In a narrow 5-4 decision on June 27, 2024, the Supreme Court struck down a proposed $6 billion bankruptcy plan for Purdue Pharma that would have shielded the Sackler family from legal liability. The Sacklers, who owned and controlled the company, faced numerous lawsuits over their role in the opioid crisis, which has led to hundreds of thousands of deaths since the introduction of OxyContin in 1996.
Background of the Case
Purdue Pharma filed for bankruptcy protection in 2019 as part of a global settlement deal. This settlement aimed to provide funds to address the opioid crisis while granting the Sacklers and numerous affiliates immunity from further opioid-related civil claims. However, the Sacklers insisted on legal immunity as a condition for their financial contributions to the settlement.
The Supreme Court’s ruling in Harrington v. Purdue Pharma now places the future of this settlement in jeopardy, as the Sacklers have previously indicated they would reject any deal that does not include such protections.
Implications of the Ruling
Temple University law professor Jonathan Lipson explains that the immediate consequence of the ruling is a return to the bankruptcy court to renegotiate the deal. In the long term, the ruling signifies that influential individuals cannot use their companies’ bankruptcies to avoid personal accountability.
This decision will delay the distribution of the approximately $6 billion promised under Purdue’s plan. Other companies involved in the opioid industry have collectively contributed $50 billion to mitigate the crisis.
The Supreme Court majority emphasized that their decision is “narrow” and should not affect similar prior agreements. However, it establishes that corporate insiders cannot leverage their companies’ bankruptcies to evade personal liability. They must either defend the claims in court or file for bankruptcy themselves.
Court’s Objections and Legal Reasoning
The central issue was the Sacklers’ request for a “nonconsensual third-party release,” which would have prevented anyone from suing them over Purdue Pharma’s misconduct. Such releases have been controversial, with bankruptcy courts divided on their legality.
Proponents argue that these releases can increase payouts to creditors by promoting settlements and reducing litigation costs. Critics, including U.S. Trustee William Harrington, argue that they grant excessive power to bankruptcy judges and are not explicitly supported by the U.S. Bankruptcy Code.
The court’s majority, led by Justice Neil Gorsuch, ruled that the releases were beyond the scope of the Bankruptcy Code. Gorsuch stated that while Purdue could resolve its own liabilities in bankruptcy, it could not extinguish claims against the Sacklers without explicit statutory authority.
Dissent and Future Steps
In a dissent, Justice Brett Kavanaugh warned of severe consequences, suggesting that without the non-debtor releases, victims of the opioid crisis might never receive compensation from Purdue Pharma and the Sacklers. Kavanaugh also contended that claims against the Sacklers were fundamentally linked to those against Purdue, though corporate law traditionally treats shareholders as distinct from the corporations they own.
Next Steps
The case returns to the bankruptcy court, where Purdue, the Sacklers, and representatives of those harmed by OxyContin will likely renegotiate the settlement. They will seek individual consent to release the Sacklers, which is a common approach. However, the Sacklers may need to increase their financial contributions to secure the deal.
If negotiations fail, the Sacklers might face individual lawsuits outside of the bankruptcy process, increasing their risk of prosecution, which they have sought to avoid.
In summary, the Supreme Court’s ruling reinforces accountability and limits the use of bankruptcy to shield individuals from legal repercussions, while the future of the Purdue Pharma settlement remains uncertain.
