724 F.Supp.3d 260
S.D.N.Y.2024Background
- Purdue Pharma and its affiliates filed for bankruptcy in 2019, facing widespread litigation tied to their opioid business.
- The U.S. government filed multiple criminal and civil claims against Purdue, including claims for billions in forfeiture, fines, and damages.
- Purdue and the U.S. reached a plea agreement and a civil settlement in October 2020; these agreements gave the U.S. several high-priority claims in the bankruptcy estate, codified in a Bankruptcy Court order (the "9019 Order").
- Appellants Bridges and Bloyd did not object to or appeal the 9019 Motion or Order.
- In August 2021, Appellants filed an adversary proceeding seeking to equitably subordinate the U.S.'s claims, claiming their rights as victims were ignored under the Mandatory Victims Restitution Act (MVRA).
- The Bankruptcy Court dismissed their complaint for failure to state a claim, and Appellants appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Collateral Attack on 9019 Order | Appellants can challenge the priority and treatment of U.S. claims despite not objecting to or appealing the order. | Appellants forfeited the right to challenge by not objecting or appealing; collateral attacks are barred. | Court held the complaint was an impermissible collateral attack; 9019 Order is final. |
| Equitable Subordination | U.S. acted inequitably by waiving victim restitution under MVRA and prioritizing its own claims. | No fraud or egregious conduct; prosecutorial discretion applies; MVRA doesn't create such a duty. | Court found no inequitable conduct, and claim did not meet legal standard. |
| Application of MVRA | MVRA obligated restitution to victims in the bankruptcy context. | MVRA doesn't apply to bankruptcy distribution or create a private right of action against U.S. | Court agreed with defendants; MVRA inapplicable here. |
| Consistency with Bankruptcy Code | Bankruptcy court can use equitable subordination to reorder priorities. | Equitable subordination inconsistent here because MVRA grants no legal right to relief; can't expand non-bankruptcy rights in bankruptcy. | Court found equitable subordination would be inconsistent with the Bankruptcy Code. |
Key Cases Cited
- In re Purdue Pharma, L.P., 635 B.R. 26 (S.D.N.Y. 2021) (context for "tsunami of litigation" against Purdue)
- AEC One Stop Grp., Inc. v. Bain Cap. Fund IV L.P., 9 F. App’x 53 (2d Cir. 2001) (final, unappealed orders cannot be collaterally attacked)
- In re Mobile Steel Co., 563 F.2d 692 (5th Cir. 1977) (sets out standards for equitable subordination)
- United States v. Batchelder, 442 U.S. 114 (1979) (prosecutorial discretion in charging decisions)
- Heckler v. Chaney, 470 U.S. 821 (1985) (prosecutorial discretion is not judicially reviewable)