The Supreme Court ruling last month blocking a proposed settlement of thousands of opioid lawsuits filed against Purdue Pharma gives individual plaintiffs in big bankruptcy cases more say but could complicate massive multiparty litigation, including the sexual abuse claims brought against the Catholic Church and the Boy Scouts of America.
Legal experts say the extent will depend on the status of negotiations in the courts and whether settlements already have been approved.
The June 27 decision sent Purdue Pharma and its owners — members of the wealthy Sackler family — back to the negotiating table with plaintiffs.
The high court rejected a deal that would have protected members of the Sackler family. It ruled that any proposed settlement must obtain the consent of all victims or debtors before a third party could be released from liability.
Steven Walt, a law professor at the University of Virginia, said the justices have been taking on more bankruptcy cases in recent years.
“There has been recognition by the justices that the bankruptcy code is very important, and the present personnel of the court have recognized that business bankruptcies are important,” Mr. Walt said.
The 5-4 decision against Purdue, the maker of the highly addictive OxyContin, upends a complicated deal meant to compensate opioid victims by having the Sacklers transfer some of their billions of dollars to the company, have Purdue declare bankruptcy and then begin paying the hundreds of thousands of claims.
The catch was that the bankruptcy judge had to issue an order releasing the Sackler family from further liability, effectively putting much of the family’s wealth outside the reach of future claims.
Justice Neil M. Gorsuch, writing for the majority, said the agreement violates bankruptcy law.
“Describe the relief the Sacklers seek how you will, nothing in the bankruptcy code contemplates (much less authorizes) it,” Justice Gorsuch wrote.
The vast majority of opioid family victims backed the Purdue deal and the imminent cash payout, but the justices ruled that bankruptcy agreements must have consent from all plaintiffs and debtors.
How that plays out for other massive bankruptcy cases is unclear.
Legal experts say a lower court approved the Boy Scouts of America bankruptcy settlement. Although a challenge is pending in the 3rd U.S. Circuit Court of Appeals, payouts have begun.
The lower court must decide whether enough of the plan has been implemented. If so, the high court’s precedent in Purdue will not apply.
The Boy Scouts of America filed a brief with the justices siding with Purdue. It argued that the company’s bankruptcy deal from 2023 involved nonconsensual third-party releases, which the high court shot down in ruling against Purdue.
The Scouts were driven into bankruptcy in 2020 amid legal battles over accusations that the organization mishandled accusations of sexual misconduct by some chapter officials dating back decades.
The Scouts brokered a deal that would pay more than 82,000 abuse survivors from nearly $2.5 billion in cash and other insurance benefits.
More than 85% of plaintiffs voted to approve the deal. Some opponents have moved to halt the settlement, but the lower courts have allowed the plan to proceed.
Legal experts say the deal’s consummation could allow it to escape the Purdue precedent.
The 3rd Circuit will decide the appeal of the Boy Scouts plan. Purdue arguably strengthens the arguments of opponents.
“However, it is by no means a sure thing that the Boy Scouts’ plan would be overturned — it is entirely possible, for instance, that the court would find the appeal to be equitably moot given the time that has passed since the Boy Scouts confirmed the plan and exited bankruptcy,” said Laura N. Coordes, a law professor at Arizona State University.
Bankruptcy experts said the Supreme Court precedent could have a greater impact on the Catholic Church because some of its dealings are still in negotiation.
Like the Scouts, the U.S. Conference of Catholic Bishops filed a brief supporting Purdue.
The organization argued that nonconsensual third-party releases have aided the Catholic Church in settling some of the litigation against dioceses for sexual assault and misconduct allegations that date back decades.
Since 2000, more than 30 Catholic dioceses have filed for bankruptcy.
“The dioceses and archdioceses that are currently in bankruptcy will likely have to renegotiate because third-party releases are a mainstay in Catholic Church bankruptcy plans. My guess is that we’ll see a lot of outreach to claimants that seem likely to want to opt out of a release, and maybe these cases will raise issues about what it means to ‘consent’ to a release, since those issues were left open in Purdue,” Ms. Coordes said.
“But overall, Purdue has struck a blow at a critical tool that has been a cornerstone of Catholic Church bankruptcy plans. These cases and the negotiations that ensue will be ones to watch,” she said.
Chieko Noguchi, a spokesperson for the U.S. bishops, said the organization filed its Supreme Court brief in support of Purdue Pharma because it had an interest in “continued access to a just and orderly system for compensating survivors of sexual abuse while continuing the mission of the Catholic Church.”
Other big cases may fall under different rules altogether.
Johnson & Johnson, embroiled in litigation over its talc baby powder, has not reached a bankruptcy settlement with claimants.
Melissa B. Jacoby, a law professor at the University of North Carolina at Chapel Hill and author of “Unjust Debts: How Our Bankruptcy System Makes America More Unequal,” said the Johnson & Johnson litigation involves asbestos and the bankruptcy code has certain rules regarding asbestos.
“I believe Purdue still applies in part and expect claimants to argue that they should have the right to refuse to release claims against J&J and other parts of the enterprise that did not file for bankruptcy,” she said.
Erik Haas, Johnson & Johnson’s worldwide vice president of litigation, resisted the notion that the Purdue Pharma opinion would upend any of his company’s negotiations.
“Both the majority and dissent agreed that Congress expressly conferred upon the bankruptcy courts the authority to extinguish asbestos-related claims against debtors and their affiliated third parties where — as we expect in our case — the requisite majority of claimants vote in favor of the reorganization plan,” he said. “The Purdue decision, therefore, only serves to reinforce our confidence the talc claimants will approve, and the bankruptcy court will confirm, the proposed Plan.”
• Stephen Dinan contributed to this report.
• Alex Swoyer can be reached at aswoyer@washingtontimes.com.
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