The US Supreme Court has invalidated a measure in Purdue Pharma’s bankruptcy that would shield members of the company’s founding Sackler family from future civil liability in exchange for a $6bn contribution, in a closely watched case involving the maker of the opioid OxyContin.
The Department of Justice had sought to invalidate the comprehensive liability releases granted to the Sacklers, ruling that they could not get the benefits of the bankruptcy code without filing for bankruptcy themselves, unless potential creditors agreed to the arrangement. The Supreme Court on Thursday agreed in a closely divided 5-4 ruling in the case, Harrington vs Purdue Pharma.
“Nothing in present law authorises the Sackler discharge,” the majority opinion said. Neil Gorsuch wrote the majority opinion, joined by Justices Clarence Thomas, Samuel Alito, Amy Coney Barrett and Ketanji Brown Jackson.
The decision has cataclysmic consequences for Purdue’s bankruptcy case, which hinged on a sweeping deal struck between opioid victims and the Sackler family. The court’s ruling upends that agreement, leaving creditors and their lawyers scrambling to figure out a path forward.
Purdue’s bankruptcy has been one of the biggest legal cases to spring from the US opioid crisis, which has spiralled into a national public health crisis and led to more than 600,000 deaths since 1999, according to the Centers for Disease Control and Prevention.
Purdue, which had filed for federal bankruptcy protection in 2019, struck a deal with tens of thousands of victims of the opioid crisis as well as dozens of states and municipalities after lengthy negotiations.
According to the terms, the Sackler family would contribute up to $6bn to fund opioid abatement programmes and make direct payments to victims. But the family insisted that the deal ended forever any litigation against them.
The company had told the court that virtually every creditor had signed on to the deal and that if the settlement was upended, victim compensation would be delayed by years while a new deal was struck by Purdue and the founding family.
“Opioid victims and other future victims of mass torts will suffer greatly in the wake of today’s unfortunate and destabilising decision,” Justice Brett Kavanaugh wrote in dissent, which was joined by Chief Justice John Roberts and Justices Sonia Sotomayor and Elena Kagan. “Only Congress can fix the chaos that will now ensue.”
Family members of the late Mortimer and Raymond Sackler, who owned and operated Purdue, said in a statement that they “remain hopeful about reaching a resolution that provides substantial resources to help combat a complex public health crisis”.
Without the $6bn deal, victims could pursue monetary restitution through lawsuits. However, that route would involve “costly” and “chaotic legal proceedings in courtrooms across the country”, they said.
Although confident they would win in any future litigation, “we continue to believe that a swift negotiated agreement to provide billions of dollars for people and communities in need is the best way forward”, they added.
Representatives for Purdue Pharma did not immediately respond to requests for comment.
So-called “non-debtor” third-party releases have been used by US bankruptcy lawyers as a bargaining chip in recent years: if an entity can meaningfully improve creditor recoveries, their potential liabilities could be extinguished in exchange, even if they are not in bankruptcy themselves.
Companies such as Purdue and organisations like Boy Scouts of America that face a mountain of product liability or misconduct lawsuits have turned to US bankruptcy courts to streamline settlement payments, but often in deals that rely on shielding individuals or other entities.
Bankruptcy in the US is hugely expensive. And Purdue’s bankruptcy has been one of the most expensive cases ever, with the process costing more than $1bn in legal and administrative fees, according to Jayne Conroy and Paul Farrell, two lawyers leading consolidated civil litigation against the makers and distributors of prescription opioids.
“Those who have advocated using the bankruptcy court to resolve cases of this kind ignore the reality of the tremendous cost of the process, and communities have continued to suffer due to these costs and delays,” they said in a statement.
Bankruptcy judges had initially extended special powers granted to them by Congress in asbestos bankruptcies to grant releases for other kinds of companies, a practice the Supreme Court has now rejected.
“In each of these ways, the Sacklers seek to pay less than the code ordinarily requires and receive more than it normally permits,” Gorsuch wrote for the majority. “Contrary to the dissent’s suggestion, plan proponents cannot evade these limitations simply by rebranding their discharge a ‘release’.”
However, the high court’s majority stressed that its decision was a “narrow one” that did not “call into question consensual third-party releases offered in connection with a bankruptcy reorganisation plan”, where every creditor signs on to a restructuring plan that wipes future liability for alleged wrongdoers.
Purdue could now ask the Sacklers to increase their contribution to the settlement in order to secure approval from a handful of holdout creditors.
“There’s going to be chaos until parties figure out how to address the linchpin issue,” said Samir Parikh, a law professor at Wake Forest University, referring to the consequences of ending the practice of non-consensual releases in Chapter 11 bankruptcies.