Supreme Court Ends OxyContin Settlement, Cracking Sackler Shield

The US Supreme Court in Washington, DC.

(Bloomberg) -- The US Supreme Court tossed Purdue Pharma LP’s $6 billion opioid settlement, nixing a deal that would have funded opioid epidemic relief efforts in exchange for protecting the company’s billionaire owners from lawsuits alleging they helped fuel the addiction crisis.

The 5-4 ruling opens a new chapter of uncertainty for Purdue by ruling that the accord would improperly shield its owners, members of the billionaire Sackler family. They had agreed to give up ownership of the company — the maker of painkiller OxyContin — and pay as much as $6 billion.

More broadly, the ruling upends a key tool used by bankrupt companies to settle lawsuits spawned by harmful or toxic products. The tool, known as a non-consensual third-party release, forces holdout plaintiffs to settle with companies if an agreement has support from most of the victims. A Justice Department unit monitoring bankruptcy courts opposed the Sackler settlement, arguing such mechanisms are unlawful.

Congress authorized similar maneuvers decades ago in bankruptcies related to asbestos lawsuits. Over time, though, lawyers and judges have used the approach to address an array of corporate wrongdoing. Similar deals have ended mass litigation over dangerous products and waves of sex abuse claims against Catholic dioceses, the Boy Scouts of America and USA Gymnastics.

“Someday, Congress may choose to add to the bankruptcy code special rules for opioid-related bankruptcies as it has for asbestos-related cases,” Justice Neil Gorsuch wrote for the majority. “Or it may choose not to do so. Either way, if a policy decision like that is to be made, it is for Congress to make.”

Purdue’s settlement won overwhelming support from opioid crisis victims who voted on it. But a vocal contingent remained bitterly opposed to letting Purdue’s billionaire owners put the lawsuits behind them.

Proponents have said victims won’t get more money from the Sacklers by taking them to trial; the Justice Department has said ending the settlement could force the owners to shell out more money for victims. Members of the Sackler family have denied wrongdoing and said the settlement avoids expensive litigation that may not succeed.

In dissent, Justice Brett Kavanaugh said Thursday’s decision is devastating for more than 100,000 opioid victims and their families.

“Opioid victims and other future victims of mass torts will suffer greatly in the wake of today’s unfortunate and destabilizing decision,” Kavanaugh said. “Only Congress can fix the chaos that will now ensue.”

Chief Justice John Roberts and Justices Sonia Sotomayor and Elena Kagan joined Kavanaugh’s dissenting opinion.

Purdue said after the ruling that the company will reach back out to its creditors “and renew our pursuit of a resolution that delivers billions of dollars of value for opioid abatement and allows the company to emerge from bankruptcy.”

The company said it is continuing to operate without interruption to its business.

During arguments in December, lawyers representing Purdue and the largest group of victims each said the company could be forced to liquidate if the settlement is invalidated. A Justice Department lawyer said the sides could return to the negotiating table to hammer out a deal that doesn’t force objectors to give up their claims against the Sacklers.

The Justice Department contended federal bankruptcy courts lack power to insulate the Sacklers from lawsuits since they haven’t filed for protection themselves.

The Supreme Court in August halted implementation of the settlement while the justices heard the appeal.

The families of the late Mortimer and Raymond Sackler said in a statement Thursday they “remain hopeful about reaching a resolution that provides substantial resources to help combat a complex public health crisis.”

“While we are confident that we would prevail in any future litigation given the profound misrepresentations about our families and the opioid crisis, we continue to believe that a swift negotiated agreement to provide billions of dollars for people and communities in need is the best way forward,” the families said.

The case is Harrington v. Purdue Pharma, 23-124.

(Updates with statement from the Sackler family.)

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