Justices put Purdue Pharma bankruptcy plan on hold
on Aug 10, 2023 at 4:41 pm
The Supreme Court on Thursday put a bankruptcy plan for Purdue Pharma, the manufacturer of the highly addictive opioid painkiller OxyContin, on hold while it reviews a challenge to the legality of the plan, which would shield the Sackler family, the owners of the drug company, from lawsuits. In the brief order the justices agreed to hear oral arguments this December in the Biden administration’s appeal of a lower-court ruling approving the plan. There were no recorded dissents.
U.S. Solicitor General Elizabeth Prelogar had told the justices that if the ruling by the U.S. Court of Appeals for the 2nd Circuit confirming the plan were allowed to stand, it “would leave in place a roadmap for wealthy corporations and individuals to misuse the bankruptcy system to avoid mass tort liability.” But lawyers for Purdue Pharma countered that if the implementation of the plan is delayed, it would result in “potentially grievous” harm for hundreds of thousands of victims of the opioid epidemic.
OxyContin first came on the market in 1996. In the years that followed, the painkiller generated more than $35 billion in revenue for Purdue Pharma. But the use and abuse of opioid painkillers, including OxyContin, also led to a serious public health crisis: During the 20-year period between 1999 and 2019, nearly a quarter-million people died from overdosing on prescription opioids like OxyContin.
Purdue Pharma twice pleaded guilty, in 2007 and 2020, to federal criminal charges arising from its marketing of OxyContin. The company was also the targets of thousands of lawsuits accusing the Sackler family and it of being a catalyst for the opioid epidemic through its deceptive marketing of OxyContin. To shield against those lawsuits, Purdue filed for bankruptcy in 2019. Purdue then proposed a reorganization plan that would remake the company as a nonprofit dedicated to addressing the problems created by the opioid epidemic. The Sacklers, who had withdrawn approximately $11 billion from the company, agreed to contribute approximately $4.5 billion to fund the plan; in exchange, the Sackler family would be released from liability.
In Sept. 2021, a bankruptcy court in the Southern District of New York confirmed the reorganization plan, over the objection of (among others) the U.S. Trustee, the division of the Department of Justice that oversees the administration of bankruptcy cases. U.S. Bankruptcy Judge Robert Drain called the confirmation a “bitter result,” but said that the settlement was the only way to provide funding for communities to address the problems caused by opioids. However, a federal district judge rejected the plan a few months later.
Purdue appealed to the 2nd Circuit, which in May of this year reversed the district court’s order and approved the plan. The court of appeals declined to put its judgment on hold to give the federal government time to seek review in the Supreme Court, prompting the U.S. Trustee to come to the justices to seek a stay of that ruling at the end of July.
Representing the U.S. Trustee, Prelogar told the justices that the plan provides the Sackler family with a “release from liability that is of exceptional and unprecedented breadth.” If the plan is approved, Prelogar warned, it will create a back door that will allow the “wealthy and powerful” to evade liability for wrongdoing without having to declare bankruptcy themselves. But more broadly, Prelogar cautioned, nothing in the Bankruptcy Code gives bankruptcy courts this kind of “sweeping power.” Moreover, she added, allowing the plan to go forward would “raise serious constitutional questions by extinguishing private property rights” – potential claims against the Sackler family – “without providing an opportunity for the rights holders to opt in or out of the release.”
Prelogar acknowledged that the government’s appeal could postpone the implementation of the plan, which would in turn delay funding for state and local governments and opioid victims. But the “delay is of the Sacklers’ own making,” Prelogar wrote, and in any event the government’s appeal would have relatively limited impact on the payments, which are scheduled to be spread out over several years. She suggested that the court could expedite the appeal by treating the government’s request to freeze the 2nd Circuit’s ruling as a petition for review.
Calling the government’s request “baseless,” Purdue Pharma countered that there is no need for the Supreme Court to intervene. There is no chance, the company assured the justices, that the reorganization plan will be substantially carried out before the Supreme Court can act on the government’s petition for review. Even after the 2nd Circuit’s ruling upholding the confirmation plan, Purdue Pharma explained, there are still additional steps to be taken when the case returns to the lower courts, so that “the earliest the Debtors could emerge from bankruptcy is January 2024, well after this Court is likely to act on the Trustee’s certiorari petition.”
Purdue Pharma downplayed the reorganization’s benefits to the Sacklers, describing them as the “only individuals who have benefitted from the two-year-and-counting delay in implementing the plan.” Instead, the company stressed, there is “overwhelming victim and governmental support for the plan.”
The company suggested that the U.S. Trustee is acting as a “rogue” agent, and it questioned whether the government actually has any interest in the case that would justify the trustee’s request, particularly when the federal government has itself already settled with Purdue. But in any event, it agreed with the government that the “best course” would be for the justices to treat the government’s request for a stay as a petition for review – and then quickly deny it. “[E]very day of delay in distributing” benefits to the victims, the company contended, “exacerbates the harms and literally risks lives.”
A group of individual victims also opposed the government’s request to block the plan from taking effect, telling the justices that the “notion that the U.S. Trustee speaks on behalf of Personal Injury Victims could not be further from the truth.” The victims, they write, acknowledged that releasing the Sacklers from liability was “necessary to a global settlement that delivers critical value to all opioid-affected communities in America through direct payments to those injured and billions of dollars of abatement funds to prevent further injuries.”
In an order issued on Thursday afternoon, the justices granted the Biden administration’s request to temporarily freeze the 2nd Circuit’s ruling and set the case for oral argument in December. A decision is likely to follow sometime next year.
This article was originally published at Howe on the Court.
Correction (Aug. 10 at 5:30 p.m.): An earlier version of this article said the bankruptcy court that confirmed the reorganization plan in 2021 was in Delaware.