Supreme Court blocks OxyContin maker's bankruptcy plan
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The Supreme Court on Thursday rejected a controversial bankruptcy reorganization plan for OxyContin maker Purdue Pharma that would have shielded members of the Sackler family, who owned the company, from opioid litigation.
Why it matters: The 5-4 decision means victims of the addiction crisis won't receive billions of dollars in settlement funds, but it sets a new bar for whether investors or lenders can skirt legal exposure in other cases using a technicality in bankruptcy law.
Driving the news: Justice Neil Gorsuch, writing for the majority, sided with Justice Department arguments that the family members sought to misuse the bankruptcy system, noting, "the Sacklers seek to pay less than the code ordinarily requires and receive more than it normally permits."
- Justice Brett Kavanaugh, in a dissent, said the decision was "wrong on the law and devastating for more than 100,000 opioid victims and their families," adding bankruptcy courts have long had the authority to fashion fair and equitable relief for mass-tort victims.
- The court split along non-ideological grounds, with Justices Clarence Thomas, Samuel Alito, Amy Coney Barrett and Ketanji Brown Jackson joining the majority and Chief Justice John Roberts, Sonia Sotomayor and Elena Kagan joining in the dissent.
Catch up quick: Purdue filed for Chapter 11 bankruptcy in 2019 after being swamped by scores of lawsuits over its aggressive marketing of highly addictive OxyContin.
- The Sackler family members didn't file for bankruptcy themselves.
- Plans called for the Sacklers to give up ownership and for the company to be turned into a public trust that would distribute up to $6 billion in payouts to victims, local governments and others bringing opioid-related claims.
- A federal judge in 2021 rejected a proposed settlement on the grounds that the bankruptcy code didn't confer the authority to release the Sackler family from liability in civil cases.
- Backers of the plan appealed and a divided 2nd U.S. Circuit Court of Appeals last year reversed the ruling against immunity and advanced the plan.
What they're saying: Thursday's ruling "while disappointing to the victims of the opioid crisis who were slated to receive billions in settlement funds, will add clarity in future Chapter 11 cases involving non-debtor releases," said John Richer from the law firm Hall Estill.
- Other experts said the ruling will have a ripple effect on other cases, noting that the releases are a key reason that businesses facing large-scale tort litigation turn to Chapter 11, despite dividing lower courts.
- "Although the Supreme Court has said that its decision is a narrow one, its impact will be significant, finding that there is no price for releasing claims against people like the Sacklers," said Sarah Foss, global head of legal at Debtwire.
The Sackler family members said in a statement that they "remain hopeful about reaching a resolution that provides substantial resources to help combat a complex public health crisis," adding "a swift negotiated agreement ... is the best way forward."
The bottom line: The decision leaves opioid victims, many of whom are living in or near poverty, waiting for a resolution on whether they can collect reimbursements.
