Supreme Court rejects Purdue Pharma bankruptcy plan that shielded Sackler family

Washington — The Supreme Court on Thursday derailed a multi-billion-dollar bankruptcy plan for Purdue Pharma, the maker of OxyContin, siding with the Biden administration over its objections to the agreement's broad protection for the Sackler family from civil lawsuits related to their role in the opioid epidemic.

In a 5-4 opinion authored by Justice Neil Gorsuch, the court held that the bankruptcy code does not authorize a broad legal shield as part of a reorganization plan that protects non-debtors, like the Sacklers, and binds those who object to it. 

"Someday, Congress may choose to add to the bankruptcy code special rules for opioid-related bankruptcies as it has for asbestos-related cases. Or it may choose not to do so. Either way, if a policy decision like that is to be made, it is for Congress to make," Gorsuch wrote for the court. "Despite the misimpression left by today's dissent, our only proper task is to interpret and apply the law as we find it; and nothing in present law authorizes the Sackler discharge."

Harrington v. Purdue Pharma

Justices Clarence Thomas, Samuel Alito, Amy Coney Barrett and Ketanji Brown Jackson joined Gorsuch in the majority. Chief Justice John Roberts and Justices Brett Kavanaugh, Sonia Sotomayor and Elena Kagan dissented.

The decision from the Supreme Court in the case known as Harrington v. Purdue Pharma upends the agreement negotiated with state and local governments, and victims of the opioid epidemic, which included a commitment from the Sacklers to contribute up to $6 billion for abatement of the opioid crisis in exchange for the legal shield. The agreement also included $750 million to provide compensation to victims.

Purdue Pharma called the high court's ruling "heart-crushing" because of its impact on the settlement, but said it is limited to the narrow issue related to the scope of third-party releases included in its bankruptcy play.

"The decision does nothing to deter us from the twin goals of using settlement dollars for opioid abatement and turning the company into an engine for good," the company said in a statement. "We will immediately reach back out to the same creditors who have already proven they can unite to forge a settlement in the public interest, and renew our pursuit of a resolution that delivers billions of dollars of value for opioid abatement and allows the company to emerge from bankruptcy as a public benefit company."

The Sackler family owned and operated Purdue during the height of the opioid epidemic, which was fueled in part by its drug OxyContin. Purdue filed for Chapter 11 bankruptcy in 2019, putting on hold scores of lawsuits that sought damages arising from its manufacture and sale of the drug. The Sacklers did not seek bankruptcy protection and kept billions of dollars in revenue from Purdue, but provisions of the company's bankruptcy plan released the family and related entities from civil liability for opioid-related claims.

With its ruling, the Supreme Court reversed a decision from the U.S. Court of Appeals for the 2nd Circuit, which approved the plan after concluding last May that federal bankruptcy law allows the legal shield for the Sacklers.

Kavanaugh lambasted the majority's decision, writing in dissent that it deprives opioid victims of monetary recovery that was secured following years of litigation. He called the reorganization plan negotiated with Purdue a "shining example of the bankruptcy system," and said the consequences of it being invalidated are "severe."

"The opioid victims and their families are deprived of their hard-won relief. And the communities devastated by the opioid crisis are deprived of the funding needed to help prevent and treat opioid addiction," Kavanaugh wrote. "As a result of the Court's decision, each victim and creditor receives the essential equivalent of a lottery ticket for a possible future recovery for (at most) a few of them." 

He was joined in his dissent by Roberts, Sotomayor and Kagan.

The Purdue Pharma bankruptcy

OxyContin went on the market in 1996, and Purdue's marketing of the drug to doctors and pain patients has been blamed for sparking the opioid crisis. During a 10-year span beginning in 1999, nearly 247,000 people in the U.S. died from prescription-opioid overdoses.

The Purdue bankruptcy plan would resolve the lawsuits that states, local governments, Native American tribes and victims filed against the company for damages arising from the opioid crisis. Purdue separately pleaded guilty in 2007 to a felony count of misbranding OxyContin and has paid more than $600 million in fines and other costs.

In addition to the $6 billion that the Sacklers agreed to contribute to fight the opioid crisis included in the bankruptcy plan, Purdue would restructure itself as a public benefit company and use its profits to make products that combat opioid addiction. The $750 million pot for victims would allow eligible claimants to receive payments ranging from $3,500 to $48,000.

In exchange, and what was at issue in the case before the Supreme Court, the Sacklers were protected from civil liability as part of the bankruptcy plan. Still, the agreement was approved by 95% of victims. Several states, Canadian municipalities and indigenous tribes, and more than 2,600 individuals voted against the agreement because of the shield for the Sackler family, their affiliates and related entities.

A bankruptcy court in New York approved the plan in September 2021, but states and other detractors challenged its approval in federal district court. Joining them were the U.S. Trustee, an arm of the Justice Department that oversees the administration of bankruptcy cases.

The challengers took aim at the legality of the deal's shield for the Sacklers, since even those who opposed the plan are bound by its release and cannot pursue litigation against the family. The district court in New York rejected the agreement in December 2021, and Purdue and other plan supporters appealed to the U.S. Court of Appeals for the 2nd Circuit.

While the case was pending, the District of Columbia and the eight states that had objected to the plan reached an agreement with Purdue and the Sacklers. Under the deal, the family would increase its proposed contribution to the bankruptcy estate by $1.75 billion, bringing their total contributions to between $5.5 billion and $6 billion.

Last May, a divided 2nd Circuit panel reversed the district court's decision, and the Justice Department asked the Supreme Court to intervene. The high court put the plan in hold in August and held arguments in December.

The case was closely watched for not only its potential to unravel the Purdue bankruptcy plan, but its implications for other reorganization plans involving groups like the Boy Scouts of America and the Catholic Church, which faced lawsuits alleging sexual abuse.

In the case of the Boy Scouts, its agreement included third-party releases for nonprofit local councils, chartering organizations and other entities that have agreed to contribute to a trust that will benefit abuse survivors. Victims began receiving payments from the trust in September.

Catholic dioceses who filed for bankruptcy have entered into plans that include legal protections for Catholic parishes, schools, charities, cemeteries and other organizations affiliated with the diocese.