Supreme Court pauses Purdue Pharma bankruptcy deal

The Supreme Court on Thursday agreed to consider the Biden administration’s challenge to a bankruptcy settlement for Purdue Pharma, pausing the $6 billion deal over the administration’s concerns about a provision that would shield the members of the Sackler family, who own the company, from future opioid-related claims.

The court slated arguments in the case for December, leading to a decision likely early next year. The stay will remain in place until the decision is handed down.

Purdue, the maker of OxyContin, filed for bankruptcy in 2019 in an attempt to settle about 3,000 lawsuits from states, tribes and other local entities related to its aggressive opioid marketing. Lawsuits argued that the marketing contributed to the opioid crisis that has killed nearly 500,000 people over the past 20 years.

The settlement plan included a provision called a “third party release” that would shield members of the Sackler family and a long list of their associates from future opioid lawsuits.

The U.S. Court of Appeals for the 2nd Circuit approved the settlement plan in May. 

The Biden Justice Department argued that the bankruptcy court did not have the authority to release the Sackler family members from the claims.

In the motion asking the Supreme Court to take up the case, Solicitor General Elizabeth Prelogar noted that Sackler family members withdrew nearly $11 billion from the company over the course of about 10 years, transferring a significant portion of their wealth overseas in an effort to shield themselves from liability.

Purdue then filed for bankruptcy, but the Sacklers did not. Instead, the Sacklers who were still involved in Purdue negotiated a deal with some of the plaintiffs.

They divested themselves of ownership, and Purdue reorganized into a public-benefit company, with profits going to fighting the opioid crisis. The Sacklers would contribute about $6 billion over the course of a decade. But the family admitted no wrongdoing and were allowed to keep much of their fortune.

The settlement would pay approximately $1.339 billion from Purdue to creditors. This includes approximately $750 million that will be transferred to the abatement trusts for the purpose of funding programs and efforts to abate the opioid crisis and $300 million that will be transferred to a trust for distribution to personal injury victims.

Prelogar argued that allowing the lower court’s approval of the settlement to stand “would leave in place a road map for wealthy corporations and individuals to misuse the bankruptcy system to avoid mass tort liability.”

According to the DOJ, under the approved plan for distributing funds, an opioid victim is likely to receive between $3,500 and $48,000, with payments to some victims to be spread out over ten years.

In response to the DOJ motion, Purdue’s attorneys argued against delaying the settlement.

“A stay would waste valuable time—potentially several months—that could be used to take some of the initial procedural steps that are necessary to ready the plan for final approval, but fall far short of substantial consummation,” the attorneys wrote in a motion.

They argued it would “take billions of dollars out of opioid abatement programs that are sorely needed” and potentially “deprive victims of any meaningful recovery” if the deal did not go forward.

Updated at 5:11 p.m.