May 31, 2023 - Health

Court ruling casts long shadow over future opioid lawsuits

Illustration of a gavel hitting the top of a prescription pill bottle

Illustration: Sarah Grillo/Axios

A federal appeals court on Tuesday potentially laid the groundwork for corporations to avoid legal exposure in future opioid lawsuits through a technicality in bankruptcy law.

Driving the news: The New York-based 2nd U.S. Circuit Court of Appeals ruled that, as part of a proposed bankruptcy settlement, members of the Sackler family who own OxyContin maker Purdue Pharma could be shielded from current and future civil claims in exchange for paying up to $6 billion and giving up control of the company.

  • The decision reversed a 2021 lower court ruling against immunity from lawsuits since the Sackler family members weren't declaring bankruptcy themselves.
  • It furthered a settlement that would send billions of dollars to states, indigenous tribes and local governments ravaged by the opioid epidemic. At least $750 million would go toward individuals and families affected by the addiction crisis.

What they're saying: Tuesday's decision presses the boundaries of "what we understood commercial bankruptcy to be about" and could inspire more corporations with similar circumstances to limit liability through bankruptcy courts, said Deborah Hensler, a professor at Stanford Law School.

  • This could include mass litigation over toxic chemical exposure or contaminated water, Hensler told Axios.
  • But, Hensler added, it's not common to have family members closely tied to a company’s decision-making process that puts addictive drugs on the market like the Sacklers and Purdue Pharma.

Between the lines: It's also extremely difficult to use bankruptcy to get a deal like this through, said Anne Andrews, managing partner at Andrews & Thornton, who represents creditors in the Purdue Pharma case.

  • Andrews compared it to an election in which 95% of voters — in this case, Purdue creditors — approved the plan.
  • If the litigation had continued, Andrews said her clients and others involved in the settlement could have lost out on the money altogether.
  • "We're all kind of wandering around in the dark looking for lights and looking for answers," Andrews said. "This decision gives us some bright lights."

The big picture: Drugmakers have pledged more than $50 billion to settle claims over their role the opioid epidemic, and the money has already begun pouring into states.

  • Purdue's fate, and the money it promised to dispense, has been unsettled over states and the District of Columbia's refusal to grant the Sacklers' legal protections.
  • The company filed for bankruptcy in 2019 after facing thousands of lawsuits nationwide for its aggressive marketing of the highly addictive painkiller OxyContin.
  • In a statement Tuesday, Purdue said "Our focus going forward is to emerge from bankruptcy and deliver billions of dollars of value for victim compensation, opioid crisis abatement, and overdose rescue medicines."
  • But it's been a challenge for victims of the opioid crisis and their survivors to receive compensation, and most states haven't been transparent about where that money is going and who is benefiting, according to a KFF Health News investigation.

What we're watching: Andrews said a payment schedule for the Purdue Pharma case is up in the air until a U.S. bankruptcy court approves the settlement. The Justice Department could still ask the Supreme Court to review the appeals court decision.

  • Stanford law professor Hensler told Axios that the question of whether bankruptcy can be used as a shield against litigation by parties who aren't themselves bankrupt is likely going to find its way to the Supreme Court eventually, even if it's not specifically through the Purdue Pharma case.
  • This is due to the ongoing division among circuits over how to interpret the bankruptcy statute, Hensler said.
  • In her 2021 opinion rejecting Purdue Pharma's bankruptcy settlement, U.S. District Judge Colleen McMahon wrote that "This issue has hovered over bankruptcy law for 35 years."
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