John Spadaro

The commentary surrounding the Manhattan DA’s successful prosecution of former President Donald J. Trump under Section 175.10 of New York’s Penal Law often overlooks an important historical fact: To date, New York prosecutors have brought charges under that statute, which prohibits the falsification of business records, nearly 10,000 times. Until now, of course, none of those criminal defendants has been a former President of the United States. But the Manhattan DA’s pursuit of charges under Section 175.10 is otherwise fairly routine.

New York’s Penal Law makes it a misdemeanor offense to create a false entry in any business record with the intent to defraud another person or entity. But when someone undertakes the falsification of business records with the purpose of committing some separate and additional crime, Section 175.10 escalates the gradation from misdemeanor to felony:

A person is guilty of falsifying business records in the first degree when he commits the crime of falsifying business records in the second degree, and when his intent to defraud includes an intent to commit another crime or to aid or conceal the commission thereof.

In other words, mere falsification of business records with an intent to defraud is a misdemeanor under New York’s Penal Law; but falsification of business records in furtherance of a separate crime is a felony.

In Trump’s case, the DA alleged that his falsification of business records was in furtherance of a conspiracy, undertaken with the Trump organization’s in-house lawyer, Michael Cohen, the publisher of the National Enquirer, David Pecker, and others, to skirt federal campaign finance laws. On appeal, Trump will argue that a state legislature cannot rely on a federal crime as a predicate for a state felony. New York’s appellate courts will now have to decide whether this argument holds water. 

As stated above, the relevant passage of Section 175.10 employs the language “another crime.” Criminal statutes are construed narrowly by the judiciary, but the judiciary will apply these statutes based on their plain meaning absent a constitutional hurdle to such an application. Through this lens, of course, “another crime” refers literally to any other crime. And had the legislature intended to narrow the scope of the section’s application, it had the option to include language that reads “another crime under the law of this state,” but instead opted for the broader terminology that appears in Section 175.10 as codified. Trump may find some traction, however, because unlike state civil courts, state criminal courts lack general jurisdiction, and as such are an inappropriate forum to prosecute federal crimes. 

I believe this argument fails, however, because the crime being prosecuted here is not a federal crime, it’s a New York State offense that allows for amplification of the grade of the offense based on the commission of any crime. The Tenth Amendment holds that all powers not delegated to the federal government, nor prohibited to the states, are vested in the states. Thus, unless the U.S. Constitution prohibits the states from passing the legislation that the New York State legislature has passed in this instance to allow for the amplification of the gradation of offenses under Section 175.10, that power remains with the states. And to my mind, there is no basis for concluding that the U.S. Constitution either delegates this power to the federal government or prohibits it to the states. Therefore, New York is likely within its rights as a state in drafting Section 175.10 as it did, and the conviction will probably be upheld. 

Bankruptcy proceedings are sometimes used to limit corporations’ exposure to civil liability—stopping lawsuits in their tracks, and allowing vast numbers of plaintiffs just pennies on the dollar in their quest to hold corporate wrongdoers to account. This is not a new phenomenon. Indeed, asbestos producers (among others) have for years looked to the nation’s bankruptcy courts as a means of bundling underlying tort suits together, imposing limited recoveries on the corporation’s alleged victims, and allowing the “reorganized” corporation to resume operations free and clear of asbestos claims.

Traditionally, a corporate defendant’s eligibility for bankruptcy protection has been the same basic standard that applies to all persons and entities in bankruptcy: the fact that they owe more than they have, which is to say that their actual and potential liabilities exceed their assets. But are there circumstances where the wealthy and powerful should be afforded bankruptcy protection even when they aren’t bankrupt?

That’s the question posed in a massive bankruptcy case called Harrington v. Purdue Pharma, now pending before the United States Supreme Court.

Harrington is a creature of the opioid crisis. Nearly 30 years ago, Purdue Pharma began promoting its patented painkiller, OxyContin, as more or less non-addictive. But as is now universally recognized, the drug proved to be highly addictive. The result was an unprecedented public health crisis and, ultimately, thousands of lawsuits seeking trillions of dollars against Purdue Pharma and the Sackler family, who owned the lion’s share of the company throughout most of the drug’s history. These lawsuits allege that the Sacklers marketed OxyContin deceptively.

In response to this tidal wave of potential liabilities, Purdue Pharma filed for bankruptcy in 2019. Significantly, the Sacklers themselves have never filed for bankruptcy, and it is believed that the family retains billions in personal wealth—much of it derived from the sale of OxyContin. In response to Purdue Pharma’s filing, a bankruptcy court in New York put lawsuits against both the company and the Sackler family on hold.

In September 2021, the bankruptcy court confirmed a plan to reorganize Purdue Pharma as a nonprofit devoted to addressing the opioid crisis. Members of the Sackler family, who had taken pre-tax distributions of $11 billion from Purdue Pharma in the years leading up to the bankruptcy filing, agreed to contribute up to $6 billion to the bankruptcy plan. Under the plan’s terms, those funds would go to individual plaintiffs in the underlying tort suits, as well as to state and city governments and other entities. In exchange for the funds, the Sacklers would be shielded from future civil liability for opioid-related claims.

A federal district court struck down the bankruptcy court’s ruling, but a federal appeals court reinstated it. Now the Supreme Court will have the final word on whether non-bankrupt persons and entities, like the Sacklers here, can secure bankruptcy protection in so-called “mass tort” cases like Harrington.

Purdue Pharma argues that the plan is in the public interest because, through the bankruptcy system’s unique power to centralize relief, the bankruptcy courts can marshal “life-saving” funds on an urgent basis. Instead of waiting for tort cases to wind their way through state courts, yielding uncertain and potentially inconsistent results, the proposed bankruptcy plan can get money to victims quickly. Opponents of the plan point out that the Sacklers would not have agreed to a $6 billion contribution had they not feared that the traditional tort system would ultimately require them to pay more; and if that is the case, shouldn’t victims have an opportunity to prove that they are indeed owed more? And doesn’t due process entitle victims to their day in court? Those who defend the Sacklers’ plan to contribute $6 billion dollars must necessarily adopt the position that the Sacklers are acting in the interest of the public, and have chosen to contribute such a sum out of a desire to further public health, or some other noble cause in place of their desire to spend a smaller sum than they might owe. It strains belief to suggest that the family who so profitably oversaw the public health catastrophe known as the opioid crisis has undergone a change of heart. And regardless, the legal objection to this plan remains: why should the Sacklers be allowed to use bankruptcy to protect additional assets when they are not bankrupt? This is a question that proponents of the Sacklers’ proposed plan will likely struggle to answer directly, as the plan flies in the face of the core principles of bankruptcy law.

The plan’s opponents also argue that allowing a bankruptcy court to put a permanent end to thousands of lawsuits in scores of state and federal courts places too much power in the hands of a single judge. Allowing such a culling of potential suits may be appealing to state and federal judges who can count on less populous dockets, but it is likely less appealing to those whose lives have been touched by the opioid crisis and are rightfully seeking compensation for their losses in court. Finally, the plan’s opponents say that by neatly packaging the matter in a bankruptcy plan, the bankruptcy court allows wrongdoers to bypass the mechanisms that are used in tort cases to discover the truth; and this means that the information typically developed in such cases—information that might be used to implement necessary reforms, and thereby protect the public in the future—will be lost.

The case was argued before the Supreme Court in December 2023, and a decision is expected in the months ahead.