It is rare that the Supreme Court takes a case concerning bankruptcy law. At the end of this term, the Court held that members of the Sackler family cannot be shielded from liability for civil claims related to the opioid epidemic and rejected a Chapter 11 bankruptcy plan that would have given billions of dollars toward addressing the crisis. Purdue Pharma, the maker of the prescription painkiller OxyContin, the drug widely considered to have ignited the opioid crisis, had a proposed plan in their Chapter 11 case that the U.S. Trustee Program, a watchdog office in the Justice Department, challenged. In a 5-to-4 decision Justice Neil Gorsuch writing for the majority rejected that plan because:

The bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a non-debtor without the consent of affected claimants.

In its ruling, the majority pointed to a section of the bankruptcy code focused on settlement plans and found that it did not authorize that type of agreement, holding the Sacklers seek to “pay less than the code ordinarily requires and receive more than it normally permits,” and that this was not allowed.

Under the plan approved by a bankruptcy judge in 2021, the Sackler family, who controlled the company, were offered broad protections from the mass tort claims against them, in exchange the Sacklers to pay up to $6 billion over 18 years. The plan would ensure that money goes toward the victims, states and tribes suffering from the effects of the opioid crisis and Purdue Pharma would be dissolved. The plan would protect the Sacklers, who did not file bankruptcy for themselves. Gorsuch wrote, “the Sacklers have not filed for bankruptcy and have not placed virtually all their assets on the table for distribution to creditors, yet they seek what essentially amounts to a discharge.”

The Court’s decision leaves the bankruptcy case in limbo. The Court thought that the threat of future lawsuits might compel the Sacklers “to negotiate consensual releases on terms more favorable to opioid victims.” However, this process may take years and the communities that would have benefited from the plan that was rejected are still suffering now.

Justice Brett M. Kavanaugh dissented, joined by Chief Justice John G. Roberts Jr. and two more liberal justices, Sonia Sotomayor, and Elena Kagan. They warned of the consequences for the tens of thousands of families seeking compensation. Kavanaugh argued that upending the settlement in order to prevent the Sacklers from escaping liability from future litigation would only add to the pain and suffering of the families that have been affected by the opioid crisis. Kavanaugh wrote “opioid victims and other future victims of mass torts will suffer greatly in the wake of today’s unfortunate and destabilizing decision.” He pointed out that Federal bankruptcy law gives bankruptcy courts “broad discretion to approve ‘appropriate’ plan provisions,” and that it makes sense to shield non-debtors (i.e., the Sacklers) from liability as part of a bankruptcy plan. Furthermore, he argued that this is particularly true when the non-debtors are willing to contribute money to settle the bankruptcy. It was not immediately clear what the decision would mean for other bankruptcy settlements involving mass tort claims, for example, the Boy Scouts of America bankruptcy. It will no doubt make it harder for companies that file bankruptcy with mass tort claims to reach settlements with their creditors since it takes a large bargaining chip (non-debtor discharge) off the table.

The decision remands the case back to the Bankruptcy Court for the Southern District of New York for further proceedings. Purdue Pharma has indicated that it would continue to seek a settlement with its creditors, however as pointed out above, this could take years.

Although the decision is unfortunate for victims, we agree with the decision based upon the law. Parties, such as the Sacklers, should not get the benefits of bankruptcy law, without actually filing for bankruptcy and participating in the process. Hopefully, in the end, the Sacklers will put up even more money to settle victims’ claims and fairly compensate them.

More Information:

https://www.supremecourt.gov/opinions/23pdf/23-124_8nk0.pdf

https://www.scotusblog.com/case-files/cases/harrington-v-purdue-pharma-l-p/