US Supreme Court blocks Purdue Pharma bankruptcy settlement

FILE PHOTO: A pharmacist holds a bottle OxyContin made by Purdue Pharma at a pharmacy in Provo, Utah, U.S., May 9, 2019. REUTERS/George Frey/File Photo

By John Kruzel

WASHINGTON (Reuters) - The U.S. Supreme Court on Thursday blocked OxyContin maker Purdue Pharma's bankruptcy settlement that would have shielded its wealthy Sackler family owners from lawsuits over their role in the nation's deadly opioid epidemic.

The 5-4 decision reversed a lower court's ruling that had upheld the plan to give Purdue's owners immunity in exchange for paying up to $6 billion to settle thousands of lawsuits accusing the company of unlawful misleading marketing of OxyContin, a powerful pain medication introduced in 1996.

The ruling represented a victory for President Joe Biden's administration, which had challenged the settlement as an abuse of bankruptcy protections meant for debtors in financial distress, not people like the Sacklers who have not filed for bankruptcy.

Conservative Justice Neil Gorsuch wrote the ruling, which was joined by fellow conservative Justices Clarence Thomas, Samuel Alito and Amy Coney Barrett, as well as liberal Justice Ketanji Brown Jackson.

"The Sacklers have not filed for bankruptcy and have not placed virtually all their assets on the table for distribution to creditors, yet they seek what essentially amounts to a discharge. They hope to win a judicial order releasing pending claims against them brought by opioid victims. They seek an injunction 'permanently and forever' foreclosing similar suits in the future," Gorsuch wrote. "And they seek all this without the consent of those affected."

FILE PHOTO: The U.S. Supreme Court building is seen in Washington, U.S., May 20, 2024. REUTERS/Evelyn Hockstein/File Photo

Justice Brett Kavanaugh wrote a dissenting opinion that was joined be fellow conservative Chief Justice John Roberts, and liberal Justices Sonia Sotomayor and Elena Kagan.

Purdue filed for Chapter 11 bankruptcy in 2019 to address its debts, nearly all of which stemmed from thousands of lawsuits alleging that OxyContin helped kickstart an opioid epidemic that has caused more than half a million U.S. overdose deaths over two decades.

At issue in the case was whether U.S. bankruptcy law lets Purdue's restructuring include legal protections for the members of the Sackler family, who have not filed for personal bankruptcy. These so-called "non-debtor releases" originally arose in the context of asbestos litigation, but their use has been expanded by companies looking to use such protections as a bargaining chip.

The Stamford, Connecticut-based company estimates that its bankruptcy settlement, approved by a U.S. bankruptcy judge in 2021, would provide $10 billion in value to its creditors, including state and local governments, individual victims of addiction, hospitals and others who have sued the company.

The Biden administration and eight states challenged the settlement. All the states dropped their opposition after the Sacklers agreed to contribute more to the settlement fund, but the U.S. Trustee - the Justice Department's bankruptcy watchdog - and some individual opioid plaintiffs maintained their opposition.

A group comprising more than 60,000 people who have filed personal injury claims stemming from their exposure to Purdue opioid products told the Supreme Court they support the settlement, including legal immunity for members of the Sackler family.

In upholding the settlement in May 2023, the Manhattan-based 2nd U.S. Circuit of Appeals concluded that federal bankruptcy law permits legal protections for non-bankrupt parties like the Sacklers in extraordinary circumstances. It ruled that the legal claims against Purdue were inextricably linked to claims against its owners, and that allowing lawsuits to continue targeting the Sacklers would undermine Purdue's efforts to reach a bankruptcy settlement.

The Supreme Court in August 2023 paused bankruptcy proceedings concerning Purdue and its affiliates when they agreed to take up the administration's appeal of the 2nd Circuit's ruling.

During arguments in December, a Justice Department lawyer said the Sackler family members withdrew billions from Purdue before agreeing to contribute up to $6 billion to the opioid settlement, and argued that the deal effectively "permits the Sacklers to decide how much they're going to contribute."

Lawsuits against Purdue and Sackler family members accused them of fueling the opioid epidemic through deceptive marketing of its pain medication. The company pleaded guilty to misbranding and fraud charges related to its marketing of OxyContin in 2007 and 2020.

Members of the Sackler family have denied wrongdoing but expressed regret that OxyContin "unexpectedly became part of an opioid crisis." They said in May 2023 that the bankruptcy settlement would provide "substantial resources for people and communities in need."

Purdue has accused the U.S. Trustee of managing to "single-handedly delay billions of dollars in value that should be put to use for victim compensation, opioid crisis abatement for communities across the country and overdose rescue medicines."

(Reporting by Andrew Chung; Editing by Will Dunham)