The U.S. Supreme Court has overturned the Purdue Pharma bankruptcy settlement that would have shielded the Sackler family from lawsuits over their involvement in the ongoing opioid crisis.
With the agreement struck down, state and local governments that were slated to receive settlement money to fund their opioid crisis response capabilities will have to delay plans, potentially for years.
Purdue Pharma, which is owned by the Sackler family, started manufacturing the powerful painkiller OxyContin in the mid-1990s. The company advertised the drug as a less addictive and safer alternative to other contemporary opiates prescribed for pain management. In 2007, Purdue Pharma executives pleaded guilty to federal misbranding charges, and company discontinued the original formulation of OxyContin in the years after. Purdue Pharma was subject to thousands of lawsuits for its part in the opioid crisis. Since then, the Sackler family has drawn $11 billion, over 75% of Purdue Pharma’s assets, out of the company in anticipation of Sackler family members being sued personally.
Purdue Pharma filed for Chapter 11 bankruptcy in 2019 after the lawsuits and withdrawals from the Sackler family pushed the company to insolvency. During the bankruptcy proceedings, the Sacklers offered to return $4.3 billion to the company’s bankruptcy estate in exchange for a judicial order that would shield the family from all opioid-related claims against them. The order would have prohibited opioid crisis victims and their families from pursuing lawsuits against the family in the future as well as protect the Sackler family from existing legal claims.
The bankruptcy court accepted the proposed settlement terms, but a federal district court vacated the original order. The 2nd U.S. Circuit Court of Appeals reversed the district court’s ruling and upheld the original settlement. The case was appealed to the Supreme Court by the U.S. Trustee.
In overruling the settlement, the Supreme Court said the bankruptcy court did not have the authority to approve the Sackler family’s settlement offer based on federal bankruptcy law. The court ruled that bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants. Because the Sacklers were not named debtors in the bankruptcy case, they did not have the right to seek immunity from opioid lawsuits in the Purdue Pharma bankruptcy proceedings.
Likewise, the claimants that would be affected by the discharge are not creditors in the bankruptcy case and could not consent to the settlement terms. The decision dodged the policy implications of the case, choosing to focus only on the bankruptcy court’s ability to approve a nonconsensual third-party release.
Chief Justice John Roberts and Justices Brett Kavanaugh, Sonia Sotomayor and Elena Kagan joined together on a strongly worded dissent that says the majority’s opinion “rewrites the text of the U.S. Bankruptcy Code and restricts the long-established authority of bankruptcy courts to fashion fair and equitable relief for mass-tort victims.” The dissent argues that the settlement plan was supported by most of the opioid victims and creditors, as well as all state attorneys general. The dissent further says the decision denies guaranteed relief to most of the creditors because the Sacklers lack any incentive to return money to Purdue Pharma.
The court’s ruling resets negotiations for a bankruptcy settlement for Purdue Pharma, and members of the Sackler family have pledged to renegotiate a deal.
Nicole Ezeh is an associate legislative director in NCSL’s State-Federal Relations Division.