ADDITIONAL CASES Stacey Bridges and Creighton Bloyd, Appellants v. Purdue Pharma L.P., et al., and the United States of America, Appellees OPINION AND ORDER Stacey Bridges and Creighton Bloyd (“Appellants”) appeal from an order of the United States Bankruptcy Court for the Southern District of New York (Lane, B.J.) (“Bankruptcy Court”), announced from the bench on March 31, 2023 (JA 1612),1 and filed as a written order on April 20, 2023 (AP Doc. 44),2 dismissing the Adversary Proceeding below for failure to state a claim on which relief could be granted (the “Bankruptcy Court Order”). A Notice of Appeal dated April 14, 2023 was filed in this Court on May 4, 2023 (Doc. 1). Appellants filed their brief on July 14, 2023. (Doc. 11, “App. Br.”). Purdue Pharma L.P. (“Purdue”) together with its affiliates that are debtors and debtors in possession (collectively, the “Debtors”), and the United States of America (“U.S.” and together with the Debtors, “Appellees”) each filed their briefs on August 17, 2023 (Doc. 12, “Purdue Br.”; Doc. 13, “USA Br.”), and the appeal was fully submitted with the filing of Appellants’ reply brief on September 14, 2023 (Doc. 25, “Reply”). For the reasons set forth below, the Bankruptcy Court Order is AFFIRMED. BACKGROUND “Engulfed in a veritable tsunami of litigation,” In re Purdue Pharma, L.P., 635 B.R. 26, 35 (S.D.N.Y. 2021), rev’d and remanded sub nom. In Re Purdue Pharma L.P., 69 F.4th 45 (2d Cir. 2023), the Debtors filed for bankruptcy on September 15, 2019. (BR Doc. 1).3 The U.S., on July 30, 2020, filed a proof of claim based on a criminal investigation relating to the “Debtors’ marketing, sale, manufacturing, and distribution of opioid and other pharmaceutical products,” that implicated violations of a number of criminal statutes (JA0001, “DOJ Criminal Claim”). The U.S. also filed a proof of claim stemming from a civil investigation of the Debtors. (JA0011, “DOJ Civil Claim”). These claims included a forfeiture claim of at least $3.5 billion, criminal fines of at least $6.2 billion, and other civil damages of at least $2.8 billion. (See DOJ Criminal Claim; DOJ Civil Claim). The U.S. had filed several additional claims against the Debtors as well. Purdue and the U.S. entered into a plea agreement on October 20, 2020 whereby Purdue agreed to plead guilty to three criminal charges in an indictment filed in the United States District Court for the District of New Jersey; and on October 21, 2020 reached a civil settlement. (See JA 1323, JA 0149). Both the plea agreement and the civil settlement granted the U.S. certain allowed claims against the Debtors’ estates. (See id.). Those claims included “an allowed superpriority administrative expense claim against [Purdue]” in the amount of $2 billion with priority over any and all claims and administrative expenses of any kind; an allowed claim totaling $3.544 billion as a result of a criminal fine to be imposed on Debtors; and an allowed claim “ against [Purdue] in the amount of $2.8 billion arising from the DOJ’s civil investigation.” (See JA-0030, “9019 Motion”). The U.S. further agreed to provide a credit offsetting the $2 billion superpriority administrative expense claim of up to $1.775 billion for any value distributed or otherwise conferred by Purdue under a plan of reorganization in respect of claims asserted by state, tribal, or local government entities. (Id.). On October 21, 2020, the Debtors filed a motion (the “9019 Motion”) seeking the Bankruptcy Court’s approval to enter into a comprehensive resolution of the U.S.’s claims against Purdue (the “DOJ Resolution”). (Id.). All parties in the bankruptcy had an opportunity to oppose the 9019 Motion. Appellants did not file any papers in connection with the 9019 Motion. The Bankruptcy Court held a hearing on November 17, 2020. (JA0253). Appellants did not appear at the hearing. The Bankruptcy Court approved the settlement at the hearing and, on November 18, 2020, entered a written order confirming its grant of the 9019 Motion. (JA 0288, “9019 Order”). Appellants did not appeal the 9019 Order. The Adversary Proceeding in the Bankruptcy Court (and at issue in this appeal) was commenced on August 30, 2021 by the filing of a Complaint which alleged a single claim for equitable subordination of the U.S.’s claims to those of Appellants and other personal injury victims. (JA 1313). Appellants asserted that the U.S. “ignor[ed] the rights of victims” under the Mandatory Victims Restitution Act (“MVRA”), 18 U.S.C. §3663A. (Id. 9). By agreeing to resolve civil and criminal charges against the Debtors under the terms of the DOJ Resolution, the U.S. thereby allegedly “declined to vindicate the rights of victims of the Debtors.” (Id. 4). Appellants further asserted that the U.S. “could have easily counted at least some of the victims of Debtor[s'] conduct” by reviewing the thousands of personal injury claims filed and calculating “the resources necessary to rehabilitate victims.” (Id.
