The Supreme Court is set to hear arguments Monday on a Purdue Pharma bankruptcy deal that would give billions of dollars to those affected by the opioid epidemic in exchange for protecting members of the wealthy Sackler family from further lawsuits related to opioids.
The settlement involving Purdue, the maker of the prescription painkiller OxyContin, touches on one of the nation’s biggest public health crises. Taking up the case, the court temporarily suspended the agreement until it issues a decision. Experts say any decision could also have significant consequences for other cases that use the bankruptcy system to settle massive injury claims.
Here’s what you need to know:
What is at stake?
The question is whether a bankruptcy plan can be designed to grant legal immunity to a third party – in this case, members of the Sackler family, which once controlled Purdue Pharma – even if they did not themselves even declared bankruptcy.
If the court approves the agreement, it could confirm a litigation tactic that has become increasingly popular for resolving lawsuits in which many people claim to have suffered similar injuries at the hands of the same entity, whether of a medicine or consumer product. By turning to bankruptcy courts as a tool to resolve these claims, businesses aim to free themselves from civil liability and avoid future lawsuits.
But if the Supreme Court were to block the use of such a mechanism, known as nonconsensual third-party release, the Sackler family would no longer be safe from civil lawsuits. The entire Purdue Pharma bankruptcy settlement deal, years in the making, would also most likely be in jeopardy.
Such a move could upend a number of similar deals, including the bankruptcy of Revlon.
Why is the Supreme Court intervening?
It’s rare for the Supreme Court to agree to hear bankruptcy litigation, experts say, particularly when it involves a settlement agreement in what’s known as a mass tort case.
Few such cases reach court because all parties are under pressure to reach a settlement. Litigating all the way to the highest court in the land is expensive and time-consuming. In the Purdue case, the U.S. Trustee Program, a Justice Department watchdog, asked the Supreme Court to review the deal.
Several other aspects of the case make a review by the Supreme Court more likely, legal experts said. On the one hand, the opioid crisis is an issue of national importance. And such agreements allowing third parties to be shielded from most liabilities without declaring bankruptcy themselves are increasingly popular and have divided lower courts.
How does the Supreme Court view this case?
Legal experts say this is unclear. On the one hand, the Court’s conservative majority tends to look favorably on corporate interests. However, several conservative members, including Chief Justice John G. Roberts Jr. and Justice Clarence Thomas, are wary of aggressive judicial tactics. Overall, this court was skeptical of lower courts acting without express authorization from Congress.
It’s also unclear how the liberal wing will vote, experts say. Some experts say it could be a procedural matter that results in a split vote, but not necessarily along political or ideological lines.
Why is the US government opposed to the Purdue plan?
A battle between money and principle is at the heart of the Purdue litigation.
Thousands of Purdue plaintiffs, including states, local governments, tribes and individuals, have waited years for settlement funds, the value of which is eroding as legal costs rise and the time spent. As the Sacklers increased their offers, even the last handful of states that had held up the deal relented. The bankruptcy court is ultimately a marketplace of brutal pragmatism.
By the time the U.S. Court of Appeals for the Second Circuit heard the appeal, $6 billion from the Sacklers was on the table and a majority of the parties had signed. One notable objector: the American trust program.
His objection was that if the deal was approved, the Sacklers would enjoy the benefits of bankruptcy, such as exclusion from all Purdue opioid-related lawsuits, without incurring the costs. People who would still like to sue their family members in civil court would not have the right to do so, without having the opportunity to give their opinion. The U.S. administrator argued that their constitutional rights to due process would be summarily extinguished.
At this point in the Purdue litigation, the Justice Department, along with a handful of other plaintiffs, is largely alone in asserting these principles. Tribes, states, local governments, and people suffering from the opioid crisis face urgent costs.
What does the plan offer states, local governments and tribes?
Under the terms of the agreement, Purdue would pay $1.2 billion toward the settlement immediately after emerging from bankruptcy, with millions more expected in coming years. The Sacklers would pay up to $6 billion over 18 years, including nearly $4.5 billion in the first nine years.
Under an agreement with the tribal plaintiffs, the 574 federally recognized Native American tribes are eligible for payments from a trust worth about $161 million.
Each state worked out a formula with its local governments to distribute the Purdue money. But all must follow the guidelines for its use: that it be widely applied to initiatives intended to alleviate the opioid crisis, including drug treatment and prevention.
What about individual victims?
Under the current plan, a trust of $700 million to $750 million would be created for individual victims and families of people who became addicted to OxyContin or died from an overdose.
Around 138,000 plaintiffs filed complaints; payments are expected to range from approximately $3,500 to $48,000. Guardians of about 6,550 children who experienced withdrawal symptoms due to drug exposure in the womb can each receive about $7,000. Although the payments are small, the Purdue plan is one of very few opioid settlements across the country to set aside money for individuals.
If the plan is approved, what happens to Purdue?
Purdue Pharma, which introduced OxyContin in the late 1990s and marketed the drug aggressively, would cease to exist. Its assets would be transferred to a new company called Knoa Pharma. This company, which would be owned by creditors, would manufacture drug treatment and anti-opioid medications at a profit. Knoa would continue to manufacture opioids like OxyContin as well as non-opioid medications, with profits going to settlement funds.
Purdue, which no longer markets the opioids it produces, is supervised by an independent observer. The Sacklers have been excluded from its board of directors since 2018.
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