The US supreme court has temporarily blocked a bankruptcy deal for Purdue Pharma that would have shielded members of the billionaire Sackler family, which once controlled the company, from additional civil lawsuits over the opioid epidemic and that capped the Sacklers’ personal liability at $6 billion (€5.5 billion).
The order is likely to delay any payments to the thousands of plaintiffs who have sued the Sacklers and Purdue, the maker of the prescription painkiller OxyContin, which is widely blamed for igniting the opioid crisis. Under the deal, the Sacklers had agreed to pay billions to plaintiffs in exchange for full immunity from all civil legal disputes.
The order was in response to a US justice department objection to the plan, which the government said allowed members of the Sackler family to take advantage of legal protections meant for debtors in “financial distress”, not for billionaires.
The justices said they would hear arguments in December to decide whether the agreement is authorised by the US bankruptcy code. The case could have far-reaching implications for similar lawsuits.
That is because the Purdue agreement involves a popular but controversial practice: resolving lawsuits about mass injuries through bankruptcy courts, rather than allowing the cases to make their way through the traditional court system. In many of these agreements, third parties – in this instance, the Sacklers – are shielded from liability without being required to declare bankruptcy.
“What are the Sacklers getting out of this?” said Lindsey Simon, an associate professor at Emory University School of Law and a bankruptcy expert. “They’re getting one deal to be done. Whereas if they didn’t get it, individuals could still sue them forever.”
Put simply, Prof Simon said, “they get all the benefit with none of the costs”.
A representative for the Sackler family did not respond to a request for comment. A spokesperson for Purdue Pharma said in a statement it was “confident in the legality” of the bankruptcy plan.
The court’s decision to hear the case adds to the uncertainty around the plan to compensate states, local governments, tribes and individuals harmed by the opioid crisis, while offering protection for the Sackler family. Plaintiffs will also most likely have to wait at least another year before they receive payouts from the Purdue deal.
Any ruling in the case could affect how other mass tort cases – a broad term for lawsuits claiming injuries for a group of people who have suffered from things like an airplane crash, a toxic spill, clerical sexual abuse or pesticide spraying – play out.
Experts cited Johnson & Johnson, which has sought to use bankruptcy court to resolve mass claims about its talcum-based baby powder.
The court’s decision is the latest twist in the years-long legal battle over compensation for those harmed by the opioid crisis.
In May, the US court of appeals for the 2nd circuit approved the settlement plan after Purdue Pharma filed for bankruptcy protection in September 2019. At the time, the company and members of the Sackler family collectively faced thousands of lawsuits concerning opioids.
Although companies routinely seek bankruptcy protection to be shielded from legal claims, this particular agreement was unusual because it extended liability protection to the company’s owners. Sackler family members have said they would not sign on to a settlement without an agreement protecting them from lawsuits.
The supreme court has been sceptical of some aggressive litigation tactics, notably in cases involving class actions and patents, suggesting that it may be wary of allowing bankruptcy courts to provide legal immunity to rich and powerful people accused of grave wrongdoing who have not themselves declared bankruptcy.
In its brief, lawyers for Purdue Pharma had countered that the government’s request to pause the deal was “baseless”. If the court granted it, they wrote, it “would harm victims and needlessly delay the distribution of billions of dollars to abate the opioid crisis”.
Members of the Sackler family are no longer on the board of the company. When the bankruptcy is completed, they will relinquish their ownership stake in the company, which would be renamed Knoa Pharma. However, the family remains wealthy, with some estimates putting its fortune at $11 billion.
Victims’ groups and entities that had expected to receive funds to combat the opioid crisis expressed frustration at the government’s challenge, raising concerns that it would further hamper payments to those harmed.
“We are very disappointed with the additional delay, but it does appear they are seeking to resolve as quickly as possible,” said Joe Rice, a lead lawyer for local governments that had negotiated with Purdue Pharma. – This article originally appeared in The New York Times.