US Supreme Court torn over Purdue Pharma bankruptcy settlement

[December 05, 2023]  By John Kruzel and Andrew Chung

WASHINGTON (Reuters) - U.S. Supreme Court justices on Monday struggled over whether to approve OxyContin maker Purdue Pharma's bankruptcy settlement, voicing concern the deal would shield its wealthy Sackler family owners from lawsuits over their role in a deadly opioid epidemic while also worrying that scuttling it could harm victims.

The court heard arguments in an appeal by President Joe Biden's administration of a lower court's ruling upholding the settlement for the Stamford, Connecticut-based company.

Purdue's owners under the deal would receive immunity in exchange for paying up to $6 billion to settle thousands of lawsuits filed by states, hospitals, people who had become addicted and others who have sued the company over allegedly misleading marketing of its powerful pain medication OxyContin

At issue in the case is whether U.S. bankruptcy law allows Purdue's restructuring to include legal protections for the members of the Sackler family, who have not filed for personal bankruptcy.

Some justices seemed to convey skepticism toward the Biden's administration stance.

"Bankruptcy courts for 30 years have been approving plans like this," conservative Justice Brett Kavanaugh told Justice Department lawyer Curtis Gannon, while asking why the Supreme Court should decide such plans are "categorically inappropriate."
 

But some justices also seemed wary of extending protections to the Sacklers under bankruptcy law when the family members themselves were not debtors under the plan.

"In some ways, they're getting a better deal than the usual bankruptcy discharge," liberal Justice Elena Kagan told Gregory Garre, a lawyer representing Purdue, adding that the Sacklers under the deal would be "protected from claims of fraud and willful misconduct," which does not happen in a typical bankruptcy proceeding.

The justices in August paused bankruptcy proceedings concerning Purdue and its affiliates when they agreed to take up the administration's appeal of a ruling by the Manhattan-based 2nd U.S. Circuit of Appeals upholding the settlement.

Outside the court, about 50 people protested the settlement, including family members of opioid victims. "Sacklers lie, people die," some of the demonstrators chanted. Some held signs in memory of people who died from opioids. Another sign read, "Deadliest white collar criminals - the Sackler cartel."

CHAPTER 11

Purdue filed for Chapter 11 bankruptcy in 2019 to address its debts, nearly all of which stemmed from thousands of lawsuits alleging that OxyContin helped kickstart an opioid epidemic that has caused more than half a million U.S. overdose deaths over two decades.

Bottles of prescription painkiller OxyContin, 40mg, 20mg and 15mg pills, made by Purdue Pharma L.D. sit on a counter at a local pharmacy, in Provo, Utah, U.S., April 25, 2017. REUTERS/George Frey/File Photo

Purdue estimates that its bankruptcy settlement, approved by a U.S. bankruptcy judge in 2021, would provide $10 billion in value to its creditors, including state and local governments, individual victims of addiction, hospitals and others who have sued the company.

The Biden administration and eight states challenged the settlement. All the states dropped their opposition after the Sacklers agreed to contribute more to the settlement fund.

In upholding the settlement in May, the 2nd Circuit concluded that federal bankruptcy law allows legal protections for non-bankrupt parties like the Sacklers in extraordinary circumstances. It ruled that the legal claims against Purdue were inextricably linked to claims against its owners, and that allowing lawsuits to continue targeting the Sacklers would undermine Purdue's efforts to reach a bankruptcy settlement.

Garre cautioned the justices that blocking the bankruptcy deal could ultimately leave many victims of the opioid crisis empty-handed by subjecting the Sacklers to a flood of lawsuits.

"The billions of dollars that the plan allocates for opioid abatement and compensation will evaporate, creditors and victims will be left with nothing and lives surely will be lost," Garre said.

Kavanaugh suggested that the argument put forth by Gannon for the administration seemed to signal that the views of the opioid victims and their families do not matter.

Gannon said the Sackler family members withdrew billions from Purdue before agreeing to contribute up to $6 billion to its opioid settlement. The deal conflicts with "the nuts and bolts" of bankruptcy law, Gannon said, because it "permits the Sacklers to decide how much they're going to contribute."

Although the vast majority of claimants who participated in a vote on whether to approve the deal viewed it favorably, some justices expressed concern about depriving those opposed to the deal from suing over their injuries.

"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," conservative Justice Neil Gorsuch told a lawyer for the debtors.

(Reporting by John Kruzel and Andrew Chung; Editing by Will Dunham)

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