The Supreme Court on Thursday blocked Purdue Pharma's bankruptcy deal. This deal would have cost billions of dollars to pay victims and combat the opioid epidemic in exchange for shielding the wealthy Sackler family from civil lawsuits.
In a 5-4 ruling authored by Justice Neil Gorsuch, the Supreme Court ruled that federal law does not allow the Sacklers, who previously controlled Purdue Pharma but did not file for bankruptcy themselves, to be relieved of liability for contributing up to $6 billion dollars in the settlement.
The Bankruptcy Act only grants immunity to third parties like the Sacklers if all creditors sign on, the Supreme Court ruled, siding with the Biden administration and a relatively small group that objected.
The decision revisits a key tactic that companies like the Catholic Church have used to resolve massive damage claims through bankruptcy.
“Describe the relief the Sacklers seek however you wish, nothing in the bankruptcy law contemplates (let alone authorizes) this,” Gorsuch wrote.
Chief Justice John Roberts and Justices Brett Kavanaugh, Sonia Sotomayor and Elena Kagan dissented and would have allowed the settlement with Purdue Pharma to go forward.
“In this case, as in many previous mass bankruptcies, the discharges to nondebtors were appropriate and therefore permitted by” the bankruptcy law, Kavanaugh wrote.
“The non-debtor releases were necessary to ensure meaningful recovery for victims and creditors in light of multiple collective action issues.”
This undoes a settlement years in the making that would have transformed Purdue Pharma into a public benefit company focused on eliminating opioids. The Sacklers' contribution, worth billions, would fund these efforts and compensate victims.
The Supreme Court had stayed the deal while it investigated the matter.
About 95 percent of creditors voted in favor of Purdue Pharma's settlement and the Sacklers' immunity, but the Supreme Court overruled the objections of a relatively small group supported by the U.S. Trustee, the Justice Department's bankruptcy watchdog.
The U.S. trustee estimated that the now-discontinued deal would net each opioid victim between $3,500 and $48,000.
The future of the Purdue Pharma bankruptcy case remains unclear as the parties argue over whether there is another viable way for victims to receive their money.
Purdue Pharma, which now has new ownership, called the ruling “heartbreaking” but said it will re-contact creditors to broker a new resolution.
“Crucially, the ruling is limited to the narrow legal issue regarding the scope of third-party disclosures granted by the Plan,” the company said in a statement. “The decision does nothing to deter us from the twin goals of using settlement funds to reduce opioid use and turning the company into an engine for good.”
The U.S. trustee’s objections to the settlement were joined by a group of Canadian municipalities and an individual victim who found her son dead on her bathroom floor after an overdose. Some of them alleged that Sackler’s relatives had taken assets offshore, portraying the deal as offering special protections to billionaires.
Updated at 12:50pm ET
