Supreme Court Questions Opioid Settlement | January 2024

January 2024 | Volume 15, Issue 6

Read the full article from NBC News.

Note: In addition to the article, please see the accompanying video, “Supreme Court Hears Arguments over $6 Billion Opioid Deal Involving Sackler Family,” included at the above-referenced internet address.

According to the article, members of the U.S. Supreme Court recently seemed conflicted over whether to allow the bankruptcy reorganization of opioid maker Purdue Pharma, which includes a provision that protects its former owners, the Sackler family, from liability regarding future lawsuits.

During the oral argument, justices expressed skepticism that a bankruptcy court had legal authority to release the Sacklers from potential legal claims. But some justices also seemed reluctant to blow up the multibillion-dollar deal that would provide immediate relief to opioid victims.

It is no ordinary bankruptcy case, touching as it does upon the nationwide harm caused by the opioid crisis and the role that Sackler-owned Purdue played in creating it. Ahead of the argument, some opponents of the deal held a rally outside the court, with protesters chanting: "Sackler money, blood money."

As part of the proposed deal, which the Supreme Court put on hold in August, the Sackler family had agreed to pay around $6 billion that could be used to settle opioid-related claims, but only in return for a complete release from any liability in future cases.

The overall settlement, including assets held by Purdue, is likely to be worth significantly more, with the reorganized company set to dedicate itself to tackling the impact of opioid abuse.

No Sackler family member has had any involvement in the company since 2019.

Purdue made billions from OxyContin, a widely available painkiller that fueled the opioid epidemic.

The company’s tactics in aggressively marketing the drug came under increasing scrutiny as thousands of people died from opioid overdoses in recent years.

The company sought bankruptcy protection, but the Sackler family members did not. Instead, they negotiated a separate deal with Purdue and plaintiffs in pending lawsuits that would allow the company to reinvent itself to address the opioid crisis.

Jen Trejo holds a photo of her son Christopher as she is comforted outside the Supreme Court on Monday. Her son was 32 when he died, and she said about Purdue Pharma and the Sackler family, "You can't just kill my child and just pay a fine."

The Biden administration objects to the release of additional claims against the Sacklers, saying it would be unfair to potential future plaintiffs.

During oral argument, Justice Neil Gorsuch was most outspoken in raising what he called "serious" constitutional questions about the deal, saying plaintiffs who did not sign on to it would have their rights, including their right to due process, violated.

But Justice Brett Kavanaugh pointed out that "bankruptcy courts for 30 years have been approving plans like this."

Justice Elena Kagan's comments during the argument reflected the unease on the bench.

At one point, she wondered why the federal government should be able to "blow up the deal" even though thousands of plaintiffs "who think the Sacklers are pretty much the worst people on Earth" have said they support it.

But later, Kagan also noted that normally in bankruptcy cases, those involved must make all their assets available. The Sacklers, she said, were able to join the settlement "without putting ... anything near their entire pot of assets on the table."

She added that it would be "an extraordinary thing" if the court allowed the family to "basically subvert" the bankruptcy process.

Pratik Shah, a lawyer for some of the victims, warned that if the court prevents the deal from going forward, there is no sign that another one can be negotiated.

"There will be no viable path to any victim recovery," he said.

The government's lawyer, Solicitor General Elizabeth Prelogar, wrote in a court filing that the settlement prevents the Sacklers from facing “claims alleging damages in the trillions” while “keeping billions of dollars that they siphoned from Purdue.”

In a decision in May, the New York-based 2nd U.S. Circuit Court of Appeals approved the plan over the objection of William Harrington, the U.S. government trustee monitoring the bankruptcy. The Justice Department’s trustee program, of which Harrington is part, is aimed at ensuring that the bankruptcy system operates as required under law.

Purdue has criticized Harrington’s role, noting that groups representing thousands of plaintiffs have signed on to the settlement, which could not have happened without the Sackler family’s contribution.

At the Supreme Court, various groups representing plaintiffs are supporting Purdue, including one that includes 1,300 cities, counties and other municipalities and another representing 60,000 people affected by the opioid epidemic.

In a brief filed by a group representing a large array of plaintiffs, lawyers wrote that their clients “have no love lost for the Sacklers” but recognize that the settlement is “the only means of getting billions of dollars in life-changing and live-saving funds ... that are desperately needed today.”

Canadian municipalities and Indigenous First Nations are among those objecting to the settlement.

Purdue flourished under brothers Mortimer and Raymond Sackler, who died in 2010 and 2017, respectively. The family reaped billions and spent lavishly, including on splashy charitable projects.

The family told the Supreme Court that it continues to back the settlement.

In a brief filed on behalf of the relatives of Mortimer Sackler, most of whom are based overseas, lawyers warned of “significant litigation costs and risks” in seeking to enforce any foreign court judgments against the family if the settlement were thrown out.

Discussion Questions

1. Explain what a bankruptcy reorganization is.
   A bankruptcy reorganization for businesses is recognized by Chapter 11 of the U.S. Bankruptcy Code (Chapter 13 bankruptcy is reserved for debt reorganization for individuals). In a Chapter 11 reorganization, the debtor typically remains “in possession” of the business and its operations. A plan of reorganization is proposed, creditors whose rights are affected may vote on the plan, and the plan may be confirmed by the court if it receives the required votes and satisfies the requisite legal requirements. Ultimately, approval of the plan is subject to the discretion of the court(s). A Chapter 11 reorganization typically involves debt restructuring, but it may also involve debt forgiveness, as evidenced in the subject Purdue Pharma case.

2. Discuss the terms of the proposed settlement in this case.
   As indicated in the article, the subject case involves the bankruptcy reorganization plan of opioid maker Purdue Pharma, which includes a provision that protects its former owners, the Sackler family, from liability regarding future lawsuits. It is important to note that this Chapter 11 bankruptcy was filed by Purdue Pharma, the company, and not by the Sackler family. As part of the proposed deal, which the U.S. Supreme Court put on hold in August 2023, the Sackler family members have agreed to pay approximately $6 billion from personal funds that could be used to settle opioid-related claims, but only in return for a complete release from any personal liability in future, related cases.

3. In your reasoned opinion, in terms of the Supreme Court’s decision to approve a bankruptcy plan that releases the Sackler family from future liability in return for a payment of $6 billion from personal funds, should it matter that no member of the Sackler family has been involved with Purdue Pharma since 2019? Explain your response.
   This is an opinion question, so student responses may vary. In your author’s opinion, even if no member of the Sackler family has been involved with Purdue Pharma since 2019, that should have no impact on the Court’s decision as to whether to release Sackler family members from liabilities that originated when they were involved with the company. The key question in this case is whether the bankruptcy reorganization plan is fair and reasonable under the circumstances. In reaching an opinion regarding this case, keep in mind that no bankruptcy reorganization plan is perfect, nor is it perfectly fair. Also, it is important to note that as referenced in the article, various groups representing plaintiffs are supporting the settlement, including one that involves 1,300 cities, counties, and other municipalities, and another representing 60,000 people affected by the opioid epidemic.
   
   Your author is quite surprised that the Supreme Court chose to take up this case on appeal. Typically, the approval of a Chapter 11 bankruptcy reorganization plan is subject to the discretion of the judge assigned to the case, and judges are generally given great discretion in deciding whether a settlement and its terms should be approved.