released to protect the plan.
Fourth, even then, the court should approve the release only if it is truly essential to the plan's success. Fifth, the court must consider whether as part of the settlement, the non-debtor party has paid substantial assets to the estate. Sixth, the court should determine if the plan provides fair payment to creditors for their release claims. Seventh, the court must ensure that the creditors overwhelmingly approve of the release, which the Second Circuit defined as a 75% bare minimum. Okay, so just to be clear, all of that is the interpretation of one word in the statute?
Will: Yes. That's like a gloss on appropriate over the course of a bunch of precedents in the Second Circuit. And recognizing this is an unusual tool. It's obviously has potential to be abused in all sorts of ways. But at least when those things have happened, essentially there is a close nexus to the claim. The estate is getting a really good deal and there is overwhelming support for the plan, then it’s probably appropriate.
Dan: What do you think about that? Do you think its remotely legitimate for courts to be making seven factor, nonexclusive test like that based one word in the statute?
Will: I'm not sure how it could be illegitimate.
Dan: You're not sure how it could be illegitimate?
Will: Yeah.
Dan: The word appropriate necessarily invites that kind of--
Will: So, when we talked in the Chevron episode, Justice Gorsuch had this concurrence about precedent and about how the way precedent works is you get a bunch of cases and they generally lay out this map in one direction, and you look at all the cases together. It's not that any one of them is dispositive, but together they push things in a direction. I guess I thought that was right. And I think that's what they're talking about here, is like the court started with this general purposes and the word appropriate, and they started working out in a bunch of cases like what that was and which cases follow which side of the line, and then over time, you look around and generalize and get something like that.
I don't think you should get too mechanical about those factors. It's not like a statue with seven parts, but as a way to try to make sure-- [crosstalk]
Dan: But like things that precedent has shown might be relevant.
Will: Yeah.
Dan: Like rules of thumb.
Will: And when you have these broad words like appropriate that are being implemented by a judge with equitable discretion, on the one hand, that's supposed to have flexibility. That's sort of the whole point. But on the other hand, you don't want the flexibility to just be unpredictable or whim or not structured. And so, I think, I know seven-part tests get a bad rap among my crowd, [chuckles] but sometimes a seven-part test is actually a sensible way to liquidate a vague term like appropriate.
Dan: Okay. You're more receptive to that than I expected you to be.
Will: I mean, look, if you tell me, it should really just be a two-part cost benefit test or something, and you ask, is this ultimately going to make the estate better off? And have you thought through the dynamic effects to be pretty sure that doing in this case isn't going to create weird dynamic incentives down the line, that might be an improvement? I'm not saying you couldn't improve on the seven factors, but when you're thinking about operationalizing this test for a bunch of lawyers and bankruptcy judges--
Dan: But when you see a word like that in a statute, you are comfortable just saying what it is inviting is some case-by-case decision making by judges to flesh it out. It's basically, it's a delegation to the courts to come up with some rules of thumb. Is that fair?
Will: I mean, I don't like thinking it was a delegation, but I mean, I think this is, when you have a broad and vague term like appropriate, there is no substitute for working it out over a series of cases. This is what James Madison called liquidation and what people often call expounding. And, yeah, that the courts then have to make some choices that are not entirely determined by math, and then we want to try to draw from those choices some kind of a coherent, sensible pattern.
Dan: Although it's not really the thing that you would think is a winning argument at the court these days to come in and say, “Hey, here's a word. Would you be willing to ratify this seven-factor thing that lower courts have been doing?” Not in vogue, I would say.
Will: I also think the court would have been fine for the court to just say, “Look, this is our first experience with the appropriate train, so we're not sure that we would get these factors out exactly right. But we totally agree this one is appropriate for all the reasons that Justice Kavanaugh has given, and we'll be keeping an eye on this going forward.” And a Texas Two Step case or something might be the more interesting thing for them to look at. I think that's also fine. I worry this is one of those cases where the sense that seven factor tests designed to do good policy are lawless was so strong that it applied even in a case where there's actually no legal rule against them and the statute just says, do something appropriate. It's just like, “Well, it must be that the statute requires wooden formalist rules that don't allow policy because that's just how statutes work.” But some statutes are actually just real--[crosstalk]
Dan: Okay, so you're providing a formalist credentialing for seven factor tests. This is good.
Will: It depends on the statute. It depends on the test. But I mean, sometimes we don't have to make the perfect be the enemy the good. I know formalists do that a lot, but they don't have to do it all the time.
Dan: So, do you disagree with the majority here?
Will: I'm pretty suspicious of the majority.
Dan: Because of the mode of analysis?
Will: Yeah. Because ultimately this comes down to this question about is it appropriate? And the court creates this very wooden rule that's not obviously a requirement of the text nor obviously good policy, and mostly is like question begging because a lot of the majority's rule is like, “Well, in general, this is how bankruptcy works.” But part of the question is, “How much discretion do phrases like this give?” At argument, Justice Gorsuch floated like some constitutional arguments like, this is a taking or a Seventh Amendment problem or something.
