Supreme Court to Consider Deal Removing Liability From Family Behind Oxycontin Manufacturer

U.S. Supreme Court in Washington on Nov. 8, 2023. Madalina Vasiliu/The Epoch Times

The Supreme Court is set to hear oral arguments on Dec. 4 over a bankruptcy deal that releases members of the Sackler family, who led Purdue Pharma, from future civil liability related to OxyContin.

Harrington v. Purdue Pharma L.P. is years in the making and could alter precedent for how bankruptcy courts effectively shield third-party non-debtors from onerous litigation. Purdue filed for Chapter 11 bankruptcy in 2019, facing thousands of lawsuits seeking more than $40 trillion. It has already pleaded guilty to federal criminal charges related to the opioid’s marketing.

In the years preceding Purdue’s bankruptcy, the Sackler family had already taken $11 billion from the company and transferred a significant portion of their wealth overseas, according to the Justice Department’s briefing to the Supreme Court.

A bankruptcy court approved Purdue’s bankruptcy plan, which entailed reorganizing the company into a nonprofit dedicated to addressing the opioid epidemic. As part of the plan, the Sackler family would contribute at least $5.5 billion to bankruptcy estates and victim compensation. In exchange, they would be released from certain civil liability, although the settlement didn’t preclude federal criminal prosecution.

While 95 percent of creditors reportedly approved the plan, many states and more than 2,600 personal-injury claimants opposed it. According to the Justice Department, “hundreds of thousands of claimants failed to vote at all; fewer than 20 percent of 618,194 claimants entitled to vote—and fewer than 50 percent of the subset of claimants with personal-injury claims—ended up voting on the plan.”

A district court later vacated the bankruptcy court’s confirmation of Purdue’s plan, arguing that “the Bankruptcy Code does not authorize such nonconsensual non-debtor releases.” The U.S. Court of Appeals for the Second Circuit reversed that decision, prompting the U.S. government to request review by the Supreme Court. The justices agreed to take up the case while halting the plan allowed by the appellate court’s decision.

The question they are considering is: “Whether the Bankruptcy Code authorizes a court to approve, as part of a plan of reorganization under Chapter 11 of the Bankruptcy Code, a release that extinguishes claims held by nondebtors against nondebtor third parties, without the claimants’ consent.”

The Official Committee of Unsecured Creditors of Purdue Pharma L.P., which is comprised of opioid crisis victims and reached the settlement, is fighting to keep the plan in place as a way to quickly provide relief for those affected by the drug.

As USA Today noted, the case has pitted victim against victim. The outlet reported on two mothers, whose sons died from their addictions.

“It’s absolutely absurd that they think they’re just going to be able to walk away with their wealth intact,” said Ellen Isaacs, whose son Ryan died at 33 years old.

Lynn Wencus, whose son Jeff also died at 33, supported keeping the settlement. “Do I want to see them rot in hell? Absolutely,” she said. “But if we can get this money and put it into treatment the right way, then we are saving lives.”

The committee similarly said in one of its Supreme Court briefs that there was “no love lost for the Sacklers.” It worried, however, that the bankruptcy plan was “the only means of getting billions of dollars in life-changing and life-saving funds from the Debtors and the Sacklers that are desperately needed today.”

“Absent the [release of liability], there is no chance of fair allocation of the limited assets in this extraordinary case. Almost all claimants will be worse off as a select few creditors, competing with the Debtors’ more valuable estate claims, drain whatever money can be extracted from the Sacklers.”

The brief also makes several legal arguments against the Supreme Court taking the case. First, they say William K. Harrington, the U.S. Trustee challenging the plan, lacks standing to bring the case. They further argue that a group of Canadian creditors, who also challenged the plan, foreclosed their ability to make a “categorical objection” to the release of liability. Finally, they say such releases are appropriate and not prohibited by U.S. Bankruptcy Code.

Mr. Harrington’s brief, meanwhile, criticizes the plan for allowing “the Sacklers, who would otherwise face claims alleging damages in the trillions, to obtain full repose while keeping billions of dollars that they siphoned from Purdue in the years before these Chapter 11 proceedings.”

Mr. Harrington argues that he does have standing and points to the portion of U.S. Bankruptcy Code that reads: “[t]he United States trustee may raise and may appear and be heard on any issue in any case or proceeding under [the Code] but may not file a [Chapter 11] plan.” He also argues that U.S. law doesn’t authorize non-consensual third party releases.

Tablets of opioid painkiller Oxycodone delivered on medical prescription taken on Sept. 18, 2019. ERIC BARADAT/AFP via Getty Images

U.S. Solicitor General Elizabeth Prelogar, who asked the Supreme Court to halt the appellate decision, noted in her petition that “courts of appeals are sharply and intractably divided on the question whether nonconsensual third-party releases are lawful. Likewise, the practical and legal importance of the question both in this case and for the bankruptcy system cannot seriously be disputed.”

She argued, “No provision of the Code authorizes the sweeping power of releasing nonconsenting third parties’ claims against nondebtors, and this Court has repeatedly rejected the premise at the heart of the court of appeals’ reasoning: that courts sitting in bankruptcy may take virtually any action not expressly forbidden by the Bankruptcy Code. In addition, that interpretation of the Code would raise serious constitutional questions by extinguishing private property rights without providing an opportunity for the rights holders to opt in or out of the release.”