Bankruptcy Judges are not Free to Craft Remedies

Two different kinds of things were decided in the recent Supreme Court decision in Harrington v. Purdue Pharma L.P.: the specific thing and the general thing. The specific thing was that it is no longer permitted – even in very limited and unique circumstances – for parties who are not debtors in a bankruptcy case to receive a discharge of their debts as though they were, no matter what a good idea it might have seemed to be. These “third-party release” provisions were already rare before the Purdue Pharma decision, but they are now officially extinct. Can’t do ‘em. They’re done. 

That is the specific thing that was decided. 

How about the general thing?

The wider implication contained in the court’s decision is that bankruptcy judges are not free to craft remedies for those who appear before them that are not provided for in the Bankruptcy Code. 

Here’s an analogy: litigants in a bankruptcy case are like diners in a restaurant; judges are like the cooks. The litigants can order different dishes from the menu, and as long as they play by the rules, the court will deliver the dish as ordered. “One chapter 7 discharge, coming right up!” What the litigants in the Purdue Pharma case wanted to do was order something that wasn’t on the menu. They were at Waffle House, and they ordered spaghetti. What’s more, the cook (i.e. the bankruptcy judge) looked around at his available ingredients,  asked everyone at the table if they were sure that’s what they wanted, and then gamely went about making spaghetti for everyone.

The Supreme Court’s Purdue Pharma decision says no, you can’t do it. It doesn’t matter what the diners want. It doesn’t matter whether the cook has the ingredients for it. It doesn’t matter if the judge agrees to make the spaghetti. What matters is what’s on the menu. If you want Waffle House to start serving spaghetti, then write to your congressperson.

This more generally applicable rule from the decision is one that is relevant not only in the rare, multi-billion dollar Chapter 11 cases, but in the little ones, too and we welcome this decision as an appropriate application of the Bankruptcy Code.