Supreme Court blocks Purdue Pharma opioid bankruptcy settlement

The Supreme Court on Thursday blocked Purdue Pharma’s bankruptcy deal that would’ve contributed billions of dollars to pay victims and combat the opioid epidemic in exchange for immunizing the wealthy Sackler family from civil lawsuits. 

In a 5-4 decision authored by Justice Neil Gorsuch, the high court ruled federal law does not permit the Sacklers, who previously controlled Purdue Pharma but did not themselves file for bankruptcy, to be released from liability for contributing up to $6 billion to the settlement. 

The Bankruptcy Code only allows immunity for third parties like the Sacklers if all creditors sign off, the high court ruled, siding with the Biden administration and a relatively small group who objected. 

The decision claws back a key tactic that corporations like the Catholic Church have used to resolve mass injury claims through bankruptcy.

“Describe the relief the Sacklers seek how you will, nothing in the bankruptcy code contemplates (much less authorizes) it,” Gorsuch wrote.

Chief Justice John Roberts and Justices Brett Kavanaugh, Sonia Sotomayor and Elena Kagan dissented and would’ve allowed Purdue Pharma’s settlement to move forward.

“In this case, as in many past mass-tort bankruptcies, the non-debtor releases were appropriate and therefore authorized by” the bankruptcy code, Kavanaugh wrote.

“The non-debtor releases were needed to ensure meaningful victim and creditor recovery in the face of multiple collective-action problems.”

It effectively undoes the years-in-the-making settlement that would’ve had Purdue Pharma transform into a public-benefit company dedicated to opioid abatement, with the multibillion contribution from the Sacklers funding those efforts and compensating victims. 

The Supreme Court had put the deal on hold as it considered the case. 

About 95 percent of creditors voted to approve Purdue Pharma’s settlement and immunize the Sacklers, but the Supreme Court sided with the objections lodged by a relatively small group that was backed by the U.S. trustee, the Justice Department’s bankruptcy watchdog. 

The U.S. trustee estimated the now-defunct deal would’ve provided each opioid victim between $3,500 and $48,000.

The future for Purdue Pharma’s bankruptcy case remains hazy, with the parties having sparred over whether another viable path exists for victims to receive payment.

Purdue Pharma, now under new ownership, called the ruling “heart-crushing” but said it will reach back out to creditors to pursue a new resolution.

“Critically, the ruling is limited to the narrow legal issue regarding the scope of the third-party releases conferred by the Plan,” the company said in a statement. “The decision does nothing to deter us from the twin goals of using settlement dollars for opioid abatement and turning the company into an engine for good.”

The U.S. trustee’s objections to the settlement were joined by a group of Canadian municipalities and an individual victim who found her son dead on the bathroom floor after an overdose. Some of them alleged that Sackler family members had taken assets offshore, portraying the deal as providing special protection for billionaires.  

Updated at 12:50 p.m. ET