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HomeU.SSupreme Court Rejects Liability Shield at Center of Purdue Pharma Settlement

Supreme Court Rejects Liability Shield at Center of Purdue Pharma Settlement

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The Supreme Court ruled on Thursday that members of the wealthy Sackler family cannot be shielded from lawsuits over their role in the opioid crisis as part of a bankruptcy settlement that would channel billions of dollars to victims and their families.

In a 5-to-4 decision, written by Justice Neil M. Gorsuch, a majority of the justices held that the federal bankruptcy code does not authorize a liability shield for third parties in bankruptcy agreements. Justice Gorsuch was joined by Justices Clarence Thomas, Samuel A. Alito Jr., Amy Coney Barrett and Ketanji Brown Jackson.

In a strongly worded dissent, Justice Brett M. Kavanaugh wrote that the “decision is wrong on the law and devastating for more than 100,000 opioid victims and their families.” He was joined by Chief Justice John G. Roberts Jr. and Justices Sonia Sotomayor and Elena Kagan.

The decision jeopardizes a carefully negotiated settlement Purdue and the Sacklers had reached in which members of the family promised to give up to $6 billion to states, local governments, tribes and individuals to address a devastating public health crisis.

It all but ensures that members of the Sackler family, who controlled Purdue Pharma, the maker of the prescription painkiller OxyContin, will no longer be subject to a condition of the deal that had generated significant criticism: immunity from liability in opioid-related lawsuits, even as they had not declared bankruptcy.

The U.S. Trustee Program, a watchdog office in the Justice Department, had asked the Supreme Court to intervene. The liability shield, which binds potential claimants without their consent and offers wide-ranging legal protection for the Sacklers, was a misuse of a bankruptcy system aimed at addressing “true financial distress,” the office said.

The decision has broader implications for other bankruptcy settlements involving claims of mass injury, including one between the Boy Scouts of America and victims of sexual abuse. The liability shield on which the Purdue deal relies has become increasingly popular in such settlements.

The deal, which would have required the Sacklers to pay up to $6 billion over 18 years, with almost $4.5 billion due in the first nine, underscores the difficult balancing act at play: ensuring that urgently sought money goes toward victims, states and tribes, among others, despite broader concerns over the possibility of releasing the Sacklers from further accountability over the opioid crisis.

Purdue Pharma and the Sacklers have been long seen as helping to ignite the crisis because of the popularity of the company’s prescription painkiller, OxyContin.

By 2007, as the number of overdose deaths mounted from opioids, Purdue and three of its top executives pleaded guilty to federal criminal charges, and the company was fined more than $600 million for misleading regulators, doctors and patients about the drug’s potential for abuse.

The first opioid lawsuits were filed against Purdue Pharma around 2014, unleashing a flood of litigation and intensifying scrutiny on the role of members of the Sackler family, whose vast fortune has established them as major donors to museums, medical schools and academic institutions.

In 2019, Purdue filed for bankruptcy restructuring, which ultimately paused the lawsuits. At the time, the Sacklers faced about 400 related claims.

The move was contentious from the start.

Under a deal approved by a bankruptcy judge in 2021, Purdue Pharma would be dissolved; the company would give billions of dollars to the opioid crisis, putting an end to thousands of related claims; and the Sacklers would be guaranteed protection from civil liability.

A federal district judge later overturned the deal, saying the plan had erred in giving such protections to members of the Sackler family.

But after the Sacklers increased their offer by about $1.73 billion, many of the parties who had objected to the plan signed on.

In May 2023, a federal appeals panel approved the latest version of the agreement. Judge Eunice C. Lee of the United States Court of Appeals for the Second Circuit, who wrote the decision, acknowledged the principles at stake.

“Bankruptcy is inherently a creature of competing interests, compromises and less than perfect outcomes,” Judge Lee wrote. “Because of these defining characteristics, total satisfaction of all that is owed — whether in money or in justice — rarely occurs.”

In July, the U.S. Trustee Program petitioned the Supreme Court to review the deal. The plan, it said in its application, constituted “an abuse of the bankruptcy system.”

Purdue Pharma contended that a ruling against it would cause significant damage. If the court rejected the deal, it said, it “would harm victims and needlessly delay the distribution of billions of dollars to abate the opioid crisis.”

In August, the justices paused the settlement and agreed to hear the case.

Questioning by the justices in December reflected the tension between the consequences for victims, states, tribes and local governments if the settlement deal unraveled and their worries about allowing the Sacklers to be freed from future lawsuits.

Justice Brett M. Kavanaugh homed in on the complication, asking the government why it would push to end a tactic approved over “30 years of bankruptcy court practice.”

In the view of the victims and their families, he said, “the federal government, with no stake in this at all,” challenged the deal, putting at risk long-awaited payments to states to combat the crisis as well as money to victims and their families. Instead of focusing on a practical solution to secure funds to fight the opioid epidemic, he added, the government seemed intent on promoting “this somewhat theoretical idea that they’ll be able to recover money down the road from the Sacklers themselves.”

Justice Elena Kagan joined him, pressing a deputy solicitor general, Curtis E. Gannon, over why the Justice Department sought to upend the deal despite the number of claimants who had signed on.

“It’s overwhelming, the support for this deal, and among people who have no love for the Sacklers, among people who think that the Sacklers are pretty much the worst people on Earth,” Justice Kagan said.

Jan Hoffman contributed reporting.

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