The Supreme Court justices seemed divided on Monday over a fiercely contested bankruptcy settlement for Purdue Pharma that would funnel billions of dollars to address the opioid epidemic in exchange for shielding members of the wealthy Sackler family from related civil lawsuits.
The U.S. Trustee Program, an office in the Justice Department, had challenged the deal, saying that it violated federal law by guaranteeing such wide-ranging legal immunity for the Sacklers even as they themselves had not declared bankruptcy.
Questions from the justices reflected why the agreement, which pits money against principle, has drawn intense scrutiny to start. Under debate was the practical effect of unraveling the settlement, painstakingly negotiated for years, and broader concerns over whether releasing the Sacklers from liability should be allowed.
“The opioid victims and their families overwhelmingly approve this plan,” Justice Brett M. Kavanaugh said. He asked why the government was pushing to end a tactic, known as third-party nonconsensual releases, which has figured in settlements approved over “30 years of bankruptcy court practice.”
The lawyer for the government, Curtis E. Gannon, acknowledged the tension, but he argued that the U.S. trustee “has been given this watchdog role” and that a ruling for the government would not foreclose an opioid deal with the Sacklers.
Although the question before the court was a narrow one — whether the bankruptcy code allowed such nonconsensual third-party waivers, the deal’s effect on a public health crisis that has left tens of thousands of people dead was on full display.
While Justice Kavanaugh and others repeatedly returned to practical questions about money for the opioid victims, others also questioned the use of this tactic in other cases, including sexual abuse lawsuits against the Boy Scouts of America and the Catholic Church.
Justice Amy Coney Barrett asked the government what would happen to these other settlements and future cases if the court sided with the U.S. trustee.
Mr. Gannon responded that Congress could pass legislation that specified how such deals could work. It was not the government’s role, he said, to speak for victims but rather to be “concerned about the entire process.”
A decision could come as late as June, near the end of the court’s term.
In recent years, bankruptcy court has become a popular place to deal with mass-injury settlements. The Purdue case and others like it rely on a system that courts in some parts of the country say allows third parties, like the Sacklers, to be freed from liability, even though they themselves are not declaring bankruptcy.
The U.S. trustee had asked the Supreme Court to intervene after an appeals court upheld the settlement. The agreement violated federal law, the government said, by allowing the Sacklers to take advantage of protections meant for those in “financial distress” and offered “a road map for wealthy corporations and individuals to misuse the bankruptcy system.”
Lawyers for Purdue said in court filings that the plan would “provide billions of dollars and lifesaving benefits to the victims of the opioid crisis.” The suggestion that the plan laid out a strategy for the rich seeking to avoid accountability was “unfounded,” they added.
Purdue, which is widely viewed as helping to spark the opioid crisis, has faced a flood of challenges since OxyContin’s addictive qualities and potential for abuse became clear.
The company continued to aggressively push the painkiller regardless. In 2007, a holding company for Purdue pleaded guilty to a felony charge of “misbranding” the drug, including its risk of addiction, and agreed to pay some $600 million in fines and other fees.
As the number of overdose deaths soared, municipalities, tribes, families and others sought funding to address the ravages of the drugs. Many pinned much of the blame on OxyContin.
Under a restructuring plan, filed in March 2021, the company would dissolve and become a public benefit company focused on trying to counter the opioid epidemic. In turn, members of the Sackler family would pour billions from their personal fortune to aid states, municipalities, tribes and others in fighting the opioid crisis. More than 90 percent of the plaintiffs who voted on the plan approved it.
That September, Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y., approved the plan. The U.S. Trustee Program, an office in the Justice Department, was among those that appealed the decision.
As an appeal wound through the courts, members of the Sackler family increased their cash offer in February 2022 to settle the thousands of opioid claims up to $6 billion. They continued to insist that they be insulated from all opioid-related lawsuits.
The United States Court of Appeals for the Second Circuit ruled in favor of the plan more than a year later, handing a victory to Purdue.
In agreeing to take the case, the Supreme Court temporarily halted the deal, most likely suspending payments to plaintiffs until it issues a ruling.
The plan authorized by the appeals court “includes one of the most significant and expansive” release of claims to a party that had not even declared bankruptcy, the solicitor general, Elizabeth B. Prelogar, wrote in asking the court to hear the case.
Lawyers for Purdue argued that if the court were to strike down the deal, “the individuals and entities with an actual stake in the outcome would lose everything.”
They pointed to the unusually high support among claimants for the plan, adding that “countless lives will be helped — and literally saved — by the billions of dollars that will flow to communities nationwide under the plan.”
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