Bankruptcy law is all about fresh starts. But just how much of a fresh start does the Sackler family deserve — without having to declare bankruptcy themselves?
The family’s former company, Purdue Pharma, has become synonymous with the US opioid epidemic and filed for bankruptcy in 2019. Plaintiffs harmed by that epidemic came to an agreement with the company that if the Sacklers paid $US6 billion ($9 billion) to victims and states, the family would be protected from further civil suits, even though they hadn’t personally declared bankruptcy. On Monday, the Department of Justice argued before the Supreme Court that the deal went too far.
If the judge approves the deal, the Sacklers, owners of Purdue Pharma, would pay as much as $US6 billion to help address the opioid damage.Credit: AP
At oral argument, Chief Justice John Roberts suggested that Congress would have to pass a law expressly authorising a bankruptcy court to offer protection from civil suits for defendants in cases like this one. Since the justices seemed to be split between liberals and conservatives, if Roberts can convince at least one other justice of his view, it is likely to determine the outcome of the case.
The factual background here belongs to the realm of mass tort litigation — the realm where private lawsuits can combine with lawsuits brought by state attorneys-general to impose liability on companies and people that damage others by failing to exercise reasonable care. Such suits are rarely brought to a jury because the risks — to both sides — are too great.
Instead, these cases typically settle, often through a judgement in bankruptcy. Through complex, multipronged negotiations, the companies agree to enter Chapter 11 and to designate funds to make victims as whole as possible. To give companies and those who own them the incentive to settle, it’s valuable — perhaps in some circumstances, necessary — to promise that they won’t be subject to further suits.
What makes the Purdue case unusual is that the family was able to negotiate a promise that its members — without declaring bankruptcy — would also be immune from future civil lawsuits.
What makes the Purdue case unusual is that the family was able to negotiate a promise that its members — without declaring bankruptcy — would also be immune from future civil lawsuits. Nevertheless, the parties on all sides agreed. The bankruptcy judge in charge of the case expressed his moral discomfort with the deal, but reasoned that the compromise was necessary to bring the case to a close. Then the US government, acting through a bankruptcy trustee, objected.
Before the Supreme Court, the key legal question is whether federal bankruptcy law authorises a judge to block potential lawsuits from parties, like the federal government, who didn’t consent to the deal. In legal jargon, at issue is what’s called, I’m sorry to say, a “non-consensual third-party release.”
There are complex policy and constitutional issues in play. On one hand, the whole point of bankruptcy is to give creditors and debtors a framework to negotiate a deal that will leave them all better off than if bankruptcy were not an option. The debtors are supposed to get as much of what they could possibly get. The creditors are supposed to be able to move on, pursuant to the agreed-upon terms of repayment. Seen from this perspective, guaranteeing that third parties cannot also sue seems sensible and desirable. Several of the justices, especially those who are generally pro-business, seemed sympathetic to this conclusion.
Supreme Court may push Sackler opioid case to Congress
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06.12.2023
Bankruptcy law is all about fresh starts. But just how much of a fresh start does the Sackler family deserve — without having to declare bankruptcy themselves?
The family’s former company, Purdue Pharma, has become synonymous with the US opioid epidemic and filed for bankruptcy in 2019. Plaintiffs harmed by that epidemic came to an agreement with the company that if the Sacklers paid $US6 billion ($9 billion) to victims and states, the family would be protected from further civil suits, even though they hadn’t personally declared bankruptcy. On Monday, the Department of Justice argued before the Supreme Court that the deal went too far.
If the judge approves the deal, the Sacklers, owners of Purdue Pharma, would pay as much as $US6 billion to help address the opioid damage.Credit: AP
At oral argument, Chief Justice John Roberts suggested that Congress would have to pass a........
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