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December 5, 2023 Big Pharma News

Big Pharma

Supreme Court Hears Arguments in $6 Billion Opioid Settlement: Should Sackler Family Get Immunity?

The U.S. Supreme Court on Monday heard arguments in a case that will determine whether OxyContin maker Purdue Pharma’s controversial $6 billion bankruptcy settlement, which shields the company’s billionaire owners from future liability, can proceed.

supreme court oxycontin opioid sackler feature

The U.S. Supreme Court on Monday heard arguments in a case that will determine whether OxyContin maker Purdue Pharma‘s controversial $6 billion bankruptcy settlement can proceed.

The proposed bankruptcy deal — which aims to resolve opioid lawsuits against Purdue but also shields the billionaire Sackler family owners from future liability — outraged Biden’s U.S. Department of Justice (DOJ), which appealed to overturn the 2021 settlement, according to Reuters.

During Monday’s hearings, the justices appeared “reluctant” to upend the settlement but also “leery” about appearing to let the Sacklers off the hook, according to an Associated Press report. 

The court’s ruling, expected by next summer, will set a precedent around corporate accountability.

The case, Harrington v. Purdue Pharma L.P. et al., revolves around dueling interpretations of what bankruptcy law does and does not permit, according to Cornell’s Legal Information Institute.

The DOJ, along with some individuals directly affected by the opioid crisis, argued the settlement approved by lower courts improperly extended immunity to the Sacklers, who did not file for bankruptcy themselves, according to Reuters.

However, Purdue Pharma and many of the opioid victims waiting to receive payouts contend such liability releases are a valid, if unconventional, application of bankruptcy law given the extraordinary circumstances.

Bankruptcy courts for 30 years have been approving plans like this,” Justice Brett Kavanaugh said during Monday’s oral arguments, asking why the court should deem such liability releases “categorically inappropriate,” Reuters reported.

While the deal enjoys support from most plaintiffs and state governments, some justices expressed concern over extending protections to the Sacklers when the family members themselves were not considered debtors under the original plan, according to Reuters.

The Biden administration alleged Sackler family members withdrew $11 billion from Purdue Pharma before agreeing to the $6 billion settlement.

Victims protested the settlement outside the courtroom, condemning provisions they believe let the “Sackler cartel” evade justice for aggressively marketing highly addictive opioids.

But inside, many of the justices repeatedly challenged government lawyers on limiting third-party releases, casting doubt on the Biden administration’s stance seeking to halt payments.

The skepticism suggests the court may uphold Purdue’s restructuring when a final ruling emerges next summer.

As evidence of guilt mounted, lawsuits piled up

The Sackler family, owners of OxyContin maker Purdue Pharma since the 1950s, was accused of misleading marketing that sparked the opioid epidemic. Over 645,000 Americans died from opioid overdose between 1999 and 2021.

As evidence of Purdue’s guilt mounted, lawsuits piled up from state governments, groups and individuals. Facing financial distress, in 2019 Purdue filed for Chapter 11 bankruptcy protection. In 2020, the company paid $2 billion in a DOJ plea deal admitting to fraud and kickback conspiracies.

After two years of closed-door mediation, a bankruptcy judge in 2021 approved the $6 billion settlement that granted the Sacklers “global peace” from future liability.

After the DOJ successfully appealed, arguing the deal improperly shielded the Sacklers from further claims, the U.S. Court of Appeals for the 2nd Circuit reversed the lower court decision, reinstating the plan.

The DOJ then petitioned the Supreme Court, which on Aug. 10 granted a stay on the 2nd Circuit’s decision, pending the outcome of Monday’s oral arguments.

Supreme Court win for Purdue ‘could set a horrible precedent’

Ray Flores, outside counsel for Children’s Health Defense, told The Defender that the DOJ’s lawyer, Deputy Solicitor General Curtis E. Gannon, argued that the 2nd Circuit Court of Appeal’s ruling departs from U.S. Bankruptcy Code Section 524(e) since “discharge of a debt of the debtor does not affect the liability of any other entity,” Gannon said.

Flores said Gannon boiled the case down to its essence when he asked the court to imagine a scenario where two defendants have joint and several liability. Flores summarized Gannon’s argument this way:

“If the first defendant goes into bankruptcy and agrees to pay 10 cents on the dollar, the discharge of the first defendant doesn’t relieve the second defendant, even if they agree to contribute five of those ten cents. The second defendant would still be liable for the other 90 cents.

“An opinion against the petitioner would essentially allow the functional equivalent of a discharge without the necessity of the Sackler family filing for bankruptcy.”

If the court finds in favor of the DOJ, the immediate effect would be “an unfortunate delay in payment,” Flores said, adding:

“On the other hand, the functional equivalent of a discharge of a non-party by way of bankruptcy could set a horrible precedent and would provide a path for individuals who benefitted financially — from a deadly pharma product, in this case — from any liability after some of the profits had been siphoned out.”

Bankruptcy an ‘unorthodox civil procedure maneuver’

Purdue Pharma’s use of bankruptcy laws exposes what some call “the ‘failure’ of tort litigation to efficiently and fully resolve all pending claims,” wrote SCOTUSblog, which called it an “unorthodox civil procedure maneuver.”

According to Purdue, the U.S. Bankruptcy Code gives courts comprehensive power to efficiently resolve mass tort claims and distribute settlement money. Rather than waiting for years of litigation, the restructuring plan, which released the Sacklers from future liability — a stipulation agreed to by over 95% of the 120,000 plaintiffs, including state governments — would deliver immediate aid, according to SCOTUSblog.

Congress established the precedent for this approach, according to Reuters, when it initially granted non-debtor releases in the context of asbestos litigation.

A “non-debtor” is a bankruptcy-specific term referring to parties connected to the debtor — in this case, the Sacklers, connected to Purdue Pharma — who have not filed for bankruptcy themselves. The “non-debtor release” shields these connected parties from being sued over the debtor’s pre-bankruptcy affairs and obligations.

Joshua Silverstein, a law professor at the University of Arkansas at Little Rock, told Reuters, “The basic idea is that the Sacklers are providing a great deal of money to Purdue Pharma in exchange for having their own liability for opioid harms extinguished without having to declare bankruptcy.”

Associate Justice Neil Gorsuch told Purdue lawyer Gregory Garre, “We don’t normally say that a non-consenting party can have its claim for property eliminated in this fashion without consent or any process of court.”

Garre argued that overturning the settlement would lead to a rush of plaintiffs seeking compensation — for example, states with multi-billion-dollar claims — any one of whom could receive a substantial portion of the $11 billion the Sacklers allegedly still have, leaving “zero dollars to victims,” he said.

U.S. Trustee William Harrington — whose office is within the DOJ — said the releases deprive victims who oppose the deal of their due process right to a day in court. It also raises federalism concerns about a single bankruptcy judge permanently blocking state law claims, according to SCOTUSblog.

Harrington told the Supreme Court, “The court of appeals’ decision is a roadmap for corporations and wealthy individuals to misuse the bankruptcy system to avoid mass-tort liability,” wrote Reuters.

Associate Justice Elena Kagan appeared to agree, telling Garre that the Sacklers were “getting a better deal than the usual bankruptcy discharge.”

“Choosing bankruptcy over first going through traditional litigation also prevents information from being elicited from powerful industry defendants,” wrote SCOTUSblog, adding that “litigation can contribute productively” during a public health crisis.

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