SCOTUS Knocks Down Bankruptcy Plan that Kept Sacklers from Being Sued for OxyContin Deaths

Washington, DC (WorkersCompensation.com) -- For more than two decades the opioid crisis has claimed the lives of hundreds of thousands of people, among them some 247,000 died from prescription-opioid overdoses. The names Sackler and Purdue Pharma have become synonymous with the epidemic.

Many of those who died -- and many who suffered from addiction and other adverse consequences -- were workers who were injured on the job and were prescribed OxyContin to manage their pain but had their chance to sue snuffed out by a bankruptcy ruling.

In Harrington v. Purdue Pharma, 2024 WL 3187799 (U.S. 06/27/24), the U.S. Supreme Court held that the Sacklers could not receive protection from civil suits under the Chapter 11 reorganization of Purdue Pharma.

What Happened?

As opioid-related lawsuits piled up against Purdue Pharma and the Sacklers, Purdue filed for bankruptcy. The Sacklers "chose a different path," and sought an order from the court overseeing Purdue's bankruptcy that extinguished "vast numbers of existing and potential claims against them."

Purdue Pharma's troubles began in 2007, when a federal felony case involving the misbranding of OxyContin as "less addictive" and "less subject to abuse" resulted in a guilty plea.

Fearing that the litigation would impact them directly, the Sacklers began what one family member described as a "milking" program, under which the Sacklers drained as much as 70% of the company's revenues each year to the tune of $11 billion diverted to the family between 2008 and 2016.

In a "significantly weakened financial" state, Purdue filed for Chapter 11 bankruptcy in 2019 and as part of that case, the Sacklers agreed to return $4.325 billion of the $11 billion they had withdrawn, but they offered to do so only through payments spread out over a decade and if they were released from liability on current and future opioid-related claims.

After the 2d U.S. Circuit Court of Appeals upheld the plan with the Sacklers agreeing to return an additional $1.175 billion to $1.675 billion to the Purdue bankruptcy estate, the case made its way before the U.S. Supreme Court via an application for stay from the U.S. Trustee in the bankruptcy proceedings.

What's the Law?

In the majority opinion, Justice Neil Gorsuch provided a primer on bankruptcy law as follows:

+ When a debtor files for bankruptcy, it “creates an estate” that includes virtually all the debtor's assets. 

+ Under Chapter 11, the debtor can work with its creditors to develop a reorganization plan governing the distribution of the estate's assets; it must then present that plan to the bankruptcy court and win its approval.

+ Once the bankruptcy court issues an order confirming the plan, that document binds the debtor and its creditors going forward—even those who did not assent to the plan. 

+ A bankruptcy court's order confirming a plan discharges the debtor from any debt that arose before the date of such confirmation, except as provided in the plan, the confirmation order, or the code.

+ That discharge not only releases or voids any past or future judgments on the discharged debt; it also operates as an injunction prohibiting creditors from attempting to collect or to recover the debt.

A bankruptcy discharge usually operates only for the benefit of the debtor against its creditors and doesn't typically affect the liability of other entities. In this case, Purdue Pharma were the debtors, the Sacklers were the "other entities."

The Question for the Court

Noting that the Sacklers had not filed for bankruptcy and had not placed virtually all their assets on the table for distribution to creditors but still sought what amounted to a bankruptcy discharge, the Court took up the question of whether a court in bankruptcy could extend to nondebtors the benefits of a Chapter 11 discharge that are usually reserved for debtors.

What did the Court Say?

According to the Court, the bankruptcy code does not authorize a release and injunction that as part of a plan of reorganization under Chapter 11 effectively seek to discharge claims against a nondebtor without the consent of affected claimants.

While the bankruptcy code under federal law allows a court to include in a Chapter 11 reorganization "any other appropriate provision not inconsistent with the applicable provisions of this title,” the Court majority explained that this was a "catchall provision" in the law that allowed for embracing "only objects similar in nature" to what came just before it.

Workers' Comp 101: In interpreting the bankruptcy code, the Court applied the ejusdem generis canon, an "ancient interpretive principle" that seeks to afford a statute the scope a reasonable reader would attribute to it. for example, when a statute sets out a list discussing “cars, trucks, motorcycles, or any other vehicles,” the catchall phrase may reach similar landbound vehicles, like buses and camper vans, but it does not reach dissimilar “vehicles,” such as airplanes and submarines. 

While the Court's ruling may threaten the reorganization plan and lead the victims to have "no viable path" to "recover even $3,500 each," the Court found it equally likely that the Sacklers would negotiate consensual releases on more favorable terms to opioid victims.

"The Sacklers may 'want global peace,' ... but that doesn't 'mea[n] that they wouldn't pay a lot for 97.5 percent peace,'” the Court wrote.

Additionally, the Court found that the deal in this case would provide a "roadmap for corporation and wealthy individuals to misuse the bankruptcy system ... to avoid mass-tort liability."

As such, the Court struck down the Sackler discharge as having no basis in present law.

The dissenting opinion, penned by Justice Brett Kavanaugh, found the majority's decision "devastating for more than 100,000 opioid victims and their families."

Nonetheless, the majority's decision carried the day and the Sacklers' plan and the Purdue reorganization were struck down.

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