Dan: Yeah.
Will: I haven't thought those through. So, if you tell me that’s the-- real look in the background is like, there is a person who has-- [crosstalk]
Dan: [crosstalk] -bankruptcy clause. I mean, could there be a-- this is outside the scope of the bankruptcy power?
Will: I've heard that argument too, that the original understanding of bankruptcy didn't extend to third party releases. And I guess you'd have to also say Necessary and Proper Clause doesn't extend to it, which gives us back to some of our appropriate stuff. So, I'm not saying there are no good possible arguments here, but so far, I'm pretty unsatisfied with what the majority gives us to say we can't do this. Now, again, maybe I've just been Casey-Macey pilled and I'm too swayed by the obvious Justice of the settlement in some ways if you can set aside the deontological thing. But I don't totally get why it has to be illegal.
Dan: Yeah. And so, the majority basically just says, “Look, Justice Kavanaugh, you've got dozens of pages of why this is going to be a nightmare to get rid of and this is really important to solve collective action problems and so forth,” and basically just dismisses it all. That's how it manages to be such a short opinion.
Will: Yeah.
Dan: And so, do you think that's inappropriate or do you think the court should have been more willing to engage with some of the policy?
Will: No. I mean, well, look-- I guess two things. If the majority is really motivated by the policy, then I think they just need to get into it. And it could be that some Justices who join the majority, like Justice Jackson, are really in the majority because they just think this is deeply unfair. I don't know. She made some comments on her argument that made me think that, but I have no idea. But no, if you accept the majority's premise that appropriate, is this more like categorical on and off switch and there are structural reasons to think that third party releases are just categorically inappropriate, then the opinion is fine, then it engages in the right point. I'm just not sure they do enough to sell me on that non textualist, structural statutory interpretation move.
Dan: Yeah. What about some kind of clear statement idea that this is a big deal and that maybe we wouldn't want Congress to have just hidden that power in this vague phrase that bankruptcy is primarily about-- It's a big deal to take away someone's right to sue someone else. And so, if we're going to do that and maybe it's okay to involuntarily extinguish people's claims against parties who are not actually having to go through bankruptcy, this weird little backdoor class action settlement, but maybe we should have expected them to say that more clearly.
Will: Yeah. So, I mean, that's, you see similar debates around the scope of the Necessary and Proper Clause. There is always the argument on the other side of like, “Well, the whole point of a catch-all provision is to catch other stuff.” And so, it's a classic balance of like, you don't want the catch-all provision to be meaningless or else, you can't-- I wouldn't mind having seen more specific history. So, the majority makes some points about how this is never how bankruptcy worked before 1978, but they're making that at like a high and question begging level of generality. I've heard there is some specific legislative history around the code that is itself maddeningly ambiguous.
There's a provision that might have authorized nonconsensual third-party releases in certain circumstances, but not other circumstances. But it wasn't put in, part of the reason it wasn't put in was like a debate about how to understand current precedent of the matter. I don't understand that debate well enough.
Dan: Did you look at your colleague's amicus brief in the case?
Will: Yes.
Dan: Kind of interesting. And they claim that there's historical precedent from 1600s in England for doing things that look like this.
Will: Exactly. So that I think if you want to try to make that kind of elephants and mouse’s argument, I think that more specific argument about the historical practice is the more persuasive way to make it, rather than what the majority does. Again, I don't have a strong view about that. Maybe there's a justification for this.
Dan: Is this the less impressive side of Justice Gorsuch? Wooden formalism, but in a way that doesn't fully engage with facile, doesn't really engage with all the issues it needs to engage with?
Will: Oh, boy. You said it, Dan, not me.
Dan: Well, I said it in the form of a question, so you're going to need to engage. You can't brush aside the hard issues the way that this opinion does.
Will: I don't find it as satisfying or persuasive as some of Justice Gorsuch’s other opinions, I think that's true. He's right about the central statutory phrase, he makes some structural arguments to think they're improper. But I do worry that Justice Gorsuch has this strong predisposition to let the perfect be the enemy of the good. If he sees a contest between the perfect and the good, his thought is, “I want it perfect.” And I worry that view is doing more of the work in a case where the language is more ambiguous than he thinks it is.
Dan: Yeah. Going back to the lineup a little bit. I do think that Justice Alito is the most puzzling vote in this case.
Will: Okay. And the reason we think that is we think of Gorsuch, Thomas, and Barrett as the three most formalist. So, they might be inclined to a formalist view that might lead them here. Jackson might be inclined to a Sacklers are big baddies and shouldn't be allowed to get away with it, mixed with some formalism as well.
