WASHINGTON — The Supreme Court heard oral arguments Monday in a case drawing widespread interest and close attention due to its involvement of the infamous Sackler family, who launched the painkiller OxyContin in 1996 and bear significant responsibility for fueling an opioid crisis that has killed more than one million people.
Nearly all 50 U.S. states have filed lawsuits against the Sacklers and their pharmaceutical company, Purdue Pharma. Various Native American tribes, local governments, Canadian municipalities and a massive number of individual victims have followed suit.
The court’s decision in Harrington v. Purdue Pharma L.P. will ultimately determine whether the Sacklers can legally exploit bankruptcy code to avoid personal liability in lawsuits against their recently bankrupt company. Purdue Pharma filed for bankruptcy protection in September 2019, but the Sackler family, who owned Purdue, have not entered it themselves.
The Sacklers did negotiate a settlement, however, which would have sent more than $6 billion collectively to compensate victims of their conduct and fund various efforts to combat opioid addiction. More than 95% of the victims agreed to the plan, but a “shareholder release” clause providing a series of protections shielding the Sackler family and its affiliates from future personal liability resulted in several holdouts objecting to the deal.
Claims against the Sackler family and Purdue Pharma are estimated to exceed $40 trillion, while Purdue’s estate is only worth approximately $1.8 billion. The court’s ruling will determine whether the Sacklers must file for bankruptcy themselves, divide assets fairly and equitably and then pay a percentage of the remainder.
Those rejecting the bankruptcy plan argue that the bankruptcy code does not permit liability releases for third parties, namely shareholders, directly affiliated with companies being sued. William Harrington, the United States Trustee who objected to the deal and appealed the ruling in the U.S. Bankruptcy Court for the Southern District of New York, claims unanimous consent of released parties is required to secure “nondebtor releases.”
Purdue Pharma and the Sackler family refute these arguments, claiming that the bankruptcy court for the Southern District of New York has the jurisdiction to reject the claims of the holdouts to the deal. They also contend that Congress has explicitly prohibited courts from inferring that certain code provisions imply a prohibition on releases.
Curtis Gannon, the Deputy Solicitor General at the Department of Justice, argued the case on behalf of Harrington, emphasizing that opt-in consent from each party in these types of lawsuits is “necessary” and “required” to permit releases from personal liability.
“We do think consented releases are acceptable,” Gannon said. “Here there isn’t any form of consent at all.”
Most justices took issue with the DOJ’s position considering it disregards the disproportionate support for the settlement among involved victims and their families. Both conservative and liberal-leaning justices firmly questioned the department’s motives in bringing the case.
Justice Brett Kavanaugh emphasized the overwhelmingly positive reaction to the settlement agreement among relevant parties and added that these victims have generally poor impressions of the Sackler family, whom they side with in this case. He also suggested that the bankruptcy court’s previous ruling is legally consistent with common interpretation of bankruptcy law and three decades of precedent that approve “releases of this kind.”
Kavanaugh said there is a “disconnect” between the DOJ and the victims, even going so far as to say that the DOJ’s position asserts that “the views of the opioid victims doesn’t matter.”
Gannon refuted this claim, contending that Congress authorized the U.S. Trustee the jurisdiction to serve a “watchdog role” to protect victims from bad faith deals in court.
Justice Elena Kagan questioned each side thoroughly and revealed glaring holes in both arguments, but seemed to lean more towards ruling against Purdue Pharma. She did, however, question the DOJ’s motives and acknowledge that more than 95% of victims agreed to the settlement.
“It’s overwhelming, the support for this deal, and among people who have no love for the Sacklers, among people who think that the Sacklers are pretty much the worst people on earth,” Kagan said. “They’ve negotiated a deal, which they think is the best they can get.”
Some justices expressed concern that if the court were to side with Harrington, the victims would lose out on any relief or compensation at all, considering that the Sacklers seem to only be interested in settling with a clause releasing them from future personal liability.
While Gannon said he believes there is “a very good chance” of a better deal for victims, Pratik Shah, opposing counsel for the Official Committee of Unsecured Creditors of Purdue Pharma, sharply refuted this implication calling it a “magic alternative.”
Shah said there is “no deal” the Sacklers will accept without releases. He added that without this settlement, any one plaintiff who “jumps the line and hits the jackpot” would receive a large new settlement and tank the deal for the rest of the claimants.
“Without the releases, the plan will unravel, Chapter 7 liquidation will follow and there will be no viable path to any victim recovery,” Shah said. “The U.S. Trustee does not speak for the victims of the opioid crisis.”
Despite the broad concern from the bench about jeopardizing victim compensation, many justices indicated that the facts sided with Harrington and against Purdue Pharma.
Justice Ketanji Brown Jackson posed that the Sacklers could just pay the victims who want to be a part of the settlement agreement that includes the liability releases and leave out the rest of the holdouts, but they instead stick their feet into the ground, store their assets offshore and wait for all victims to oblige with their conditions.
“They are conditioning their willingness to fund this estate on the releases,” Brown Jackson said.
Kagan concurred, adding that this bankruptcy settlement grants the Sacklers the “functional equivalent of a discharge.” She emphasized that this plan not only protects them from liability in opioid-related claims but also shields their assets from suits involving claims of fraud or willful misconduct as non-bankrupt debtors, which “conflicts with the nuts and bolts of the Bankruptcy Code’s comprehensive scheme.”
Brown Jackson and Justice Amy Coney Barrett also pointed out that 97% of Sackler money contributed after tax is all money that they took out of the corporation, Purdue Pharma, and placed offshore.
Justice Neil Gorsuch raised significant concerns that siding with the Sackler family would raise constitutional concerns and contradict precedent in similar cases.
“This would defy what we do in class action contexts,” Gorsuch said. “It would raise serious due process concerns and seventh amendment concerns. You’re only entitled to a jury.”
Beyond the court’s current conservative ideological leaning, some justices, namely Justice Samuel Alito and Justice Clarence Thomas, have taken a particular affinity to wealthy corporate executives who have provided them undisclosed gifts, special benefits and even friendship.
Thomas was uncharacteristically active in questioning counsel during oral arguments. Indeed, the tenured justice once went a decade without asking a single question from the Supreme Court bench but has been especially engaged in this case.
Some question whether the court’s decision in the case will reflect its recent ethical issues involving billionaire donors coupled with its overwhelmingly conservative approach to corporate law this term, considering this dispute involves a notorious family of billionaires and one of the largest pharmaceutical companies in U.S. history.
The court does not set predetermined dates to issue its decisions, so the ruling could be issued anytime between now and the end of the term in late June. Supreme Court decisions are not usually released sooner than two to three months after oral arguments are heard.