Those parties say unraveling the settlement plan would leave some victims with nothing.
“Forget a better deal — there is no other deal,” said Washington lawyer Pratik Shah, who represents the interests of states, hospitals, tribes, insurance companies, individual victims and other creditors who agreed to the settlement.
But Curtis E. Gannon, representing the Justice Department, said that claim already has been proven untrue. After some states and individuals objected to a previous version of the plan, he said, the Sackler family — which owns Purdue — ponied up more cash, increasing their contributions from more than $4 billion to about $6 billion, to be paid over nearly two decades.
Gannon said another settlement could be worked out that doesn’t necessarily involve releases or bankruptcy. “We do hope there is another deal at the end of this,” he said.
Purdue declared bankruptcy in 2019, as it faced thousands of lawsuits and allegations that the company helped fuel the opioid crisis by the marketing of its blockbuster painkiller OxyContin. But members of the Sackler family did not themselves file for bankruptcy.
The legal issue before the court is whether, according to federal bankruptcy laws, the Sacklers can be spared from future opioid-related litigation over their alleged role in fueling the nation’s crushing opioid crisis.
A panel of the U.S. Court of Appeals for the 2nd Circuit said yes.
The panel found authorization for such an arrangement in two provisions of the code. One says that a bankruptcy court “may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of” the law. The other says that a plan may “include any other appropriate provision not inconsistent with the applicable provisions of” the code.
The appeals court interpreted that to mean a bankruptcy court could approve provisions not expressly forbidden by the code.
On Monday, Justice Brett M. Kavanaugh seemed to agree. He said that “30 years of bankruptcy practice” allows courts broad leeway to determine the best outcome in such complicated reorganization cases. Kavanaugh seemed critical of the decision of the federal government, which he said has “no stake in this at all,” to try to stop the plan on the “theoretical idea” there might be ways to get more money from the Sacklers.
Justice Elena Kagan also stressed the pragmatic aspects of the deal, noting that overwhelming majorities of those victims who voted on the plan approved it. They have reason to think the Sacklers are “the worst people on earth,” Kagan said, but they still favor the deal.
But others — Justice Neil M. Gorsuch and Ketanji Brown Jackson, for instance — noted that other regional appeals courts do not allow plans that terminate, without their consent, the rights of alleged victims to sue parties who are not technically part of the bankruptcy proceedings.
Jackson said that prohibition should be especially true in a case such as this one, where the Sacklers took money out of Purdue and put it in offshore accounts, reducing the amount to be gained by creditors suing the company. The Justice Department has said that the Sacklers withdrew more than $10 billion from the company; the family has said nearly half of that sum was paid in mandatory taxes.
The high court in August put the deal on hold to consider the 2nd Circuit’s ruling.
Prescription pain pills from many manufacturers flooded the country in the 2000s, addicting countless Americans and sparking a dramatic rise in overdose deaths. As companies such as Purdue came under increasing scrutiny, fewer doctors began prescribing opioids for pain — leading users to turn to cheap street heroin, and eventually fentanyl manufactured in clandestine labs in Mexico. Overdose deaths from all drugs have topped 100,000 in each of the past two years, according to the Centers for Disease Control and Prevention.
The closely watched bankruptcy fight is part of a national reckoning over the role of businesses in the unprecedented public health crisis. States, local governments, Native American tribes, hospitals, victims and others have filed thousands of lawsuits against opioid manufacturers, drug distribution companies, retail pharmacy chains and others, resulting in the allocation of more than $50 billion to help ease the crisis.
As part of the bankruptcy reorganization, Purdue Pharma agreed to settle the lawsuits it faced, in a deal valued by the company at $10 billion and that would provide money to states to help combat the drug crisis.
According to the plan, members of the Sackler family would give up ownership of the company, which would become a public trust overseen by an independent board that would steer profits to addressing the crisis. The agreement also established the release of a trove of more than 30 million documents, offering a deeper glimpse at Purdue Pharma and the Sackler family’s marketing of OxyContin.
In 2021, a New York bankruptcy judge approved the deal, which called the Sacklers to contribute up to $4 billion, while shielding family members from future lawsuits. Nine states and the U.S. Trustee objected, although the states dropped those objections after the Sacklers agreed to pay up to $6 billion over 18 years.
U.S. District Judge Colleen McMahon of New York rejected the plan, saying bankruptcy code did not allow for non-debtor releases. Earlier this year, a federal appeals court overturned her decision, ruling the releases were permissible and needed to ensure equitable resolution of the complex mass litigation. That ruling set the stage for the Supreme Court to consider a long-controversial practice in bankruptcy law.
The case is Harrington v. Purdue Pharma.
This is a developing story. It will be updated.