WASHINGTON (CN) — The Supreme Court on Thursday set fire to the Sackler family’s $6 billion opioid settlement, allowing the government to object to the deal over an immunity provision.
In a split ruling, the court ruled that the Sacklers could not use the bankruptcy code to shield themselves from future lawsuits from opioid victims.
“Rather than seek to resolve claims that substantively belong to Purdue, it seeks to extinguish claims against the Sacklers that belong to their victims,” Justice Neil Gorsuch wrote the for majority. “And precisely nothing in §1123(b) suggests those claims can be bargained away without the consent of those affected, as if the claims were somehow Purdue’s own property.”
Justices Clarence Thomas, Samuel Alito, Amy Coney Barrett and Ketanji Brown Jackson joined Gorsuch’s opinion.
The remaining justices said their colleagues' decision was devastating for the more than 100,000 opioid victims and their families.
“The court’s decision rewrites the text of the U. S. Bankruptcy Code and restricts the long-established authority of bankruptcy courts to fashion fair and equitable relief for mass-tort victims,” Justice Brett Kavanaugh wrote in dissent. “As a result, opioid victims are now deprived of the substantial monetary recovery that they long fought for and finally secured after years of litigation.”
Members of the wealthy family helmed OxyContin maker Purdue Pharma as it entered infamy for aggressively marketing opioid painkillers, fueling an epidemic credited with the deaths of over 700,000 Americans — 300,000 from prescription opioid overdoses alone.
Purdue and the Sacklers faced thousands of lawsuits on claims they pushed the painkiller on patients. Victims of opioid overdoses, local governments, Native American tribes, and several states sought over $40 trillion from the company and family.
The company filed for bankruptcy, agreeing to a settlement that turned Purdue into a public-benefits company focused on opioid abatement. Purdue’s remaining assets would go towards compensating victims and the communities hit hardest by opioid addiction.
But the Sackler family did not file for bankruptcy, instead agreeing to a $6 billion deal that gave them immunity from future lawsuits. Although the family handed over a hefty sum to tackle opioid abatement, the government claimed victims are owed much more.
In a briefing before the court, the government accused the Sacklers of a “milking” scheme that removed $11 billion from Purdue’s profits into private trusts and holding companies. The Sacklers argued 40% of these funds went toward mandatory taxes.
The government said the scheme devalued the company ahead of bankruptcy proceedings. By including an immunity provision within the bankruptcy settlement, the government said the Sacklers further shielded these funds from accountability.
Under the settlement, individual victims and families could receive anywhere between $3,500 and $48,000 and tribes, cities and states would get billions. But anyone who did not sign onto the deal — or any future victims — would be prevented from suing the Sacklers
By upholding nonconsensual releases from future lawsuits, the government claimed the lower court deprived these individuals of their rights.
Purdue argued that the settlement was the best option to help the most people. The company said one lawsuit could drain available funds, but under the settlement, all the plaintiffs got a piece of the pie.
Purdue’s everyone wins argument lost the court’s majority. The justices were asked to decide if a court could give nondebtors — like the Sacklers — Chapter 11 benefits that are usually reserved for debtors — in this case Purdue.
In a 5-4 ruling, the court said the bankruptcy code does authorize nonconsensual releases for nondebtors, finding that the lower court errored by reading the law too broadly.
Gorsuch said Congress’ authorization of appropriate plan provisions was contingent on the debtor's rights, responsibilities and relationship with creditors. The lower court errored, Gorsuch said, in reading the provision to give bankruptcy courts additional authority.
“The catchall cannot be fairly read to endow a bankruptcy court with the ‘radically different’ power to discharge the debts of a nondebtor without the consent of affected nondebtor claimants,” Gorsuch wrote.
Relying on the text of the statute, Gorsuch said lawmakers only explicitly authorized nonconsensual releases for debtors. Gorsuch recognized that lawmakers gave bankruptcy courts many powers but said that authority was not unlimited.
Gorsuch said debtors traditionally have to come forward with almost all of their assets to win a discharge. Agreeing with the government, Gorsuch said the Sacklers have not agreed to hand over anything close to their full assets.
“Yet they seek a judicial order that would extinguish virtually all claims against them for fraud, willful injury, and even wrongful death, all without the consent of those who have brought and seek to bring such claims,” Gorsuch wrote. “In each of these ways, the Sacklers seek to pay less than the code ordinarily requires and receive more than it normally permits.”
Gorsuch stopped short of endorsing the argument that these releases would lead to abuse of the bankruptcy system. He said that policy debate should be hashed out in Congress, not the courts.
“Someday, Congress may choose to add to the bankruptcy code special rules for opioid-related bankruptcies as it has for asbestos-related cases,” Gorsuch wrote. “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.”
Kavanaugh said lawmakers had already given courts broad authority to approve these types of plans in the bankruptcy code. It wasn’t a surprise that victims showed broad approval of the settlement, Kavanaugh said, because “the plan was a shining example of the bankruptcy system at work.”
The dissent said the ruling threw out a critically important tool that bankruptcy courts have come to rely on.
“Gutting this longstanding bankruptcy court practice is entirely counterproductive, and simply inflicts still more injury on the opioid victims,” Kavanaugh wrote.
Kavanaugh called on Congress to fix the chaos of the court’s “unfortunate and destabilizing decision.”
Following the ruling, the Sacklers said they remain hopeful about reaching a settlement that would provide substantial resources to combat the public health crisis.
"The unfortunate reality is that the alternative is costly and chaotic legal proceedings in courtrooms across the country,” the families of the late Drs. Mortimer and Raymond Sackler said in a statement issued by a representative. “While we are confident that we would prevail in any future litigation given the profound misrepresentations about our families and the opioid crisis, we continue to believe that a swift negotiated agreement to provide billions of dollars for people and communities in need is the best way forward.”
Regina LaBelle, director of the Addiction and Public Policy Initiative at the O’Neill Institute for National and Global Health Law, said the narrow ruling was significant but offered a more expedient solution.
“The Supreme Court's decision today should spur the Sackler family to create a fund for individual victims of the overdose epidemic,” LaBelle said in a statement. “The Sackler family should begin the process today of compensating the thousands of individuals who lost loved ones to an overdose from their company’s product. There's no need to wait — and no time to waste.”
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