In response to the Supreme Court’s decision in Harrington v. Purdue Pharma, House Judiciary Committee Ranking Member Jerrold Nadler re-introduced the Nondebtor Release Prohibition Act of 2024.
The Nondebtor Release Prohibition Act addresses three egregious abuses within the bankruptcy system: nonconsensual nondebtor releases, asset-shielding divisional mergers, and preliminary stays. This legislation follows the recent decision by the Supreme Court in Harrington v. Purdue Pharma, which narrowly ruled that the bankruptcy code does not authorize nondebtor releases without claimant consent. Unfortunately, this ruling did not clarify eligibility standards for consensual releases and threatens to unwind reorganization plans that have already become effective.
"The Nondebtor Release Prohibition Act of 2024 is a crucial step toward ensuring that our bankruptcy system cannot be manipulated by the powerful to escape accountability. Recent high-profile cases have highlighted the need for clear, unequivocal legislative guidance. While the Supreme Court's decision in Harrington v. Purdue Pharma was a significant step, it left gaps that our bill aims to fill. By addressing both nonconsensual and consensual releases, we provide the explicit guidance that bankruptcy judges and claimants need. Our bankruptcy system should be a means for Americans to get a fresh start, not a tool for corporate abuse and evasion,” said House Judiciary Committee Ranking Member Jerrold Nadler.
Specifically, the Nondebtor Release Prohibition Act:
- Prohibits bankruptcy courts from modifying the civil liabilities of an individual or entity who has not themself sought bankruptcy protection (i.e., nondebtors), such as the Sackler family and their accomplices;
- Limits consensual third-party releases only to cases in which a claimant receives conspicuous notice and expressly consents in signed writing to the release or modification of their claims against the nondebtor;
- Prohibits large corporations from using divisional mergers to shield their assets from the victims of their misconduct, including the tens of thousands of people who suffered from horrific forms of cancer after using Johnson & Johnson’s asbestos-contaminated baby powder;
- Limits a similar tactic known as non-debtor stays and injunctions, which also allow a third party to avail itself of some of the benefits of the bankruptcy process without assuming the obligations and safeguards that come with filing for bankruptcy;
- Subjects temporary injunctions to a 90-day limit, unless the injunction is affirmed by a U.S. Court of Appeals, or the appeal is dismissed before the end of the 90-day limit; and
- Prevent the unwinding of reorganization plans that were entered before the enactment of this legislation.
“Bankruptcy judges themselves have called for more explicit guidance to navigate these complex issues. The Nondebtor Release Prohibition Act of 2024 responds directly to this need by providing clear, definitive rules that protect the rights of all claimants while preserving the integrity of the bankruptcy process. This is not just about closing loopholes; it’s about restoring faith in our legal system and ensuring that it works for everyone, not just the powerful and well-connected,” said Ranking Member Jerrold Nadler.
The bill is supported by Representatives Steve Cohen, Mark DeSaulnier, Eleanor Holmes Norton, Hank Johnson, and Katie Porter.
The full bill text is available here.
