Supreme Court struggles with feds’ objection to Purdue Pharma bankruptcy deal

Supreme Court justices expressed concern Monday over the federal government’s objection to a bankruptcy deal struck by Purdue Pharma — the maker of OxyContin — that would release the family who owns the company from liability in lawsuits related to the opioid crisis.

Specifically, the justices struggled with where to draw the line on liability release agreements in bankruptcy deals — and whether all parties involved in a bankruptcy proceeding should give their consent to a settlement agreement.

Hundreds of families of overdose victims have sued Purdue Pharma over its role in the deadly opioid epidemic, but only one victim’s mother had sided with the federal government in rejecting a more than $6 billion bankruptcy settlement that would shield the Sackler family, who own the drug company, from civil liability.

The deal, as approved by lower courts, would protect the Sackler family, which made $11 billion from creating and distributing the opioid OxyContin, from future lawsuits. The majority of the victims, despite having no love lost for the Sacklers, have asked the court to approve the agreement so they can start to collect financially from Purdue Pharma.

“The opioid victims and their families overwhelmingly approve this plan because they think it will ensure prompt payment,” said Justice Brett M. Kavanaugh. “Bankruptcy courts for 30 years have been approving plans like this.”

Justice Elena Kagan also noted that only 3% of Purdue Pharma’s creditors disapprove of the deal.

“It is overwhelming — the support for this deal — and among people who have no love for the Sackers,” Justice Kagan said. “They have negotiated a deal they think is the best they can get.”

The justices agreed to review the bankruptcy deal after the U.S. Trustee for the federal government opposed the settlement, saying that releasing the Sacklers from liability without consent of all parties violates the bankruptcy code.

“This release goes beyond what the statute authorizes,” Deputy Solicitor General Curtis Gannon told the justices. “This court should hold [that] non-consensual third-party releases are not authorized by the bankruptcy code.”

He said the government is objecting to this deal between Purdue Pharma and the claimants because the government has the authority to police such settlements.

“The trustee has been given this watchdog role,” Mr. Gannon said.

Justice Clarence Thomas, though, questioned why the federal government wants to “come in and undo something that has such overwhelming agreement.”

Meanwhile, Justice Sonia Sotomayor grappled with what consent would look like to a release agreement in such a large case with hundreds of victims and creditors. “How do you get it?” she asked.

Justice Amy Coney Barrett struggled with how a ruling in this major case could impact future bankruptcy disputes.

“This is a very complicated problem,” Justice Barrett said. “What happens to those other cases if you win? Does this have ramifications for other victims in mass tort cases?”

The key issue in Monday’s case is whether Purdue Pharma’s Chapter 11 restructuring plans can provide immunity for the Sacklers, none of whom has filed for bankruptcy protection.

Victims, families, hospitals and state governments filed thousands of lawsuits against Purdue Pharma over its aggressive marketing of OxyContin, the highly addictive pain medication cited as the starting point of the opioid epidemic, which has claimed hundreds of thousands of lives since 2000.

Purdue Pharma filed for bankruptcy in 2019 to deal with all the lawsuits and cover its losses. Under the deal, the Sacklers would provide up to $6 billion for victims’ compensation, help abate the opioid epidemic and make company documents public.

It also would release the Sackler family from third-party civil claims without the consent of potential claimants.

The Sacklers owned Purdue for decades. The company manufactured and distributed OxyContin, a version of oxycodone it patented in 1996. It’s estimated that nearly 250,000 people died from opioid overdoses from 1999 through 2019, according to the federal government.

Under the deal, Purdue Pharma would cease to exist, and Knoa Pharma would be formed and governed by an independent board. Knoa Pharma would be tasked with combating the opioid crisis.

Attorneys for the Sackler family said in court filings that the justices should affirm a ruling by the 2nd U.S. Circuit Court of Appeals, which approved the company’s bankruptcy agreement.

Gregory G. Garre, the lawyer representing Purdue Pharma, told the justices on Monday that the bankruptcy code doesn’t forbid these types of releases negotiated in the opioid settlement.

“Third-party releases have been used in limited circumstances for nearly three decades,” Mr. Garre said. “It was the best that was available here for the victims.”

Justice Neil M. Gorsuch struggled with constitutional issues involved in having people lose property interests or the Seventh Amendment right to a trial without agreeing to it. “It would raise serious due process concerns,” he said.

Justice Ketanji Brown Jackson stressed that the Sacklers had not filed for bankruptcy and had pulled money out of Purdue Pharma for years, effectively taking assets out of the company that could have gone to the victims’ recovery.

Pratik Shah, the lawyer representing the Official Committee of Unsecured Creditors of Purdue Pharma, said nearly all the creditors want the deal to go through because there won’t be enough money to go around for all who are owed if it doesn’t go through.

“The trustee tries to make this case about the Sacklers. It is about the victims,” Mr. Shah said. “They have no love lost for the Sacklers. There is no body of victims, there is no one who would like to have retribution from the Sackers.”

He added that the Justice Department could prosecute the Sacklers but has chosen not to do so at this time.

A ruling in William K. Harrington, United States Trustee, v. Purdue Pharma is expected from the justices by the end of June.