Owned by members of the Sackler family since 1952, Purdue is a pharmaceutical company known for manufacturing OxyContin, the long-lasting opioid that is linked to thousands of overdoses nationwide. Since OxyContin’s launch in 1996, Purdue Pharma continued to aggressively market the drug, despite knowledge of its addictive qualities and despite evidence that the drug, which was intended to be long-acting, did not perform as marketed.
In the face of thousands of lawsuits for their role in the opioid overdose epidemic, Purdue filed for bankruptcy in 2019 — a move that halted lawsuits until a restructuring plan was finalized to pay creditors that included individuals, governments, and other entities. Four years later, the United States Court of Appeals for the Second Circuit approved Purdue Pharma’s bankruptcy restructuring plan, which includes a provision that would release any third-party claims against the Sacklers in exchange for a total of $6 billion to be paid by Purdue.
Last month, the U.S. Trustee for the U.S. Department of Justice (DOJ) filed a motion to pause the settlement, indicating that it plans to appeal the decision to the U.S. Supreme Court in August. Although a review by the Supreme Court may result in further payment delays, it is crucial that the government exhaust every avenue they have to prevent Purdue and other companies in a similar position from shielding third-party non-debtors in the future.
Background
In September 2021, the bankruptcy court approved a plan compelling Purdue Pharma to pay $4.5 billion to the governments, tribes, and individuals who had brought litigation against the company. The plan included a provision that would reconstitute Purdue Pharma as Knoa Pharma. This new company would then be reconstituted as a public benefit corporation without members of the Sackler family on its board or in other corporate positions.
Part of the bankruptcy plan released individual members of the Sacker family from any future civil lawsuits, even though they as individuals were not parties to the bankruptcy. No one could sue any third party for actions resulting from the sale and distribution of OxyContin by Purdue Pharma.
After the court issued their decision, the United States Trustee, eight states, the District of Columbia, and over 2,000 individuals appealed the bankruptcy court’s decision in federal district court. In December 2021, the U.S. District Court for the Southern District of New York reversed the bankruptcy court’s decision, finding that the bankruptcy court did not have the authority to grant lawsuit releases to the Sackler family under the federal bankruptcy code.
In response, Purdue Pharma and the Sacklers appealed the decision. In the meantime, eight states and the District of Columbia that appealed the bankruptcy plan reached a separate agreement with Purdue for an additional $1.175-$1.675 billion — bringing the total contribution amount to $6 billion. On May 30, 2023, the Second Circuit increased the contribution to $6 billion and affirmed the original bankruptcy court’s restructuring plan from September 2021.
What Happens Next?
With the approval of the bankruptcy plan, individuals who filed suit against Purdue will begin to receive payments. The decision allows families to apply for a settlement from the trust established in the U.S. bankruptcy court. Many families have long awaited financial compensation resulting from Purdue’s actions. In March 2022, they expressed their anger and frustration directly to the Sacklers during a virtual hearing as part of the bankruptcy plan.
However, the U.S. Supreme Court may grant certiorari to hear the case. Although the Second Circuit denied the DOJ’s motion to stay, the government requested that the Supreme Court block the settlement. If the settlement is paused and the DOJ appeals the Second Circuit decision, the Supreme Court may decide to hear the case later this year and payment to the victims and their families could be delayed until the Court’s ruling.
Future Implications
The issue of whether bankruptcy courts have the power to shield third parties is not yet settled among the various circuits. This decision exposes the way courts can extend the interpretation of Section 1123(b)(6) of the Bankruptcy Code to allow for nonconsensual non debtor releases that protect wealthy actors from liability. Bankruptcy experts have since called on Congress to act on bankruptcy reform legislation and on the Supreme Court to take up cases that may resolve these issues.
Even after paying out $6 billion dollars, the Sacklers will remain one of the most wealthy families in the U.S. and will not be at risk of losing any money in civil lawsuits. While Purdue Pharma will no longer exist as it once did, this decision nevertheless opens the door for the Sackler family to live comfortably without consequence.
If the DOJ appeals to the U.S. Supreme Court and the Court grants cert, it may resolve the issue of third-party releases in the government’s favor — impacting lawsuits against the Sacklers in the future. However, the likelihood that the government prevails may be low, given that studies have shown that the business win rate for U.S. Supreme Court rulings is higher now than it has been in the last century. Furthermore, some victims and advocates have objected to an appeal to the Supreme Court because payments to victims would be stalled even longer.
While payments may be halted in the short term, an appeal could stop Purdue and other companies from using third-party releases to escape liability in the long term. Despite the Court’s leanings, given the unresolved bankruptcy issues and the Sacklers’ detrimental role in the opioid epidemic, the long appeal process may be worth it.
This case has been at the center of a theoretical debate about bankruptcy reform and third-party releases. However, the Second Circuit decision has broader implications for victims of the opioid epidemic and their families in the long term. Their ability to be paid should not come at the expense of losing their power to bring their own claims against a family that played a major part in developing and marketing an opioid that harmed them.
