'Forget a better deal!' Supreme Court hears arguments on $6B Purdue Pharma settlement

Several U.S. Supreme Court justices appeared hesitant Monday to block a $6 billion bankruptcy plan for Purdue Pharma, the maker of OxyContin, that includes controversial legal protections for members of the Sackler family who as the company’s owner allegedly helped fuel the opioid crisis.

The U.S. Trustee Program, a part of the Department of Justice and overseer of the bankruptcy system, has challenged the Chapter 11 plan over its release of liability for the Sacklers in exchange for contributing up to $6 billion to victims of the opioid crisis.

U.S. Deputy Solicitor General Curtis Gannon argued to the justices Monday that the Bankruptcy Code does not allow courts to include such “nonconsensual” waivers for future claims against “non-debtors” such as the Sacklers, who did not themselves file for bankruptcy.

“This release goes beyond what the statute authorizes,” Gannon said.

The federal government has claimed the Sacklers withdrew $11 billion from the Stamford, Connecticut-based pharmaceutical giant before mounting litigation over the opioid crisis plunged it into bankruptcy. The family now holds much of the assets in “spendthrift” offshore accounts potentially beyond the reach of U.S. courts, the government says.

But several justices appeared wary of throwing a wrench in the multibillion-dollar plan given the overwhelming support from opioid victims who are positioned as creditors in Purdue Pharma’s bankruptcy proceeding.

“I think what the opioid victims and their families are saying is you, the federal government, with no stake in this at all, are coming in and telling the families, no, we’re not going to give you payment, prompt payment, for what’s happened to your family … for this somewhat theoretical idea that they’ll be able to recover money down the road from the Sacklers themselves,” said Justice Brett Kavanaugh. “I guess I’m not sure why we should cast aside that concern so readily.”

Similarly, Justice Elena Kagan said the plan was opposed by only 3% of victim-creditors in the bankruptcy proceeding, adding that the deal may represent the best form of relief for those individuals.

“We hope and expect that there would be a deal,” said Gannon, while not promising it would deliver more money to victims. He argued getting rid of liability releases for the Sacklers would give victims more leverage in a new restructuring negotiation.

Indeed, the parties throughout Monday’s hearing debated not whether the deal represented the best form of “justice” for the Sacklers but whether opioid victims could secure a better—or even any—deal without shielding the Sacklers from future opioid litigation as part of the company’s reorganization plan.

According to Pratik Shah, an Akin Gump Strauss Hauer & Feld appellate attorney representing victims defending the $6 billion plan, the Sackler liability release is instrumental to opioid victims and their family getting any money whatsoever.

“Forget a better deal, there is no other deal,” said Shah.

Without such a release, the Sacklers would not contribute any money to the plan, Purdue Pharma would have to be liquidated and the first plaintiff to successfully sue the Sacklers would “gobble up” all of the money, leaving none for the individual victims, Shah said. He added that among those with valid claims against the Sackler family are various states that could obtain multibillion-dollar judgments outside the current bankruptcy process.

“There would be zero dollars for victims out of the estate,” he said.

Those concerns were not lost on the court.

“What’s left to get?” asked Justice Amy Coney Barrett at one point. “Where are they going to get the money anyway?”

Justices Ketanji Brown Jackson and Neil Gorsuch appeared most sympathetic to the government’s argument.

Jackson repeatedly came to Gannon’s defense and offered him the opportunity to expand on his arguments, while suggesting the Sacklers seemed to be the cause of the limited funds by hiding billions of dollars in offshore accounts.

Gorsuch limited his few questions to the specific legal issue of whether bankruptcy courts have authority to extinguish legal claims against nondebtors in a Chapter 11 reorganization plan. At one point, he even mockingly dismissed the obscure 17th century cases that Purdue’s attorney, Latham & Watkins’ Gregory Garre, had cited in support of the proposition.

Referring to potential constitutional concerns with such releases, Gorsuch said, “We would turn a blind eye to the Constitution of the United States when interpreting statutes?”

Some justices were more guarded in their questioning and pressed attorneys from both sides of the case during the roughly two-hour hearing.

Related: Supreme Court blocks Purdue Pharma’s $6B opioid settlement-bankruptcy deal

Chief Justice John Roberts Jr. raised the idea that such third-party releases might run afoul of the “major questions doctrine,” under which agencies, or in this case a bankruptcy judge, needs clear statutory authorization to enact a policy of significant economic consequence.

Kavanaugh later offered Garre, a former U.S. solicitor general, the opportunity to dispel the idea of a problem under the major questions doctrine.

In the end, Garre embraced Shah’s rhetoric that the $6 billion plan represents the best possible deal for victims of the opioid crisis, who will otherwise “be left with nothing and lives, literally, will be lost.”

The case could have spillover effects for other mass tort litigation, of which these nonconsensual third party releases are now a frequent component. The Boy Scouts of America, for instance, filed a brief supporting Pharma given that its own Chapter 11 reorganization plan waives future sex abuse claims for local BSA councils and other organizations that contributed money to the plan.

The case, Harrington v. Purdue Pharma, is docketed as No. 23-124. A decision is expected by the end of June.