Dan: Yeah. I feel like I need a little bit more data on her to pin her down. But Alito, least formalist, and it seems like he might have found the 30 pages of Kavanaugh. This is really practically important, persuasive.
Will: Yeah, yeah, that's true. I mean, again, if you take the criminal aspect-- if you think the Sacklers are basically evil criminal masterminds view, and if you think Alito has a more prosecutorial streak sometimes or more in a criminal case, you might think of Alito as having very little sympathy for anything that allows the bad guys to get away with it. Maybe that's doing some work.
Dan: Maybe.
Will: Yeah. Maybe it's just the votes are scrambled because this is a tough case in an area of law, they don't have a lot of information about and so reasonably disagree. I don't know.
Dan: It's a case where it actually would have been nice to have more separate writings. [will laughs] We have too much of that.
Will: Yeah.
Dan: But here, I would have loved to see a short thing by Jackson staking out why she's where she is or somebody else dissenting.
Will: Yeah. If you had separate writings, one question I would be interested to hear is the extent you have a view about this case, I'm curious how it relates to your views about mass tort cases because in the literature on this, some of the people who criticize this kind of thing are people who like the mass tort system and want the mass tort system to better and stronger.
Dan: Yeah.
Will: And so, the fear is this is like letting the law and econ-y people who don't care about process and due process and getting your day in court, displace the mass tort system with their Chicago bankruptcy thing. I'd be curious to know if that's where Jackson's coming from or somebody else is coming from or be curious to know where people are coming from.
Dan: I mean, the process does not seem to be obviously worse than at least class actions in terms of people's fairness. And class actions just as much involve extinguishing people's rights without consent, sometimes you have the ability to opt out. If it is a dangerous--[crosstalk]
Will: Although they oftentry to punish you. I do think it's a little unfair to compare because the bankruptcy system in cases like this knows that it's on questionable legal ground. There's an incentive to do things, like in a super clean, super generous way. Once these kinds of bankruptcies are totally blessed, the way class action settlements are.
Dan: You mean if this case had come out the other way, it would have opened the door.
Will: Yeah, to much lower quality.
Dan: That's interesting.
Will: So, there's a dynamic effect there that's hard to-- And that's why, probably part of why you see Kavanaugh wanting to adopt still a super strict test and not just say, “Look, there's more money in the estate and the bankruptcy judge thought, it's fine. What's the problem?
Dan: Yeah.
Will: The other issue, so what about consensual releases? So, this is something Justice Thomas brought up an argument, and some people think he might be in play. Justice Thomas said, “Look, if releasing claims against somebody who's not bankrupt is not appropriate, then why is it okay to release the claims if there is consent, and that happens all the time and nobody questions it.” So, to get the bankruptcy deal done, you'll need a consensual release, and you won't want to do it just as a contract. You want it to be wrapped into the bankruptcy for lots of procedural and enforceability reasons. And Justice Gorsuch says, “Oh, those are different. Those are totally fine.” Or he doesn't say they're fine, but it says-- [crosstalk]
Dan: Yeah. But it seems like if they have to fit under the same statutory language, if the point of that argument is if it's not about the debtor, it's not within subsection six.
Will: Now, again, lots of the time, we take something that's illegal and if people agree to it, we just say, “Oh, well, I guess it's fine now”. I mean, that's everything from plea bargains to whatever. As a formalist matter, I wasn't totally satisfied with why. He says they may rest on different legal grounds than the nonconsensual release at issue here, cites a 1993 Seventh Circuit case that maybe provides its own legal theory. But if we're going to get some separate writing, like for Justice Thomas or somebody, I would have liked to just see that spelled out.
Dan: Yeah.
Will: I don't know. Once Justice Kavanaugh used up all the pages, they might have just figured, like--
[laughter]
Dan: The reporter's office was out of ink.
Will: [laughs] Yeah. If you think it's too long, it's hard to print in little books.
Dan: Yeah. Do you like those little books?
Will: Yeah. I don't know. So, do you think the majority is right, Dan?
Dan: Well, I don't know. Maybe I'm a little bit more sympathetic because I just have less of the policy fairness, exactly. But I had this like, “Wait, how can you do this?” If bankruptcy is about this idea that the party goes in and says, “I've got all these debts, I want to get rid of them, and they have to do certain things,” it seems really weird to then just let other people get all the benefits of bankruptcy without having to pay the costs of bankruptcy. Just seems weird to me. And it seems to me totally plausible to believe that something like the clear statement rule I articulated that I would like to see much more authorization for that given the fairness interest at stake.
Will: Yeah. If you make off with $11 billion and try to keep $6.5 of it, you owe a higher burden of proof than what we've had here.
Dan: Yeah.
Will: I guess for my own interest, the thing I would have loved to see more on is really just like, “What really is the law of trying to recover money from a spendthrift trust in the Jersey Islands.” This is always like, there's some stories about that--
Dan: Somebody is researching that right now.
