On Monday, the US Supreme Court grappled with one of the highest-profile bankruptcy cases the court has taken on in decades.
The case hinges on the legality of OxyContin-maker Purdue Pharma’s multibillion-dollar bankruptcy plan — which would have the Sackler family, who once owned the pharmaceutical giant, personally pay up to $6 billion to victims of the opioid crisis, including state governments, local governments, Native American tribes and individuals, in exchange for the family’s legal immunity from future civil lawsuits. The deal would also mean the family would not have to admit any guilt or wrongdoing related to allegations that the Sacklers were complicit in aggressively marketing OxyContin and downplaying its highly addictive properties.
But the Supreme Court’s upcoming decision in this case may affect much more than the Sackler family’s fortune. Third-party releases, the provision that would allow the Sacklers to be shielded from additional civil lawsuits, have become an increasingly popular device by organizations accused of mass harm, recently including the Boy Scouts of America and scores of Catholic dioceses in the United States.
According to Nicole Langston, a bankruptcy scholar and assistant professor of law at Vanderbilt University Law School, provisions shielding third parties from legal liability have become a “matter of course” in many corporate bankruptcy proceedings. Proponents of third-party releases say they’re the quickest and fairest way for victims to receive compensation for harm done by a company or other organization. Those who oppose the provision say it’s a way for potentially liable parties to skirt legal scrutiny, possibly weakening consumer protections.
A disputed legal maneuver
The Sackler family has said it would not agree to the multibillion-dollar settlement without being shielded from current and future liability due to the thousands of additional civil cases it would inevitably have to settle or fight in court. The US Trustee, which serves as a watchdog over bankruptcy cases, has argued that the deal is an “abuse” of the bankruptcy system.
Those who agree with the US Trustee argue that third-party liability releases prevent individuals harmed by a company from getting their day in court.
“The bankruptcy system is set up to try to find an orderly way for a company to pay off its creditors, including people who might have lawsuits against that company,” said Adam Zimmerman, a professor of law at the USC Gould School of Law. “These third-party releases involve situations where it’s not just the company going through the bankruptcy that is getting that kind of immunity on the other side, it’s someone else who has contributed funds… who is now trying to get the benefits of the bankruptcy.”
A recent draft paper, co-authored by Zimmerman, argues that “approving the Sackler releases, or doing so without clear guardrails to prevent abuses to the rule,” would embolden even more solvent companies to use bankruptcy to resolve mass injury claims. “It would result in less information production… less due process, and fewer opportunities for plaintiffs to make their stories heard,” according to the paper.
Is it the best deal for victims?
Purdue Pharma’s bankruptcy agreement was reached after years of lawsuits against the company and its owners over their alleged role in the skyrocketing number of opioid addictions since OxyContin entered the US market.
The Supreme Court hearing comes at a time of devastating losses due to drug overdoses in the United States. From 1999 to 2021, nearly 645,000 people died from an opioid overdose, according to the Centers for Disease Control and Prevention.
While Purdue’s bankruptcy deal was approved by more than 95% of victims, the US Trustee has argued that bankruptcy court cannot bind the 5% who voted “no” into a deal that does not allow them to pursue legal action against the Sacklers.
“You can imagine that there are people with a different view of the case. Maybe they’ve lost a family member and they don’t see money as any real form of justice for them,” Langston said. “For them, it’s not a fair deal.”
Purdue Pharma and the Sackler family have maintained that the bankruptcy agreement would be the best deal for victims. During oral arguments, the justices heard from an attorney representing some of the victims of the epidemic who stressed that if the court rejects the agreement, an onslaught of civil suits against the Sacklers from states and individual victims would result in very little compensation for any party.
“Whatever is available from the Sacklers — whether that’s $3 billion, $5 billion, $6 billion, $10 billion — there are about $40 trillion in estimated claims. As soon as one plaintiff is successful, that wipes out the recovery for every other victim,” the attorney, Pratik Shah, said in response to a question from Justice Brett Kavanaugh.
But Langston said a ruling in favor of Purdue could “open up this floodgate of nonconsensual third-party releases.”
“You could imagine that consumers of everyday products or medicine might be concerned about a potential lack of care or recklessness or negligence of some of these third parties. If the bankruptcy court allows these type of deals, they can just write away their liability,” Langston said. “As consumers, we should be wary of that.”
Other high-profile bankruptcies may be impacted
Legal experts will likely pay close attention to the Supreme Court’s decision in the Purdue Pharma case, said Anthony Casey, a law professor at the University of Chicago Law School and director of the school’s Center on Law and Finance.
“My take is that it’s the biggest bankruptcy case to go to the Supreme Court in 30 or 40 years. It’s huge,” he said.
But the Purdue case is not the only high-profile mass-harm case making its way through the US court system, and several other organizations have turned to bankruptcy courts to shield individual executives and other third parties from added legal trouble.
One such organization is the Boy Scouts of America. The youth program filed for Chapter 11 bankruptcy in 2020 amid claims by thousands of men who say they were abused as children by Boy Scout troop leaders, and the plan went into effect in April. The agreed-upon $2.4 billion settlement also includes provisions that protect multiple parties from additional civil lawsuits. Those third-party releases, and potentially the entire settlement, would be jeopardized through a potential court appeal if the Purdue case were to be struck down by the Supreme Court, Casey said.
While such agreements are controversial, Casey said he doesn’t see how else a deal would work in this instance.
“There’s just no way to get a deal. No insurer is going to put money into the settlement unless they know it’s resolving the lawsuits,” Casey said. Without third-party releases, the crush of litigation and insurance claims would mean “assets get liquidated, and the organization ceases to exist,” he added.
In recent years, the Catholic Church and other religious organizations have also faced a torrent of lawsuits related to allegations of sexual abuse. Multiple dioceses in the United States have filed for bankruptcy with provisions for third-party liability releases.
In a Supreme Court filing, the US Conference of Catholic Bishops expressed support for Purdue’s bankruptcy structure, arguing that “in exchange for a release from liability on claims of alleged abuse, Catholic parishes, schools, and other diocesan entities contribute significant sums to a common fund, maximizing the recovery for abuse claimants and relieving them of the struggle to recover in piecemeal litigation.”
Casey said companies like DuPont and 3M, which are beginning to face a crush of lawsuits for PFAS — also known as “forever chemicals,” that have allegedly contaminated drinking water, food and soil across the country — are watching for the Supreme Court’s decision in the Purdue case.
“That’s just getting started. That’s not in bankruptcy now, but whether they would or wouldn’t end up in bankruptcy, they have to be watching this,” Casey said.
CNN’s Devan Cole contributed to reporting.
