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Supreme Court blocks Purdue Pharma bankruptcy plan

Bankruptcy agreement would have shielded the Sackler family from liability

People from across the United States who lost loved ones because of the opioid epidemic rallied at the Justice Department in Washington on Dec. 3, 2021.
People from across the United States who lost loved ones because of the opioid epidemic rallied at the Justice Department in Washington on Dec. 3, 2021. (Michael Nigro/Pacific Press/LightRocket via Getty Images)

The Supreme Court on Thursday blocked a multibillion-dollar bankruptcy settlement by Purdue Pharma, the maker of OxyContin, in a move that will send victims of the opioid crisis back to negotiations with the company and the Sackler family.

The plan, which was approved by the victims of the opioid crisis, would have required the Sackler family to pour up to $6 billion into a nonprofit created to help victims of the opioid crisis. In exchange, the family, which owned and controlled Purdue Pharma until 2019, would be shielded from future litigation.

In a 5-4 opinion written by Justice Neil M. Gorsuch, the court wrote that the plan is not allowed under the bankruptcy code because only Purdue Pharma — and not the Sacklers — have filed for bankruptcy, and a plan can’t shield “non-debtors” from future litigation without consent of all of the claimants.

About 3 percent of the claimants had not signed off on the plan.

“In this case, the Sacklers have not filed for bankruptcy or placed all their assets on the table for distribution to creditors, yet they seek what essentially amounts to a discharge,” Gorsuch wrote. “No provision of the code authorizes that kind of relief.

“Thousands of opioid victims voted against the plan too, and many pleaded with the bankruptcy court not to wipe out their claims against the Sacklers without their consent.”

The ruling essentially means victims will have to negotiate a new settlement with Purdue Pharma and the Sackler family. 

“Purdue and the Sacklers must pay so we can save lives and help people live free of addiction,” said Democratic North Carolina Attorney General Josh Stein. “If they won’t pay up, I’ll see them in court.”

Purdue Pharma said in a statement after the ruling that it will “immediately” seek to begin negotiations. 

“We will immediately reach back out to the same creditors who have already proven they can unite to forge a settlement in the public interest, and renew our pursuit of a resolution that delivers billions of dollars of value for opioid abatement and allows the Company to emerge from bankruptcy as a public benefit company,” the company said in a statement. 

The Sackler family owned Purdue Pharma during the wave of the opioid crisis centered on prescription opioids. The company marketed OxyContin as nonaddictive, fueling the addiction crisis in the United States. The Sackler family has always claimed no personal responsibility for the crisis.

‘Milking program’

Justices Clarence Thomas, Samuel A. Alito Jr., Amy Coney Barrett and Ketanji Brown Jackson joined the opinion while Brett M. Kavanaugh, John G. Roberts Jr., Sonia Sotomayor and Elena Kagan dissented.

“Today’s decision is wrong on the law and devastating for more than 100,000 opioid victims and their families,” Kavanaugh wrote in the dissent. “As a result, opioid victims are now deprived of the substantial monetary recovery that they long fought for and finally secured after years of litigation.”

Purdue filed for bankruptcy in 2019, proposing a reorganization plan that would make the company a nonprofit to address the opioid epidemic while shielding the Sackler family from liability in exchange for billions of dollars for the nonprofit.

A bankruptcy court confirmed the plan but it was rejected by a federal district judge that same year.

That plan was reinstated by a federal appeals court, but the Department of Justice petitioned the Supreme Court to weigh in on the plan.

The plan has been on hold while being considered by the Supreme Court.

The U.S. Trustee Program, a watchdog in the Justice Department that oversees bankruptcy cases, had argued the bankruptcy code does not allow a court to approve plans that shield third parties from litigation without the consent of all claimants.

While the settlement was agreed to by 97 percent of the thousands of the claimants who voted, the Trustee Program argued the Sacklers should not get the benefits of declaring bankruptcy without actually doing so, and that it shuts out victims who did not agree to the settlement.

Supporters of the plan said the funds are desperately needed in communities that have been hardest hit by the prescription opioid epidemic, which has killed 300,00 people since 2000, according to the Centers for Disease Control and Prevention. 

But only 20 percent of eligible creditors responded to a poll on the proposed plan, Gorsuch noted. 

Gorsuch took the Sacklers to task for the tactics they used to avoid liability and to safeguard their fortune from bankruptcy proceedings. The family initiated a “milking program,” Gorsuch wrote, withdrawing $11 billion from Purdue Pharma as they feared “litigation would eventually impact them directly.” 

They then offered to return some of that money in exchange for liability against current future lawsuits, including any related to fraudulently transferring funds from the company.

“Those withdrawals left Purdue in a significantly weakened financial state,” leading it to declare bankruptcy, Gorsuch wrote. 

Kavanaugh “emphatically” dissented, writing that bankruptcy and appeals courts have, for decades, allowed nondebtor releases to secure “substantial and equitable relief” to victims of asbestos, the Catholic Church and the Boy Scouts.

“The plan was a shining example of the bankruptcy system at work,” Kavanaugh wrote.

But now it’s unlikely victims of the opioid crisis will be able to receive any compensation from Purdue Pharma or the Sacklers, he wrote.

“With the current plan now gone and non-debtor releases categorically prohibited, the consequences will be severe,” he wrote. “As a result of the Court’s decision, each victim and creditor receives the essential equivalent of a lottery ticket for a possible future recovery for (at most) a few of them.”

Some states that did not support the bankruptcy plan because it would have shielded the Sacklers from future lawsuits cheered the decision Thursday. 

“The U.S. Supreme Court got it right — billionaire wrongdoers should not be allowed to shield blood money in bankruptcy court,” said Democratic Connecticut Attorney General William Tong. 

Connecticut was one of nine states that opposed the plan, filing an appeal against it in 2021. When Purdue and the Sacklers upped their offer to $6 billion, those states dropped their appeal. 

“We will be front and center again in any new negotiations,” Tong said.