This week, the US Supreme Court grappled with one of the highest-profile bankruptcy cases the court has taken on in decades.
ICYMI: The case centers on a payment agreement between Purdue Pharma and thousands of plaintiffs who were victims of the opioid crisis that Purdue, the maker of the highly addictive drug OxyContin, helped perpetuate.
Under the plan that took years to hash out, the Sackler family, which once owned Purdue, would pay up to $6 billion to victims. In exchange, the family would secure legal immunity from future civil lawsuits related to opioids.
That immunity for the Sacklers is where the controversy lies. The Justice Department is trying to block the deal, arguing that the Sacklers themselves have not declared bankruptcy and are therefore not entitled to the liability shield, known as a "third-party release."
Why it matters
All the legal mumbo-jumbo aside, this case is about a lot more than the Sackler's family fortune, my colleague Samantha Delouya writes.
Third-party releases have become a popular legal tool for organizations accused of mass harm. The Boy Scouts of America, for example, and dozens of Catholic dioceses.
Provisions shielding third parties from legal liability have become a "matter of course" in many corporate bankruptcy proceedings, according to Nicole Langston, a bankruptcy scholar and assistant professor of law at Vanderbilt University. It makes sense: They're often the quickest and fairest way for victims to receive compensation. But critics say it's a way for people and organizations to skirt legal scrutiny.
"The bankruptcy system is set up to try to find an orderly way for a company to pay off its creditors, including people who might have lawsuits against that company," said Adam Zimmerman, a professor of law at the USC Gould School of Law. "These third-party releases involve situations where it's not just the company going through the bankruptcy that is getting that kind of immunity on the other side, it's someone else who has contributed funds… who is now trying to get the benefits of the bankruptcy."
Greenlighting the Sackler deal could essentially embolden solvent companies to use the bankruptcy system to resolve mass injury claims, according to a recent draft paper co-authored by Zimmerman.
What about the victims?
From 1999 to 2021, nearly 645,000 people died from an opioid overdose, according to the Centers for Disease Control and Prevention.
While Purdue's bankruptcy deal was approved by more than 95% of the plaintiffs, the government has argued that bankruptcy court cannot bind the 5% who voted "no" into a deal that does not allow them to pursue legal action against the Sacklers.
Purdue Pharma and the Sackler family have maintained that the bankruptcy agreement would be the best deal for victims.
An attorney for some of the victims made a similar argument in court Monday. If the court rejects the deal, plaintiffs will bombard courts with civil suits against the Sacklers that would result in very little compensation for any party.
"Whatever is available from the Sacklers ... there are about $40 trillion in estimated claims. As soon as one plaintiff is successful, that wipes out the recovery for every other victim," the attorney, Pratik Shah, said.
Bottom line
Approving the deal could "open up this floodgate of nonconsensual third-party releases," Langston says.
In other words, everyday consumers could face an increased risk of harm from reckless or negligent companies.
"If the bankruptcy court allows these type of deals, they can just write away their liability," Langston said. "As consumers, we should be wary of that."
Sam has the full story here.
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