The US Supreme Court agreed to consider scuttling Purdue Pharma LP’s $6 billion opioid settlement, taking up a Biden administration appeal that contends the accord improperly shields the Sackler family members who own the company.
High court review threatens Purdue Pharma’s bankruptcy reorganization plan, which includes the opioid settlement as well as an agreement by the Sacklers to give up ownership of the company.
The plan would end a mountain of litigation against the OxyContin maker and funnel billions of dollars toward efforts to abate the opioid crisis. Family members have agreed to pay as much as $6 billion to those suing.
The high court also halted implementation of the settlement while the justices consider the case. The court said it will hear arguments in December.
See also CNN.
The Justice Department had multiple objections to the proposed settlement, the central one of which was included in the Supreme Court's order granting certiorari today:
Application (23A87) granted by the Court. The application for stay presented to Justice Sotomayor and by her referred to the Court is granted. The mandate of the United States Court of Appeals for the Second Circuit in case No. 22-110 and the consolidated cases is recalled and stayed. Applicant suggested this Court treat the application as a petition for a writ of certiorari; doing so, the petition is granted. The parties are directed to brief and argue the following question: Whether the Bankruptcy Code authorizes a court to approve, as part of a plan of reorganization under Chapter 11 of the Bankruptcy Code, a release that extinguishes claims held by nondebtors against nondebtor third parties, without the claimants’ consent. The Clerk is directed to establish a briefing schedule that will allow the case to be argued in the December 2023 argument session. The stay shall terminate upon the sending down of the judgment of this Court. (emphasis added)
Until recently, Purdue was controlled by members of the Raymond and Mortimer Sackler families. Members of those families, who withdrew approximately $11 billion from Purdue in the eleven years before the company filed for bankruptcy, App., infra, 19a, have now agreed to contribute up to $6 billion to fund Purdue’s reorganization plan, id. at 40a, but only on the condition that the Sacklers and a host of other individuals and entities -- who have not themselves sought bankruptcy protection -- receive a release from liability that is of exceptional and unprecedented breadth. The plan’s release “absolutely, unconditionally, irrevocably, fully, finally, forever[,] and permanently release[s]” the Sacklers from every conceivable type of opioid-related civil claim -- even claims based on fraud and other forms of willful misconduct that could not be discharged if the Sacklers filed for bankruptcy in their individual capacities. Id. at 25a (quoting C.A. SPA 920).
The Sackler release extinguishes the claims of all opioid claimants except the United States, and therefore applies to an untold number of claimants who did not specifically consent to the release’s terms. The Sackler release is not authorized by the Bankruptcy Code, constitutes an abuse of the bankruptcy system, and raises serious constitutional questions by extinguishing without consent the property rights of nondebtors against individuals or entities not themselves debtors in bankruptcy. The Bankruptcy Code grants courts unusual powers specifically authorized by the Constitution for addressing true financial distress. Allowing the court of appeals’ decision to stand would leave in place a roadmap for wealthy corporations and individuals to misuse the bankruptcy system to avoid mass tort liability. That is not what Congress enacted the Bankruptcy Code to accomplish. And if such abuses are permitted, the gamesmanship that is sure to follow will only amplify the harms to victims by redistributing bargaining power to tortfeasors.
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