July 15, 2024
On June 27, 2024, in a narrow 5-4 vote, the Supreme Court ruled that the nonconsensual third-party release against non-debtors that comprised an essential part of a proposed settlement are not authorized by any provision in the Bankruptcy Code. In exchange for the establishment in 2022 of a $6 billion settlement trust created for the benefit of government, institutions and individual victims of the opioid crisis, the Sackler family, owners of bankrupt drug manufacturer, Purdue Pharma LP, sought future liability from opioid-related civil claims by requiring nonconsensual third-party releases as part of the company’s Chapter 11 reorganization plan. This liability shield would have effectively eliminated a creditor’s ability to file a claim against any party other than the one that filed for bankruptcy, without that creditor’s consent, protecting the individual members of the Sackler family from personal liability and eliminating the need for them to file bankruptcy themselves.
Writing for the majority, Justice Neil Gorsuch wrote in his opinion that “nothing in present law authorizes the Sackler discharge”, adding:
“Confining ourselves to the question presented, the court holds only that 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…..Because the Second Circuit held otherwise, its judgment is reversed and the case is remanded for further proceedings consistent with this opinion.”
Justice Gorsuch was joined in his opinion by Justices Clarence Thomas, Samuel A. Alito Jr., Amy Coney Barrett and Ketanji Brown Jackson.
In his dissent, Justice Brett Kavanaugh argued that the decision “is wrong on the law and devastating for more than 100,000 opioid victims and their families,” and would lead to the victims being “deprived of the substantial monetary recovery that they long fought for and finally secured after years of litigation.”
Justice Kavanaugh also notes:
“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. 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.”
Justice Kavanaugh was joined in his dissent by Chief Justice John G. Roberts Jr. and Justices Sonia Sotomayor and Elena Kagan
Purdue’s 2019 bankruptcy filing was prompted by the wave of opioid-related lawsuits that started in 2014. Between 1999 and 2019, over 245,000 people had died as a result of using prescription-related opioids, including those manufactured by the company, such as Oxycontin. The initial bankruptcy deal was approved by Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y. but was opposed by the U.S Trustee who argued that Judge Drain did not have the authority to extend such a liability shield from claims by future plaintiffs.
For its part, Purdue Pharma has contended that the settlement deal was the best mechanism to help impacted parties and in a statement after the SCOTUS decision, family members contended:
“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”
Resources
https://www.nytimes.com/2024/06/27/us/supreme-court-opioid-settlement.html
https://www.law360.com/articles/1852662/nixed-purdue-ch-11-plan-may-leave-states-ready-for-a-fight
https://www.law360.com/articles/1852503/titanic-purdue-ruling-shifts-the-balance-of-power-in-ch-11
