Supreme Court appears divided over Purdue Pharma bankruptcy deal

Supreme Court justices appeared divided over Purdue Pharma’s bankruptcy deal Monday, questioning whether it can immunize the Sackler family from civil lawsuits for their role in the opioid crisis.

Described by experts as among the most important corporate bankruptcy cases in decades, the dispute will dictate the fate of the years-in-the-making settlement and more broadly how companies can use bankruptcy to resolve mass injury claims.

An overwhelming majority voted to approve Purdue Pharma’s settlement, but the Supreme Court on Monday wrestled with objections lodged by the Biden administration and a relatively small group of creditors concerning the liability releases for the Sacklers, who previously controlled the company.

During a nearly two-hour argument that transcended ideological lines, several justices raised concerns about how the administration’s position would effectively unravel the settlement.

Justice Brett Kavanaugh noted a 30-year history of bankruptcy courts approving such releases, also describing a “disconnect” between opioid victims and the administration as the conservative justice insisted the government was saying the perspective of victims “doesn’t matter.”

“What the opioid victims and their families are saying is, you, the federal government, with no stake in this at all, are coming in and telling the families, ‘No, we’re not going to give you prompt payment for what’s happened to your family,’” Kavanaugh said.

In 2019, OxyContin maker Purdue Pharma filed for bankruptcy as it faced a flood of lawsuits alleging the addictive painkiller’s aggressive marketing fueled the opioid epidemic.

Sackler family members agreed to contribute up to $6 billion to the settlement in exchange for immunity from civil lawsuits. About 95 percent of creditors who voted supported the plan.

But the U.S. Trustee Program, a component of the Justice Department that serves as a bankruptcy watchdog, asserts that federal law doesn’t permit immunizing third-parties like the Sacklers, who did not themselves file for bankruptcy, if not all creditors sign off.

“This release goes beyond what the statute authorizes,” Deputy U.S. Solicitor General Curtis Gannon said.

That type of release has served as a key tactic in other mass tort bankruptcy cases, including abuse lawsuits against the Catholic Church.

During Monday’s argument, some justices appeared more sympathetic to the government’s position.

“This would defy what we do in class-action contexts. It would raise serious due process concerns and Seventh Amendment concerns, as the government highlighted; you’re normally entitled to a jury,” Justice Neil Gorsuch told attorney Gregory Garre, who represents Purdue Pharma.

Other justices appeared fixed on the notion that the Sacklers were attempting to reap the benefits of bankruptcy without surrendering to the process themselves.

Justice Ketanji Brown Jackson noted allegations that some Sackler family members took assets offshore.

“Even if there was a world in which categorically we wouldn’t say you can never do these kinds of releases, why wouldn’t this be a clear situation in which we would not allow it,” probed Jackson.

“Why should they get the discharge that usually goes to a bankrupt person once they’ve put all their assets on the table, without having put all their assets on the table,” asked Justice Elena Kagan.

“The point of this proceeding is not to make the life as difficult as possible for the Sacklers,” responded Garre. “It’s to maximize recovery and fairly and equitably distribute it to the victims.”

Currently, the bankruptcy deal is on hold under an emergency ruling from the Supreme Court. The pause will remain in place until the justices’ final decision.

The settlement’s consummation would mark a major milestone in the litigation over the nation’s opioid epidemic. Nearly 645,000 people died from overdoses involving an opioid between 1999 and 2021, according to the Centers for Disease Control and Prevention.

Under the deal’s terms, Purdue Pharma would transform into a public-benefit company dedicated to opioid abatement. The Sacklers’ contributions and other assets would be used to pay victims and fund those efforts.

The Chapter 11 filing sparked years of painstaking negotiations, including the Sacklers at one point increasing their proposed contribution by more than $1 billion to secure the sign off of additional states.

Now, the company says its plan has the support of all organized creditor groups and more than 100,000 creditors. All 50 states either support the plan or no longer oppose it.

The U.S. trustee’s objections before the Supreme Court are joined by a group of Canadian municipalities and Ellen Isaacs, who found her son dead on the bathroom floor after an overdose.

Isaacs’s attorneys in court filings described the Sackler releases as “special protection for billionaires.”

“The Sacklers are neither honest nor unfortunate. They are not debtors,” they wrote. “Instead, they are the billionaire masterminds behind a criminal enterprise that caused a national tragedy. They must be held accountable.”

The Justice Department says the current deal would provide opioid victims between $3,500 and $48,000, with payments to some to be spread out over 10 years.

“If there’s one thing you take away from my argument today, it is this, and let me be crystal clear: Without the release, the plan will unravel, Chapter 7 liquidation will follow, and there will be no viable path to any victim recovery,” Pratik Shah, an attorney representing a group of creditors supporting the deal, told the justices.

Shah’s spirited argument drew sneers from the justices at times, with Kagan calling his statement “emphatic” and Justice Sonia Sotomayor later saying his argument was “very dramatic,” at one point asking him to slow down.

“Perhaps I was dramatic, but if you want an undramatic reading, read the bankruptcy court’s unrebutted findings at the pages that I gave you. It lays out exactly what I did,” Shah said.

“I was trying to give it some color,” he continued, eliciting laughter in the courtroom.

In a statement following the argument, Purdue Pharma said its plan is “solidly grounded in legal precedent.”

“Our creditors, who insisted on the third-party releases at issue and overwhelmingly support our Plan, further underscored to the Court that this Plan is the only way to deliver billions of dollars toward lifesaving opioid abatement programs and victim compensation,” the company’s statement read.

Outside the Supreme Court building Monday, a few dozen protesters gathered in opposition to allowing the deal to move forward, chanting “Sackler money, blood money,” as some held signs remembering opioid victims.

“Forget a better deal — there is no other deal,” Pratik Shah, an attorney representing a group of creditors supporting the deal, told the justices.

A decision in the case, Harrington v. Purdue Pharma L.P., is expected by the end of June.

Updated at 3:38 p.m. ET

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