Supreme Court rejects controversial Purdue Pharma bankruptcy deal

The U.S. Supreme Court on Thursday invalidated a controversial bankruptcy deal involving Purdue Pharma, maker of the highly addictive painkiller Oxycontin, and members of the Sackler family who owned the scandal-plagued drug firm.

By a vote of 5-4, the justices threw out the bankruptcy settlement, which has been valued at between $6 billion and $10 billion.

Writing for the court majority, Justice Neil Gorsuch said U.S. bankruptcy law doesn't afford bankruptcy courts the kind of power needed to block lawsuits against parties who haven't filed for bankruptcy. "The bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seek to discharge claims against a non-debtor without the consent of affected claimants," he wrote.

Gorsuch added that if Congress intended to grant this level of power to bankruptcy courts, it might have done so.

"Had Congress meant to reshape traditional practice so profoundly in the present bankruptcy code, extending to courts the capacious new power the plan proponents claim, one might have expected it to say so expressly," he wrote.

Writing for the dissenters, Justice Brett Kavanugh said the ruling disrupts a deal that would have funneled money to communities and victims of the opioid crisis. "Today's decision is wrong on the law and devastating for more than 100,000 opioid victims and their families," Kavanaugh wrote.

But Melissa Jacoby, who teaches bankruptcy law at the University of North Carolina, said the opinion wasn't a surprise.

"Ultimately what the majority of the court did does follow the rule of law and what's actually in the bankruptcy code," Jacoby said.

That view was shared by Jonathan Lipson, a critic of the Purdue bankruptcy settlement, who teaches law at Temple University.

"The result is simply based on the language of the law," Lipson said. "You see a strong dissent from Justice Kavanaugh which reflects how emotional and difficult this case has been for hundreds of thousands of people."

Opioid victims will have to wait

The bankruptcy deal would have provided roughly $8 billion to state and local governments for dealing with the consequences of opioid addiction; it also would have provided a total of $750 million in individual compensation to victims.

Ryan Hampton, who was addicted to Oxycontin and is now in recovery supported the bankruptcy plan.

He told NPR he understands the desire of many opioid victims to sue the Sacklers. But he worries that legal chaos following this ruling could delay payouts for years.

"I do have a fear that it could be another year or two," Hampton said. "It is important for everyone to get to the table and negotiate something that puts victims first very quickly."

Most of the settlement would have been funded by members of the Sackler family who owned and ran Purdue Pharma, and agreed to pay $6 billion into the compensation pot.

In exchange, the Sacklers would have been shielded from personal liability even though six Sackler family members served on the company’s the board — including Chairman Richard Sackler, who closely directed the firm’s aggressive and deceptive marketing strategy for Oxycontin as a painkiller that was not addictive.

Sackler family says they'll keep negotiating

In a statement sent to NPR members of the Sackler family, who have denied any wrongdoing in management of Purdue Pharma, voiced disappointment.

"The Sackler families remain hopeful about reaching a resolution that provides substantial resources to help combat a complex public health crisis," the Sackler family statement said. "The unfortunate reality is that the alternative is costly and chaotic legal proceedings in courtrooms across the country."

Family members said negotiations toward a settlement will continue.

Purdue Pharma also issued a statement voicing dismay over the opinion. "Today’s ruling is heart-crushing because it invalidates a settlement supported by nearly all of our creditors," the statement read.

It is accurate that 95% of the victims who voted as part of the Purdue Pharma bankruptcy process ultimately agreed to the settlement. But in the majority opinion, Gorsuch noted that only 20% of Oxcyontin victims cast votes. Also, the remaining 5% objected, contending the bankruptcy court exceeded its authority in allowing the Sacklers to hold on to half their wealth and escape further liability.

A major precedent for U.S. bankruptcy law

The deal was also opposed by the U.S. Justice Department's bankruptcy watchdog agency, which argued the deal would have violated victims' constitutional rights to due process.

On Thursday the Supreme Court validated the DOJ position.

Experts say the decision will have far-reaching implications for an overdose crisis that still kills more than 100,000 people in the U.S. every year.

"This is absolutely going to put the brakes on so-called parasitic bankruptcies, where a non-bankrupt entity like the Sackler family tries to piggy-back on a bankruptcy," said Adam Levitin, who teaches law at Georgetown University.

Other legal experts, however, predicted that corporations and wealthy individuals will continue to develop complex bankruptcy maneuvers that might curb their liability.

"It will I think probably slow the trend down a little bit, but it certainly won't stop it," said Lipson at Temple University.

In a statement sent to NPR, Jason Amala, an attorney who represents survivors of child sexual abuse, said the opinion would have an immediate impact on bankruptcy cases involving the Boy Scouts of America and some Roman Catholic dioceses.

"The Supreme Court’s decision means bankruptcy courts do not have the authority to force injured plaintiffs to settle their claims against parties who have not filed for bankruptcy," Amala said.

Many of the legal experts interviewed by NPR said this ruling by the Supreme Court highlights the need for congressional action to further clarify how complicated lawsuits involving large numbers of victims should be resolved.

But Levitin at Georgetown University said it's unlikely polarized lawmakers will take that kind of action, especially in an election year.

"Nothing's going to happen," Levitin said. "This is not on the congressional radar as something to fix."