Earlier this year, the Supreme Court placed a stay on the Chapter 11 bankruptcy plan of Purdue Pharma, the manufacturer of the highly addictive opioid painkiller OxyContin. The justices agreed to hear oral arguments this December for the Biden administration’s appeal of a lower-court ruling approving the plan. There were no recorded dissents at the time. When requesting the stay of the plan, U.S. Solicitor General Elizabeth Prelogar called the plan a misuse of our bankruptcy system. It is not often that the Supreme Cout agrees to hear a case concerning a bankruptcy issue. However, the issues in this case are both unique and important. Approving the plan would no doubt benefit many communities and individuals who have been negatively affected by the opioid crisis. Alternatively, it would also allow parties who have not personally filed for bankruptcy to gain the benefits of bankruptcy protection.
Brief History of Oxycontin
OxyContin was first released in 1996 as a pain relief drug and was marketed as non-addictive medication even though it is quite addictive. Since then, the addictive painkiller generated more than $35 billion in revenue for Purdue Pharma and the Sackler family, which owned and ran the company. The company’s aggressive marketing and sale of OxyContin led to a serious public health crisis caused by both the use and abuse of the drug. According to the New York Times, between 1999 and 2019, approximately a quarter-million people died from overdosing on prescription opioids, such as OxyContin.
After the release of OxyContin, Purdue Pharma ran into legal problems both criminal and civil. In 2007 and again in 2020, the company pleaded guilty to federal criminal charges arising from its marketing of the drug. The company was also the target of thousands of lawsuits that accused Purdue Pharma and the Sackler family of helping create the opioid epidemic through its deceptive marketing of OxyContin
Purdue Pharma Files for Bankruptcy
In order to shield itself from the barrage of lawsuits, Purdue Pharma filed for Chapter 11 bankruptcy in 2019. The company proposed a reorganization plan that would turn the company into a nonprofit entity dedicated to addressing the problems that have resulted from the opioid epidemic. The Sacklers agreed to contribute approximately $4.5 billion to fund the plan. For context, the family had withdrawn approximately $11 billion from the company since OxyContin was released. In exchange for the $4.5 billion, the plan released the Sackler family from any future liability. Companies routinely seek bankruptcy protection to be shielded from legal claims, however this plan was highly unusual since it extended liability protection to the company’s owners who had not filed for bankruptcy personally. The Sackler family members have indicated that they would not sign on to any plan without an agreement protecting them from the pending and potential lawsuits.
In September 2021, the Bankruptcy Court in the Southern District of New York confirmed the Purdue Pharma’s reorganization plan, over the objection of the U.S. Trustee, a division of the Department of Justice that oversees bankruptcy cases. U.S. Bankruptcy Judge Robert Drain found that the settlement was the only way to provide funding for communities that have been devastated by the opioid crisis. He called the confirmation of the plan a “bitter result.” A few months later, the plan was rejected by the federal District Court. Purdue Pharma appealed to the Court of Appeals for the 2nd Circuit, and in May of this year that court reversed the District Court’s order and put the plan back in place. Furthermore, the Court of Appeals refused to put its judgment on hold in order to give the federal government time to appeal the decision in the Supreme Court. At the end of July 2023, the U.S. Trustee appealed to the Supreme Court to seek a stay of the 2nd Circuit ruling, and on August 10, 2023, the Supreme Court issued a stay on the plan and granted certiorari to hear the case.
The Consequences of the Purdue Pharma Chapter 11 Plan
The U.S. Trustee has long argued that bankruptcy judges do not have the power to permanently block lawsuits against company owners unless those owners also sought personal bankruptcy protection and were actual parties to a case. U.S. Solicitor General Elizabeth Prelogar argued in the government’s appeal that Purdue Pharma’s plan would create a back door for the “wealthy and powerful” to evade liability for wrongdoing without having to declare bankruptcy. Prelogar argues that the Bankruptcy Code does not give bankruptcy courts this kind of “sweeping power.”
In responding to the appeal, Purdue Pharma downplayed the plan’s benefits to the Sackler family. Rather, the company emphasized that there is support from both the victims of the opioid crisis and the local and state governments that would receive funds from the $4.5 billion that the Sacklers had pledged to the plan. A group of individual victims who opposed the government’s appeal stated the: “notion that the U.S. Trustee speaks on behalf of personal injury victims could not be further from the truth.”
Denying or halting the implementation of the bankruptcy plan would delay needed funding for state and local government programs and for opioid victims. In a lesson learned from the Tobacco settlement, the money would go to helping communities affected by the crisis instead of just being added to state government’s general budget funds. Delaying the funding means that the communities and families that have been relying on receiving money from the plan may not see any compensation for years. Furthermore, the treatment options that would be made available through the plan would not be available for those who are suffering through opioid addiction.
If the Supreme Court agrees with the U.S. Trustee and forces the Sacklers to resolve lawsuits directly or to personally file for bankruptcy, it could be years before those being affected by the opioid crisis see one dime of aid or compensation. Additionally, it is unclear whether they would get any more than the $4.5 billion provided in the current plan. Accordingly, the Supreme Court has a hard decision to make: does the Bankruptcy Code authorize a Chapter 11 plan that protects parties that did not actually file for bankruptcy? Billions of dollars in compensation hang in the balance, but if the plan is found to be a misuse of the bankruptcy system, we cannot see the Supreme Court allowing it to stand. A decision from the Supreme Court is likely to follow sometime next year.