Supreme Court throws out multi-billion dollar settlement with Purdue over opioid crisis

WASHINGTON ? The Supreme Court on Thursday upended a high-profile bankruptcy settlement with the company that made oxycontin, toppling an agreement that shielded the family responsible for the drug’s marketing from future damages in exchange for paying $6 billion to victims of the opioid epidemic.

The 5-4 decision had sweeping implications for states, which intend to use settlement money for drug treatment programs, and for the Sackler family, which made its fortune selling a drug that fueled the nation's opioid epidemic. The ruling may also make it more difficult to resolve other high-profile bankruptcies.

Justice Neil Gorsuch wrote for the majority that if Congress meant to reshape traditional bankruptcy practice so profoundly, it would have said so directly.

“No one has directed us to a statute or case suggesting American courts in the past enjoyed the power in bankruptcy to discharge claims brought by nondebtors against other nondebtors, all without the consent of those affected,” Gorsuch wrote for an opinion that included Justices Clarence Thomas, Samuel Alito, Amy Coney Barrett and Ketanji Brown Jackson.

More: Opioid decision: Two mothers, two deaths, two views of failed $6 billion settlement

But Justice Brett Kavanaugh disagreed, saying the ruling ignored victims of the opioid crisis.

“Today’s decision is wrong on the law and devastating for more than 100,000 opioid victims and their families,” Kavanaugh wrote in dissent for Chief Justice John Roberts and Justices Sonia Sotomayor and Elena Kagan.

'Heart-crushing'

Purdue Pharma issued a statement calling the decision “heart-crushing,” but said it would continue to work toward a settlement.

“Today’s ruling is heart-crushing because it invalidates a settlement supported by nearly all of our creditors – including states, local governments, personal injury victims, schools, and hospitals – that would have delivered billions of dollars for victim compensation, opioid crisis abatement, and overdose rescue and addiction treatment medicines,” the statement said.

The company said it would reach out to the same creditors who have proven they can forge a settlement and pursue a deal that delivers billions for addressing the opioid crisis and allows the company to emerge from bankruptcy.

“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 company said.

Ruling 'blows up' opioid settlement; lawyers 'scurrying'

The decision upended the negotiated settlement the Sacklers had reached to pay victims and avoid future litigation.

“It certainly blows it up and kind of sends them back to square one,” said Anthony Casey, a professor of law and economics at the University of Chicago. “They have to go back to figure out if they can get the Sacklers to put money in for something less than a global settlement.”

The high court ruled that litigants who don’t agree to a proposed bankruptcy settlement are free to sue nondebtors such as the Sacklers in the future. The open question is how that uncertainty will influence bankruptcy negotiations.

“Every bankruptcy lawyer in the world is now scurrying to try to figure out what they can do,” said Bruce Markell, a bankruptcy law professor at Northwestern University.

What was the Purdue Pharma case about?

Purdue filed for Chapter 11 bankruptcy in 2019 to address its debts, nearly all of which stemmed from thousands of lawsuits alleging that OxyContin sparked an opioid epidemic that has caused more than half a million U.S. overdose deaths over two decades.

The settlement approved by a bankruptcy judge in 2021 would have provided billions to creditors, including state and local governments, individual victims of addiction, hospitals and others who have sued the company.

The vast majority of victims supported the settlement with Purdue Pharma, the company that marketed OxyContin as a less addictive painkiller than other opioids. But the Justice Department stepped into the case to question whether courts could shield the Sacklers from future civil lawsuits ? a practice that has been used in major bankruptcies dealing with harms caused by asbestos and silicone breast implants.

Though the case dealt with a technical question of bankruptcy law, there were wrenching stories not far below the surface involving Americans who had lost children, spouses and parents to a crisis that claimed about 80,000 lives in 2022.

"Once more, the Sacklers seek greater relief than a bankruptcy discharge normally affords, for they hope to extinguish evenclaims for wrongful death and fraud, and they seek to do sowithout putting anything close to all their assets on the table," Gorsuch wrote. "Nor is what the Sacklers seek a traditional release, for they hope to have a court extinguish claims of opioid victims without their consent."

Families: These two moms lost sons to opioids. Now they’re on opposite sides at the Supreme Court.

Bankruptcy expert John Richer said the "ideologically scrambled" decision meant that a proposed bankruptcy settlement aiming to prevent all future litigation against the owners of Purdue Pharma ? without filing for personal bankruptcy ? was "a bridge too far under the bankruptcy code.”

“This ruling, while disappointing to the victims of the opioid crisis who were slated to receive billions in settlement funds, will add clarity in future Chapter 11 cases involving non-debtor releases,” said Richer, a lawyer at Hall Estill.

Purdue Pharma settlement was widely supported

Supporters of the agreement said it's uncertain whether a better deal could ever have been reached with Purdue. A group of more than 60,000 people who have filed personal injury claims stemming from their exposure to Purdue opioid products told the Supreme Court they support the settlement. The bankruptcy fight has already dragged on for years, allowing the Sacklers to hold on to the billions they have promised.

West Virginia Attorney General Patrick Morrisey said he would continue to work toward a settlement that promises tens of millions of dollars for his state. “We have fought hard ? and we’re still fighting ? to bring a sense of healing to the state,” Morrisey said. “With this decision, we will double down on our efforts to hold those who are accountable for the damage that’s been done to our State. We’ll be examining new ways to bring this case to closure.”

All of the states and the major plaintiffs’ lawyers had agreed to the settlement, Casey said. The Sacklers might continue with the settlement, but they could also walk away because of the potential for future lawsuits, he said.

“The main victims' lawyers aren’t going to want to see that go away,” Casey said. “The Sacklers might just walk away and say ‘Sue us.’”

The problem in bankruptcy law is the uncertainty of what it takes to approve a settlement when thousands of people are involved. Some participants might vote no or some might not respond at all. The Sacklers sought protection from all lawsuits, but the question is whether they could still reach a settlement with most litigants despite the risk of some future lawsuits.

“What people are afraid of is the unknown,” Markell said. “I don’t think anybody knows how many people actually had claims against the Sacklers.”

Regina LaBelle, director of the Addiction and Public Policy Initiative at the O’Neill Institute for National and Global Health Law, said the decision should spur the Sackler family to create a fund for individual victims of the overdose epidemic.

“The Sackler family should begin the process today of compensating the thousands of individuals who lost loved ones to an overdose from their company’s product,” LaBelle said. “There's no need to wait – and no time to waste.”

Critics had questioned the scope of support for the scuttled settlement, noting it's impossible to count future victims. A teenager who lost her parents to opioids, for example, might not be able to bring a claim against the Sacklers today. Under the agreement, she would be barred from doing so forever. They also note that the Sacklers put a "final offer" on the table once before and then wound up agreeing to a higher payout later.

The U.S. Court of Appeals for the 2nd Circuit upheld the plan in 2023. The Supreme Court temporarily blocked the settlement from taking effect in August while the appeal unfolded.

The case is Harrington v. Purdue Pharma.

Contributing: John Fritze

This article originally appeared on USA TODAY: Supreme Court tosses opioid settlement worth billions for states, victims