The US Supreme Court has barred Purdue Pharma’s bankruptcy deal, which would have insulated the company’s rich Sackler family owners from litigation for their participation in the country’s deadly opioid crisis.
The 5-4 judgment overturned a previous court verdict that maintained Purdue Pharma’s proposal to provide its owners immunity in return for paying up to $6 billion to resolve thousands of cases charging the firm with unlawfully deceptive promotion of OxyContin, a potent pain medicine released in 1996.
The US President Joe Biden’s administration, which had contested the settlement as a misuse of bankruptcy protections intended for financially distressed debtors rather than individuals like the Sacklers, who have not filed for bankruptcy, celebrated a triumph on Thursday when the verdict was rendered.
Purdue Pharma filed for Chapter 11 bankruptcy in 2019 to pay off its obligations. Almost all of these claims claimed OxyContin was a contributing factor in the beginning of the opioid crisis, which has resulted in over 500,000 overdose fatalities in the US over two decades.
Purdue Pharma’s reorganization might contain legal safeguards for the Sackler family.
The dispute concerned whether Purdue Pharma’s reorganization might contain legal safeguards for the Sackler family members who have not filed for personal bankruptcy under US bankruptcy law. Originally introduced in the context of asbestos lawsuits, these so-called “non-debtor releases” have found wider use among businesses wishing to use safeguards as a negotiating tool.
The US bankruptcy court authorized the Stamford, Connecticut-based firm’s bankruptcy settlement in 2021, and the corporation expects that it will provide $10 billion in value to its creditors—which include hospitals, state and municipal governments, individuals who have suffered from addiction, and others who have sued the company.
Eight states and the Biden administration contested the settlement. After the Sacklers agreed to increase their settlement fund contributions, all of the states renounced their resistance; nevertheless, the US Trustee, the Justice Department’s bankruptcy monitor, and a few individual opioid claimants persisted in their opposition.
The Supreme Court was informed by a group of over 60,000 persons who have filed personal injury claims owing to their exposure to opioid medications made by Purdue Pharma that they approve of the settlement, which includes the Sackler family’s legal protection.
The US Court of Appeals 2nd Circuit in Manhattan upheld the settlement in May 2023, ruling that non-bankrupt parties such as the Sacklers may be entitled to legal protection under federal bankruptcy law under exceptional circumstances.
It decided that actions against the Sacklers would jeopardize Purdue Pharma’s attempts to achieve a bankruptcy settlement because they were intimately related to lawsuits against the company’s owners.
In August 2023, the Supreme Court agreed to hear the government’s appeal of the 2nd Circuit’s decision and halted bankruptcy proceedings against Purdue Pharma and its affiliates.
During the December arguments, a lawyer from the Justice Department claimed that the Sackler family withdrew billions of dollars from Purdue Pharma before agreeing to pay up to $6 billion in the opioid settlement. The lawyer said the deal “permits the Sacklers to decide how much they will contribute.”.
Legal actions were taken against members of the Sackler family and Purdue Pharma because they contributed to the opioid crisis by using misleading advertising for their painkillers. In connection with the marketing of OxyContin in 2007 and 2020, the firm entered guilty pleas to charges of misbranding and fraud.
After expressing remorse that OxyContin “unexpectedly became part of an opioid crisis,” members of the Sackler family denied culpability. In May 2023, they announced that “substantial resources for people and communities in need” would be provided by the bankruptcy settlement.
Purdue Pharma has accused the US Trustee of “single-handedly delaying 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,” according to the legal documents.
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