The United States Supreme Court last week put on hold a proposed Chapter 11 bankruptcy plan for Purdue Pharma that would reserve billions of dollars allotted to pay victims and their families who suffered under the opioid crisis, which also (and controversially) is a plan that would give “immunity” to the payor of the funds, the Sackler family, who owns the company, to settle thousands of lawsuits filed by the states, hospitals, and victims. The Supreme Court will hear the argument in December 2023. Purdue Pharma filed for Chapter 11 relief in 2019 due to all of the debts arising from the lawsuits alleging that OxyContin fostered the opioid epidemic and caused more than 600,000 overdose deaths.
In a brief unsigned order, the Supreme Court granted the Justice Department’s request to temporarily block the Chapter 11 Plan which was approved by the bankruptcy court in 2021 and then affirmed by the Circuit Court. The Justice Department is challenging whether Sackler family members — who personally did not file for bankruptcy — can be protected from litigation over their role in the nation’s gargantuan opioid crisis. The Supreme Court has agreed to review the case and consider whether the U.S. bankruptcy code authorizes such agreements.
The appeal to the Supreme Court comes more than two months after the U.S. Court of Appeals sustained the approval by the bankruptcy court of the plan, saying the Sacklers being shielded from lawsuits was needed to “ensure the fair distribution” of the settlement money. Under the negotiated deal, the Sacklers would pay up to $6 billion over nearly two decades to help alleviate the crisis. The settlement plan could ultimately be worth more than $10 billion, Purdue Pharma has said.
The Justice Department argues in its filing to the high court that shielding the Sacklers is “an abuse of the bankruptcy system,” and that allowing the appellate court’s decision to stand would leave in place “a road map for wealthy corporations and individuals to misuse the bankruptcy system” to avoid liability from lawsuits.
There are very broad implications for the decision that the Supreme Court will hand down. A ruling by the Supreme Court to block the use of “non-consensual third-party releases” (which allow for the release of non-debtor third parties in exchange for their payment of proceeds to use to fund a bankruptcy plan) would likely jeopardize the Pharma bankruptcy settlement and have future implications in the funding and settlement of mass tort litigation in bankruptcy proceedings.