Will: I'm sure [chuckles] I am sure my students and other law firm associates are billing hundreds of thousands of millions of dollars out of that question. But that's put about as this huge obstacle, and I don't have enough of a sense to know what is the obstacle? What are the seven things you need to do? Or what are we talking about trying to get the money? And I realize there are different pots of money in different places and so on.
Dan: Yeah.
Will: Yeah, I'm sure you're right. I'm sure that's the kind of legal work that pays the bills. But it's hard to totally understand this without getting a sense of that.
Dan: Well, more to say-- I mean, I guess I did have this very gestalt impression from not knowing a ton about the issues that it was the kind of thing where it would get to the court and the court would be like, “What? You're saying you can do this? No way.” And so that is where the court landed. Although it was a closer case. And, I mean, Kavanaugh does make me concerned about the effects, and I really am curious how it is going to shake out because it may be better, it may be worse. Maybe the Sacklers will have to pony up more.
Will: Yeah. When I talk to people this case who have strong views about it, the one predictive question I really want them to answer is how many billions will the Sacklers sacrifice pony up now? Will the number be more than 4.3 billion? Less than 4.3 billion? What do we think is the final number? Is this going to go to zero because they're going to take all their money and move it to a spendthrift trust on [Dan laughs] Mars or what? And I don't know the answer. I don't pretend to know the answer.
Dan: I bet it'll be more than zero.
Will: Do you think it'll be more than a billion?
Dan: I think they will certainly have to spend more than a billion. I don't know how much of that will be legal expenses versus.
Will: Yeah.
Dan: Yeah. Beyond that.
Will: Like this settlement still go forward with like a number?
Dan: Well, I don't think will there be this settlement? I mean, do you mean, will they have a voluntary settlement with all the creditors who vote for this?
Will: Yeah, like this. I mean. So, I think the SG's theory is this bankruptcy is still going to go forward. It won't be $4.3 billion, it might be more, it might be the election now pay $5 billion and get [crosstalk] release.
Dan: But they can't get what they want, so, what are they going to get in return? It is going to extinguish the bankruptcy estates claims against them, basically.
Will: Yeah, and maybe extinguish-- everybody who participates in the bankruptcy is going to agree to have their claims extinguished, which is like the 97.5% of people who voted to approve it are going to have their claims extinguished. Now, it might be not. That might be the ones everybody knows--
Dan: I mean, the thing that's tricky about that is that our tort system has this layer of unpredictability where you can get these individual judgments for individual people that are like $100 million.
Will: Yes. And the punitive damages animated by the same spirit we talked about might think, “Look, if the Sacklers have a penny left at the end of this, they should go to whoever suing for whatever their punitive damages are.” Not saying that's my view, but I think that might be where things are headed.
Dan: Can we tie this into El Chapo at all?
Will: You mean because they involve foreign drug kingpins?
Dan: Well, yeah. And his son made a deal with the US government to trick the other kingpin into flying to the US to be arrested and so that El Chapo's son is going to get some sweet deal.
Will: Yeah.
Dan: And maybe get to keep some of his ill-gotten gains. But they are the major figures in the fentanyl crisis, which I think everyone believes is you can draw a pretty straight line from Purdue Pharma, OxyContin to where we are with fentanyl.
Will: Yeah. So, you're saying there might be some kind of trying to get the Sacklers to try to sell each other out?
Dan: Yeah. Trick some of them to flying back. Flying their assets back on the plane from the Jersey Islands.
Will: I don't think it's going to work now.
Dan: Okay, but they're not listening.
Will: Maybe you pay England to nationalize the Jersey Islands or something.
Dan: What's the deal with the Jersey Islands? They're somehow immune from the legal system? Does that seem weird? Do they have some-- [Will chuckles] are they like the British version of the Cayman’s or something?
Will: I do think they're the British version of the Caymans.
Dan: I don't think they're part of the UK. Why can't the UK just be like, “No, you can't do this?”
Will: Well, they're self-governing.
Dan: Okay.
Will: This is what the concurring opinion I want us to understand. Yeah, I think they've become the home for a lot of stuff that maybe--
Dan: Well, Labour is taking over in Britain. Maybe they can stop this somehow. Can we get the king involved? I mean, I don't really understand the constitutional structure of the UK and the greater Commonwealth.
Will: It's very confusing to me.
Dan: Yeah.
Will: I mean, I try to understand it because give birth to our constitutional structure, which I do claim to understand, but we wrote ours down, which really helped.
[laughter]
Dan: Helps in some ways, creates other problems.
Will: But it makes things worse in other ways. I agree, but helps me understand it.
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Dan: And if there's a long delay between this and our next episode, it's because I will have absconded to the Jersey Islands with the funding for Will’s Institute at the University of Chicago.
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