The Supreme Court put on hold a proposed bankruptcy plan for beleaguered opioid manufacturer Purdue Pharma, which is accused of playing a major role in fueling the ongoing opioid crisis.
Although the Aug. 10 ruling does not finalize the case, it is a tactical victory for the Biden administration, which urged the court to take action.
The problem with the plan, according to the government, is that it includes a financial settlement that allows the owners of the company to avoid future lawsuits related to its allegedly irresponsible marketing practices and for other now-frowned-upon company policies said to have contributed to the rise of opioid abuse in the United States.
Federal bankruptcy law “grants courts unusual powers specifically authorized by the Constitution for addressing true financial distress,” but leaving a lower court’s ruling in place here would create “a roadmap for wealthy corporations and individuals to misuse the bankruptcy system to avoid mass tort liability,” U.S. Solicitor General Elizabeth Prelogar wrote in the government’s emergency application.
“And if such abuses are permitted, the gamesmanship that is sure to follow will only amplify the harms to victims by redistributing bargaining power to tortfeasors.” A tortfeasor is one who commits a tort, or civil wrong, against another that causes the other person to experience a personal or financial loss.
Under the terms of a March 2022 settlement with several state attorneys general, the company, headquartered in Stamford, Connecticut, agreed to distribute $6 billion to state, local, and tribal governments, including $1 billion for programs aimed at dealing with opioid-related social problems.
The bankruptcy plan would immunize the family that owns the company from future lawsuits. The company filed for bankruptcy in 2019 under the weight of thousands of lawsuits.
The company makes oxycodone, marketed as OxyContin and under other names, which is a semi-synthetic narcotic analgesic that serves as a popular painkiller. The drug is said to cause physical dependence and addiction.
Purdue Pharma has also been criminally prosecuted in connection with opioids. Years ago it promoted OxyContin, claiming it was non-addictive.
But the bankruptcy settlement is now on hold and likely to be frozen for some time.
That’s because, in addition to staying the bankruptcy plan, which was approved by the U.S. Court of Appeals for the 2nd Circuit, the nation’s highest court agreed to schedule oral arguments on the case.
The court directed the parties to answer the following question: “Whether the Bankruptcy Code authorizes a court to approve, as part of a plan of reorganization under Chapter 11 of the Bankruptcy Code, a release that extinguishes claims held by nondebtors against nondebtor third parties, without the claimants’ consent.”
The Biden administration objects to terms in the settlement that would grant a far-reaching release of liability to members of the Sackler family, who until recently controlled the company. Forbes magazine listed the Sacklers in 2016 as the 19th wealthiest family in the United States, with an estimated net worth of $13 billion.
Members of the family took out about $11 billion from the company in the 11 years before it filed a bankruptcy petition, according to the emergency application.
Those family members agreed to contribute as much as $6 billion to Purdue Pharma’s bankruptcy reorganization plan “but only on the condition that the Sacklers and a host of other individuals and entities – who have not themselves sought bankruptcy protection – receive a release from liability that is of exceptional and unprecedented breadth.”
The release “‘absolutely, unconditionally, irrevocably, fully, finally, forever and permanently release[s]’ the Sacklers from every conceivable type of opioid-related civil claim – even claims based on fraud and other forms of willful misconduct that could not be discharged if the Sacklers filed for bankruptcy in their individual capacities,” Ms. Prelogar stated, referencing an earlier legal document.
“The Sackler release extinguishes the claims of all opioid claimants except the United States, and therefore applies to an untold number of claimants who did not specifically consent to the release’s terms.”
The release also violates the federal Bankruptcy Code, is an abuse of the bankruptcy system, “and raises serious constitutional questions by extinguishing without consent the property rights of nondebtors against individuals or entities not themselves debtors in bankruptcy.”
The case is expected to be argued in December. The court’s decision after oral arguments could come as late as June 2024.
When it adjourned for the summer at the end of June, the court had issued 58 opinions in cases argued in the term that began in October 2022. Its new term begins this October.
