Supreme Court justices appeared divided Monday over a fiercely contested bankruptcy deal for Purdue Pharma that would funnel billions of dollars to address the opioid epidemic in exchange for protecting members of the wealthy Sackler family from related civil lawsuits.
The United States Trustees Program, an office of the Justice Department, had challenged the agreement, saying it violated federal law by granting such wide-ranging legal immunity to the Sacklers, even though they themselves had not filed for bankruptcy.
The judges’ questions reflected why the agreement, which pits money against principles, has been the subject of intense scrutiny from the beginning. The practical effect of undoing the agreement, painstakingly negotiated over years, and broader concerns about whether the Sacklers should be allowed to be held harmless were debated.
“Opioid victims and their families overwhelmingly approve of this plan,” said Judge Brett M. Kavanaugh. He asked why the government was pushing to end a tactic, known as non-consensual third-party releases, that has figured in approved settlements during “30 years of bankruptcy court practice.”
Government attorney Curtis E. Gannon acknowledged the tension but argued that the U.S. trustee “has been given this oversight role” and that a government ruling would not preclude an opioid deal with the Sacklers.
Although the issue before the court was narrow: Whether the bankruptcy code allowed such non-consensual third-party exemptions, the deal’s effect on a public health crisis that has left tens of thousands dead was plain to see.
While Judge Kavanaugh and others repeatedly returned to practical issues about money for opioid victims, others also questioned the use of this tactic in other cases, including sexual abuse lawsuits against the Boy Scouts of America and the Catholic Church.
Judge Amy Coney Barrett asked the government what would happen to these other settlements and future cases if the court sided with the U.S. trustee.
Gannon responded that Congress could pass legislation specifying how such agreements could work. He said the government’s role was not to speak on behalf of victims, but rather to “care about the whole process.”
The decision could come in June, near the end of the court’s term.
In recent years, bankruptcy courts have become a popular place to negotiate massive damage settlements. The Purdue case and others like it are based on a system that courts in some parts of the country say allows third parties, like the Sacklers, to be exempt from liability even if they do not file for bankruptcy themselves.
The U.S. trustee had asked the Supreme Court to intervene after an appeals court upheld the deal. The deal violated federal law, the government said, by allowing the Sacklers to take advantage of protections intended for those in “financial difficulties“and offered”A roadmap for corporations and wealthy individuals to misuse the bankruptcy system..”
Purdue lawyers said in court filings that the plan “would provide billions of dollars and life-saving benefits to victims of the opioid crisis.” The suggestion that the plan laid out a strategy for the wealthy seeking to avoid accountability. It was “unfounded” they added.
Purdue, which is widely considered to have helped spark the opioid crisis, has faced an avalanche of challenges since OxyContin’s addictive qualities and potential for abuse became apparent.
Regardless, the company continued to aggressively promote the painkiller. In 2007, a Purdue holding company pleaded guilty to felony “misbranding” of the drug, including its risk of addiction, and agreed to pay about $600 million in fines and other fees.
As the number of overdose deaths soared, municipalities, tribes, families and others sought funding to address the ravages of drugs. Many placed much of the blame on OxyContin.
Purdue filed for bankruptcy in September 2019 as civil lawsuits mounted against the company and, increasingly, against the Sacklers themselves.
Under a restructuring plan, presented in March 2021, the company would dissolve and become a public benefit company focused on trying to counter the opioid epidemic. In turn, members of the Sackler family would invest billions of their personal fortune to help states, municipalities, tribes and others combat the opioid crisis. More than 90 percent of plaintiffs who voted on the plan approved it.
That September, Judge Robert Drain of the United States Bankruptcy Court in White Plains, New York, approved the plan. The United States Trustee Program, an office of the Justice Department, was among those appealing the decision.
As an appeal moved through the courts, members of the Sackler family increased their cash offer in February 2022 to settle thousands of opioid claims to $6 billion. They continued to insist that they be insulated from all opioid-related lawsuits.
The U.S. Court of Appeals for the Second Circuit ruled in favor of the plan more than a year later, giving Purdue the victory.
In agreeing to take the case, the Supreme Court temporarily put the settlement on hold, likely suspending payments to plaintiffs until it issues a ruling.
The plan authorized by the appeals court “includes one of the most significant and broad releases” of claims to a party that had not even filed for bankruptcy, Attorney General Elizabeth B. Prelogar said. he wrote when asking the court to hear the case.
Purdue’s lawyers argued that if the court voided the agreement, “individuals and entities with a real interest in the outcome would lose everything.”
They noted the unusually high support among the plan’s applicants, adding that “The billions of dollars that will flow to communities across the country under the plan will help, and literally save, countless lives.”
