Tuesday, July 23, 2024

Supreme Court Jeopardizes Purdue Pharma Deal, Rejecting Protections for Sacklers

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The Supreme Court said on Thursday that members of the Sackler family cannot be shielded from liability for civil claims related to the opioid epidemic, jeopardizing a bankruptcy plan that would have offered such protection in exchange for channeling billions of dollars toward addressing the crisis.

In a 5-to-4 decision, the justices found that the deal, carefully negotiated over years with states, tribes, local governments and individuals, had broken a basic tenet of bankruptcy law by shielding members of the Sackler family from lawsuits without the consent of those who might sue.

The plan for Purdue Pharma, the maker of the prescription painkiller OxyContin, the drug widely considered to have ignited the crisis, was unusual because it offered broad protections that the Sackler family, who controlled the company, had demanded for years even as the Sacklers avoided declaring bankruptcy themselves.

“The Sacklers have not filed for bankruptcy and have not placed virtually all their assets on the table for distribution to creditors, yet they seek what essentially amounts to a discharge,” Justice Neil M. Gorsuch wrote, joined by Justices Clarence Thomas, Samuel A. Alito Jr., Amy Coney Barrett and Ketanji Brown Jackson.

While he acknowledged that the decision left the plan in limbo, Justice Gorsuch wrote that the threat of future lawsuits from opioid victims, states, government entities and others might compel the Sacklers “to negotiate consensual releases on terms more favorable to opioid victims.”

“If past is prologue,” Justice Gorsuch wrote, citing the U.S. Trustee Office, which challenged the deal, “there may be a better deal on the horizon.”

It was not immediately clear what the decision would mean for other settlements involving claims of mass injury, including one involving the Boy Scouts of America and victims of sexual abuse.

In a strongly worded dissent, Justice Brett M. Kavanaugh, joined by Chief Justice John G. Roberts Jr. and Justices Sonia Sotomayor and Elena Kagan, warned of the consequences for the tens of thousands of families seeking compensation. The “decision is wrong on the law and devastating for more than 100,000 opioid victims and their families,” he wrote, later adding that rejecting the provision “simply inflicts still more injury on the opioid victims.”

Members of the Sackler family expressed hope that they would reach another settlement.

Absent one, the Sacklers said in a statement, “costly and chaotic legal proceedings in courtrooms across the country” were all but certain to follow.

The majority homed in on the method the Sacklers used to insulate themselves from opioid-related lawsuits, finding that a third party could not use the bankruptcy system to shield themselves from litigation, binding others without their consent.

The bankruptcy system, although complex, rests on “a simple bargain,” Justice Gorsuch wrote, allowing a party in debt to release itself from its financial obligations if the debtor “proceeds with honesty and places virtually all its assets on the table for its creditors.”

Although Purdue Pharma filed for bankruptcy protection after a wave of opioid-related lawsuits, the Sacklers did not. Instead, they asked the court overseeing Purdue’s bankruptcy for “an order extinguishing vast numbers of existing and potential claims against them.”

This approach, Justice Gorsuch wrote, allowed them to win relief “without securing the consent of those affected or placing anything approaching their total assets on the table for their creditors.”

The U.S. Trustee Program, a watchdog office in the Justice Department, had challenged the mechanism used by the Sacklers, a liability shield.

The deal, which would have required the Sacklers to pay up to $6 billion over 18 years, underscored the difficult balancing act at play: ensuring that urgently sought money goes toward victims, states and tribes, among others, despite broader concerns over the possibility of releasing the Sacklers from further accountability over the opioid crisis.

Purdue Pharma — and, by extension, the Sacklers — has been long seen as central to the crisis because of the popularity of OxyContin.

From 1999 to 2019, about 247,000 people in the United States died from prescription-related opioids, Justice Gorsuch wrote, an epidemic that has cost the country $53 billion to $72 billion annually. He added, “Purdue sits at the center of these events.”

In the mid-1990s, Purdue Pharma began marketing OxyContin. Although such drugs had traditionally been used in limited cases, the company claimed that it had created a new formula that lowered the risk of opioid addiction, opening the drug to a much wider array of patients.

The drug’s success catapulted the Sacklers into the wealthiest echelon of American society, with an estimated net worth of $14 billion, and established them as major donors to museums, medical schools and academic institutions.

But by 2007, as the number of overdose deaths mounted from opioids, three of Purdue’s top executives pleaded guilty to federal criminal charges, and the company was fined more than $600 million for misleading regulators, doctors and patients about the drug’s potential for abuse.

The first opioid lawsuits were filed against Purdue Pharma around 2014, unleashing a flood of litigation and intensifying scrutiny on the role of members of the Sackler family.

In 2019, Purdue Pharma filed for bankruptcy restructuring, which ultimately paused the lawsuits. At the time, the Sacklers faced about 400 related claims.

The move was contentious from the start.

Under a deal approved by a bankruptcy judge in 2021, Purdue Pharma would be dissolved; the company would give billions of dollars to the opioid crisis, putting an end to thousands of related claims; and the Sacklers would be guaranteed protection from civil liability.

The Sacklers also “proposed to end all these lawsuits without the consent of the opioid victims who brought them,” Justice Gorsuch explained, a release that “would not just prevent suits against the company’s officers and directors but would run in favor of hundreds, if not thousands, of Sackler family members and entities under their control.”

Under the deal, Purdue Pharma would become a “public benefit” company with a mission focused on opioid education and abatement. The company, with the help of the Sacklers’ planned contributions, offered individual victims payments from a base amount of $3,500 up to a ceiling of $48,000.

Although most creditors who voted on the proposed plan supported it, Justice Gorsuch wrote, “fewer than 20 percent of eligible creditors participated” and “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.”

A federal district judge later overturned the deal, saying the plan had erred in giving such protections to members of the Sackler family.

But after the Sacklers increased their offer by about $1.73 billion, many of the parties who had objected to the plan signed on.

Purdue Pharma contended that a ruling against it would cause significant damage. If the court rejected the deal, it said, it “would harm victims and needlessly delay the distribution of billions of dollars to abate the opioid crisis.”

In August, the justices paused the settlement and agreed to hear the case.

In its ruling, the majority pointed to a section of the bankruptcy code focused on settlement plans and found that it did not authorize that type of agreement, finding instead that “the Sacklers seek to pay less than the code ordinarily requires and receive more than it normally permits.”

Justice Kavanaugh wrote in his dissent that upending the settlement to prevent the Sacklers from escaping future litigation would only add to the pain of opioid victims and their families.

“To be sure, many Americans have deep hostility toward the Sacklers,” Justice Kavanaugh wrote. “But allowing that animosity to infect this bankruptcy case is entirely misdirected and counterproductive, and just piles even more injury onto the opioid victims.”

He added: “Opioid victims and other future victims of mass torts will suffer greatly in the wake of today’s unfortunate and destabilizing decision. Only Congress can fix the chaos that will now ensue.”

Jan Hoffman contributed reporting.

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