Monday, May 27, 2024

The Supreme Court heard arguments on Monday over a bankruptcy deal for Purdue Pharma that would give billions of dollars to those harmed by the opioid epidemic in exchange for shielding members of the wealthy Sackler family from additional opioid-related lawsuits.

The settlement involving Purdue, the maker of the prescription painkiller OxyContin, touches on one of the country’s largest public health crises. In taking up the case, the court temporarily paused the deal until it issues a ruling. Experts say any decision may also have important consequences for other cases that use the bankruptcy system to settle claims of mass injuries.

Here’s what you need to know:

At issue is whether a bankruptcy plan can be engineered to give legal immunity to a third party — in this case, members of the Sackler family, who once controlled Purdue Pharma — even though they themselves have not declared bankruptcy.

If the court approves the deal, that could affirm a litigation tactic that has become increasingly popular in resolving lawsuits in which many people claim similar injuries from the same entity, be it a drug or consumer product. By turning to the bankruptcy courts as a tool to resolve those claims, businesses aim to free themselves from civil liability and prevent future lawsuits.

But if the Supreme Court were to block the use of such a mechanism, known as a nonconsensual third-party release, the Sackler family would no longer be shielded from civil lawsuits. The entire Purdue Pharma bankruptcy settlement deal, years in the making, would also most likely be in jeopardy.

Such a decision could upend a number of similar agreements, including the Revlon bankruptcy.

It is rare for the Supreme Court to agree to hear a bankruptcy court dispute, experts say, especially one addressing a settlement agreement in what is known as a mass tort case.

Few such cases make it to the court because all parties are under pressure to settle. Litigating all the way to the highest court in the nation is costly and time-consuming. In the Purdue case, the U.S. Trustee Program, a watchdog office in the Justice Department, petitioned the Supreme Court to review the deal.

Several other aspects of the case made it more likely that the Supreme Court would grant review, legal experts said. For one, the opioid crisis is an issue of national importance. And such agreements allowing third parties to be shielded from most liability without declaring bankruptcy themselves are increasingly popular and have divided lower courts.

A battle between money and principle is at the heart of the Purdue litigation.

Thousands of Purdue plaintiffs, which include states, local governments, tribes and individuals, have waited years for settlement funds, the value of which erodes as litigation costs mount and time passes. As the Sacklers inched up their offers, even the last handful of states that had held up the deal relented. Bankruptcy court is ultimately a marketplace of blunt pragmatism.

By the time the U.S. Court of Appeals for the Second Circuit heard the appeal, $6 billion from the Sacklers was on the table, and a majority of the parties had signed on. A notable objector: the U.S. Trustee Program.

Its objection was that if the deal were approved, the Sacklers would get the benefits of bankruptcy, such as foreclosing all Purdue opioid-related lawsuits, without its costs. People who might still want to pursue the individual family members in civil court would be barred from doing so, without having an opportunity to weigh in. The U.S. trustee argued that their constitutional due process rights would be summarily extinguished.

At this point in the Purdue litigation, the Justice Department, with a handful of other plaintiffs, is largely alone in pressing these principles. Tribes, states, local governments and people suffering from the opioid crisis have urgent costs to address.

Under the deal, Purdue would pay $1.2 billion toward the settlement immediately upon emerging from bankruptcy, with millions more expected in the years to come. The Sacklers would pay up to $6 billion over 18 years, with almost $4.5 billion due in the first nine years.

According to an agreement with tribal plaintiffs, all 574 federally recognized Native American tribes are eligible for payouts from a trust worth about $161 million.

Each state has devised a formula with its local governments for distributing the Purdue money. But all must follow the guidance for using it: that it be largely applied to initiatives intended to ease the opioid crisis, including addiction treatment and prevention.

According to the current plan, a trust of $700 million to $750 million would be set up for individual victims and families of people who became addicted to OxyContin or died from overdoses.

About 138,000 plaintiffs filed claims; payments are expected to range from about $3,500 to $48,000. Guardians of about 6,550 children who experienced withdrawal symptoms from drug exposure in the womb may each receive about $7,000. Though the payouts are small, the Purdue plan is one of only very few opioid settlements across the nation that set aside money for individuals.

Purdue Pharma, which introduced OxyContin in the late 1990s and aggressively marketed the drug, would cease to exist. Its assets would be transferred to a new company called Knoa Pharma. That company, which would be owned by creditors, would manufacture addiction treatment and opioid reversal medicines at no profit. Knoa would continue to make opioids like OxyContin as well as nonopioid drugs, with profits going toward the settlement funds.

Purdue, which no longer markets the opioids it produces, is being supervised by an independent monitor. The Sacklers have been off its board since 2018.

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