The Supreme Court has agreed to examine the government’s challenge to a bankruptcy settlement involving Purdue Pharma, halting a deal that would have provided the wealthy Sackler family with protection from civil opioid lawsuits in exchange for payments to plaintiffs amounting to $6 billion. The court’s decision comes in support of the Justice Department’s request to pause the settlement plan while it reviews the agreement. The government argues that the Sackler family, who own Purdue Pharma, should not be able to take advantage of legal protections intended for debtors facing financial distress.
The court’s unsigned order, which provided no reasons or public dissents, introduces further uncertainty around the plan to compensate those affected by the opioid crisis, while shielding the Sackler family. The order specifies that the case will be heard and argued in December.
This development represents the latest twist in the ongoing legal battle over compensation for victims of the prescription drug crisis. In May, the US Court of Appeals for the Second Circuit approved the settlement plan as part of Purdue Pharma’s bankruptcy restructuring process. The company had filed for bankruptcy protection in September 2019 while facing numerous lawsuits related to the opioid crisis.
While it is customary for companies seeking bankruptcy protection to be shielded from legal claims, this agreement was distinctive in that it extended liability protection to the company’s owners, the Sackler family. The family insisted on a settlement that safeguarded them from lawsuits before agreeing to sign. However, the US Trustee Program, a branch of the Justice Department responsible for overseeing bankruptcy cases, has long argued that bankruptcy judges lack the authority to permanently block lawsuits against company owners who have not sought personal bankruptcy protection. The government contends that there is disagreement among federal appeals courts regarding this issue, and that the settlement agreement could establish a concerning precedent.
In a brief for the government, Solicitor General Elizabeth B. Prelogar expressed concern that the agreement allowed “wealthy corporations and individuals to misuse the bankruptcy system to avoid mass tort liability.” She described the agreement as an “abuse of the bankruptcy system” that raised constitutional questions, citing its exceptional and unprecedented breadth. A spokeswoman for Purdue Pharma stated that the company is confident in the legality of the bankruptcy plan.
Following the finalization of the bankruptcy, members of the Sackler family will no longer serve on the pharmaceutical company’s board, and they will cease to be owners of the company, which will be renamed Knoa Pharma and owned by its creditors. However, the family will retain significant wealth, with estimates suggesting a fortune of $11 billion, much of it held offshore.
Victims’ groups have expressed frustration with the government’s stance, as it could further delay compensation payments to those who have suffered harm. In a brief filed on behalf of a victims’ group, it was argued that the billions of dollars allocated for abatement and victim compensation rely on the confirmation and implementation of the existing plan, emphasizing the urgent need for these funds.
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