Purdue Pharma bankruptcy in limbo as Supreme Court prepares to hear arguments

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

Ellen Isaacs, whose son died of an opioid overdose, has joined the U.S. Trustee Program, the bankruptcy watchdog of the Justice Department, in opposing the deal pending before the Supreme Court. The deal would protect the Sackler family, which made $11 billion from creating and distributing the opioid OxyContin, from further lawsuits.

The Supreme Court is scheduled to hear arguments Monday in the case, William K. Harrington, United States Trustee, v. Purdue Pharma.

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

Ms. Isaacs says the proposed settlement does not guarantee that she would receive one dollar for the loss of her son.

“This is a case where people’s children died. The perpetrators owe the victims and the nation more than money. The justice system owes us more than a forced settlement,” Ms. Isaacs’ attorney, Michael Quinn, wrote in her court filing to support the federal government’s position.

“The Sacklers defrauded the world about whether OxyContin was addictive, and then kept using fraud and bribery for two decades to get more people on opioids, at higher doses, for longer periods of time. Purdue even bribed an electronic medical records company to prompt doctors to prescribe more opioids. As a result, the Sacklers became billionaires and thousands of Americans were killed.”

Hundreds of 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 bankruptcy 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.

The U.S. Trustee challenged the agreement, and Solicitor General Elizabeth Prelogar said in her brief that the Sacklers’ release from liability is “of exceptional and unprecedented breadth.”

“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,” Ms. Prelogar wrote. “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 federal government says the Sackler family knew of concerns about its drug more than a decade ago and started pulling money out of the company in what was labeled “milking.” The Justice Department estimates that nearly 250,000 people died from opioid overdoses from 1999 through 2019.

The government says the bankruptcy settlement would permit “the Sacklers, who would otherwise face claims alleging damages in the trillions, to obtain full repose while keeping billions of dollars that they siphoned from Purdue in the years before these Chapter 11 proceedings.”

In her court filing, Ms. Isaacs compared the Sackler family to a “criminal enterprise that caused a national tragedy.”

“Ms. Isaacs has more than just a pecuniary interest in her claims against the Sacklers. She seeks to hold accountable the people that ignited the opioid epidemic and killed her son. Purdue should not be allowed to extinguish that right,” said Mr. Quinn, who will not be arguing before the justices on Monday.

Ms. Isaacs stands alone among victims’ families in opposing the deal before the justices. A group of those suffering from addiction and in recovery or who have lost a loved one are siding with Purdue Pharma and its attorneys. They say the settlement deal worked out among them and that other creditors should be approved because it would help them financially recover from their losses.

Dede Yoder lost her retirement savings attempting to help her son, who eventually died from his addiction. Stephanie Lubinski lost her home, their attorneys told the justices. They are just a couple of the dozens of claimants who want the court to affirm the bankruptcy deal.

“The money from the plan would help provide instant relief and allow the families to continue to heal financially after their exposure to Purdue’s opioid products,” their brief reads.

The case went to the nation’s highest court after the federal government petitioned the justices to review a settlement plan that would release the Sackler family from civil liability in further lawsuits. At least four justices had to agree to take up the conflict.

Depending on how broadly the ruling extends, the court’s ruling on the release issue could impact major bankruptcy litigation. Bankruptcy experts say it could lead to limiting wealthy companies from creating subsidiaries and exploiting bankruptcy law loopholes.

Purdue Pharma told the high court through a filing that without the release for the Sackler family, the distribution of money to creditors could be unfair or even depleted.

“Allowing a few holdout creditors to jump the queue and pursue claims subject to the releases would imperil the recovery available to all creditors,” its brief read.

It said the billions of dollars as part of the agreement could go toward saving lives and that the agreement had vast support from those with claims against Purdue Pharma.

“With zero concrete stake in this bankruptcy, the Trustee has nothing to lose if he destroys the plan. But the individuals and entities with an actual stake in the outcome would lose everything. That is why the victims with the greatest reason to seek retribution against the Sacklers — including over a hundred thousand individuals and state and local government entities across the country — overwhelmingly support the plan,” it argued.

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 say the court should affirm a ruling by the 2nd U.S. Circuit Court of Appeals, which approved the company’s bankruptcy agreement.

Lindsey Simon, a law professor at Emory University, said it’s not unusual for victims to take either side of a settlement agreement.

“People want different things from litigation,” she said. “Some people want money to pay for their harm, others want to prevent defendants from harming others, and some people want to make them show up in court and face their victims.”

Ms. Simon noted that the settlement deal gives billions of dollars towards victims’ compensation that otherwise wouldn’t be available from Purdue Pharma because of the $6 billion the Sacklers are putting forward in the agreement.

“The deal they are cutting in this case happened because Purdue Pharma doesn’t have much money. Here, the releases came in exchange for a lot of money that wouldn’t otherwise be available to distribute,” she said.

• This article has been updated to clarify the distribution of settlement funds and the potential impact of a broad Supreme Court ruling.