Purdue's Poison Pill: The Breakdown of Chapter 11's Checks and Balances

ABSTRACT

Purdue Pharma, the bankrupt drug manufacturer at the center of the opioid crisis, settled its civil and criminal liability for opioid harms with the Department of Justice in a deal that contained a "poison pill" that prevented creditors from objecting to any subsequent plan of reorganization for Purdue if creditors exercised their rights and pushed for Purdue 's liquidation, they would forfeit all of Purdue's value to the Department of Justice. This Article argues that Purdue illustrates how the procedural checks and balances that make Chapter 11 bankruptcy a fair and credible system have broken down. Purdue represents the confluence of three trends in bankruptcy (1) increasingly aggressive and coercive restructuring techniques like the poison pill that lock in the determination of subsequent decisions in the bankruptcy;(2) the lack of appellate review for many key bankruptcy issues;and (3) the rise of "judge-shopping," facilitated by bankruptcy courts' local rules that enable debtors to handpick their judge. While each of these trends is problematic in its own right, standing alone they do not undermine the fundamental fairness of the bankruptcy system. Their convergence, however, results in a broken legal system in which a single non-Article III judge of the debtor 's choosing is the only real check on what the debtor can do in Chapter 11. This situation enables debtors to push through overreaching restructuring transactions that benefit favored creditors and allies at the expense of disfavored creditors, like the opioid victims in Purdue.