5-6). By failing the do so, Appellants allege the U.S. “undermined the position of victims whose rights are protected by federal statute and who were entitled to liens.” (Id. 8). Although Appellants acknowledged that the 9019 Order provides that certain claims shall not be subject to subordination (Id. 11), Appellants suggested that the Bankruptcy Court was not “constrained” by the 9019 Order to prohibit equitable subordination “if the Court included such language without having been fully advised of the premises,” such as the “failure to the United States to vindicate rights under the MVRA.” (Id.). On September 1, 2021, the Bankruptcy Court issued a bench ruling confirming the Debtors’ Twelfth Amended Joint Chapter 11 Plan of Reorganization (the “Plan”). (JA 360). The Plan provided for the Debtors to pay the U.S. $225 million, with a credit applied to the balance of the $2 billion claim based on amounts allocated under the Plan to state, tribal, and local governments for remediation efforts to address the opioid crisis. (See id. §2.3). The Plan allocated $50 million to the U.S. in satisfaction of its claims stemming from the DOJ civil settlement, the DOJ criminal fine, and the Federal Healthcare claims (see id. §4.3), as well as an additional $26 million relating to a resolution regarding healthcare costs incurred by certain federal agencies (see id. §5.2(h)). The bench ruling confirming the Plan was docketed on September 17, 2021. (JA-0518). The Debtors and the U.S. filed motions to dismiss the Complaint in the Adversary Proceeding in November 2022. (JA 1419; JA 1452). On March 31, 2023, the Bankruptcy Court issued the Bankruptcy Court Order dismissing the Complaint with prejudice. This appeal followed. STANDARD OF REVIEW This Court has jurisdiction to hear appeals from decisions of a bankruptcy court pursuant to 28 U.S.C. §158(a), which provides in pertinent part that “[t]he district courts of the United States shall have jurisdiction to hear appeals…from final judgments, orders, and decrees;…[and,] with leave of the court, from other interlocutory orders and decrees…of bankruptcy judges.” “The Bankruptcy Court’s findings of fact are reviewed for clear error, and its conclusions of law are reviewed de novo.” In re Markus, 78 F.4th 554, 563 (2d Cir. 2023). The clear error standard permits the Court to set aside the Bankruptcy Court’s factual findings only if the Court is “left with the definite and firm conviction that a mistake has been committed.” Sacerdote v. New York Univ., 9 F.4th 95, 119 (2d Cir. 2021) (citing United States v. U.S. Gypsum, 333 U.S. 364, 396 (1948)). “[C]lear error review mandates that [the Court] defer to the [Bankruptcy Court's] factual findings, particularly those involving credibility determinations.” Id. (citing Phx. Glob. Ventures, LLC v. Phx. Hotel Assocs., Ltd., 422 F.3d 72, 76 (2d Cir. 2005)). A de novo review on the other hand allows the Court “to decide the issue as if no decision had been previously rendered. No deference is given to the Bankruptcy Court’s decision.” In re Reilly, 245 B.R. 768, 772 (B.A.P. 2d Cir.), aff’d, 242 F.3d 367 (2d Cir. 2000). Further, a bankruptcy court’s interpretation of its own order is given deference on appeal and is reviewed for abuse of discretion. See Guerriero v. Rayhan, No. 10-CV-04483, 2011 WL 4374957, at *3 (E.D.N.Y. Sept. 19, 2011). The abuse of discretion standard is a narrow one. Amelio v. Piazza, 2019 WL 5199600, at *3 (S.D.N.Y. Aug. 27, 2019), aff’d sub nom. In re Amelio, 857 F. App’x 665 (2d Cir. 2021). “The Bankruptcy Court ‘necessarily abuse[s] its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence.’” In re Kalikow, 602 F.3d 82, 91 (2d Cir. 2010) (quoting In re Highgate Equities, Ltd., 279 F.3d 148, 151 (2d Cir. 2002)). ANALYSIS The Bankruptcy Court dismissed the Adversary Proceeding for failure to state a claim because it found the allegations in the Complaint constituted an impermissible collateral attack on the 9019 Order in a scenario where Appellants had forfeited such challenge; and because the factual allegations in the Complaint did not satisfy the demanding standard for equitable subordination. Upon a full review of the record, this Court concludes that the Bankruptcy Court correctly considered and applied the facts and law, appropriately dismissing the Complaint. I. Appellants’ Collateral Attack on the 9019 Order The Bankruptcy Court correctly found that Appellants forfeited their right to challenge the 9019 Order in the Adversary Proceeding filed by not objecting to the 9019 Motion or challenging the 9019 Order. The 9019 Order included the Bankruptcy Court’s determinations that the U.S.’s Forfeiture Judgment shall be treated as a superpriority administrative claim and that the Government’s criminal fine and civil resolution claims “shall not be subject to subordination.” (9019 Order
