SCOTUS puts brakes on Purdue Pharma bankruptcy plans

 August 13, 2023

The U.S. Supreme Court last week paused the bankruptcy plans of OxyContin maker Purdue Pharma when it agreed to hear a Biden administration challenge to the legality of a possible settlement designed to shield the company's owners from liability stemming from opioid addiction deaths, as Reuters reports.

The decision comes as a significant blow to the Sackler family, which stood to gain immunity for potentially massive financial liability, despite the fact that they did not seek personal bankruptcy protections but instead would have been covered under the terms of the company's $6 billion restructuring plan.

“Third-party release” at issue

As The Hill explains, Purdue Pharma filed its bankruptcy petition back in 2019 in a bid to resolve thousands of lawsuits over its allegedly aggressive – and damaging – marketing of opioids.

Plaintiffs in those suits contend that the company's marketing tactics fomented the current opioid epidemic that left hundreds of thousands of deaths in their wake.

The proposed bankruptcy plan, however, featured a “third-party release” provision that purported to protect Sackler family members and others from liability in similar opioid-related litigation brought in years to come.

Though the Second Circuit Court of Appeals gave a greenlight to the plan earlier this year, the Justice Department contends that the bankruptcy court lacks the power to grant the Sacklers the type of liability release contemplated by the settlement terms.

Biden administration challenge

In support of the DOJ's challenge to the bankruptcy deal, Biden administration Solicitor General Elizabeth Prelogar reminded the high court that members of the Sackler family pulled billions from the company over roughly a decade, shifting a great deal of wealth abroad in order to sidestep financial liability, as The Hill noted.

Though Purdue Pharma ultimately filed for bankruptcy protections, the Sacklers themselves did not, with some of them pursuing separately negotiated deals with certain plaintiffs.

Purdue was subsequently reimagined as a public-benefit company through which profits would be directed toward ameliorating the opioid epidemic, but the fact remained, according to Prelogar, that the Sackers managed to avoid admitting fault and succeeded in retaining large sums of money.

In the administration's eyes, approval of the bankruptcy settlement plan at issue “would leave in place a road map for wealthy corporations and individuals to misuse the bankruptcy system to avoid mass tort liability,” though lawyers for Purdue said that a delay in approval would “take billions of dollars out of opioid abatement programs that are sorely needed,” something which could “deprive victims of any meaningful [financial] recovery” if the plan ultimately failed.

Plan hangs in the balance

As Reuters noted, a group of over 60,000 personal injury plaintiffs who have sought compensation from Purdue on opioid-related claims have told the high court that they endorse the settlement plan, even if it does give broad immunity to the Sacklers.

The group explained, “Regardless of how one feels about the role of the Sackler family in the creation and escalation of the opioid crisis, the fact remains that the billions of dollars in abatement and victim compensation funds hinge on confirmation and consummation of the existing plan.”

Arguments in the matter will be heard at the Supreme Court in December, with a ruling likely to be handed down in the early part of 2024, according to The Hill.

Until then, the stay imposed by the justices will be kept in place, and the parties involved – as well as the massive sums of money at stake – will remain in continued limbo.

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