Supreme Court Pauses Purdue Pharma Bankruptcy Deal

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The Supreme Court has agreed to review the government’s challenge to a bankruptcy settlement involving Purdue Pharma. This puts a temporary halt to a deal that would have protected the wealthy Sackler family from civil opioid lawsuits in exchange for payments of up to $6 billion to thousands of plaintiffs. The Justice Department argued that the family should not be able to take advantage of legal protections meant for debtors in financial distress.

The court’s decision adds to the uncertainty surrounding the plan to compensate states, local governments, tribes, and individuals affected by the opioid crisis while also offering protection for the Sackler family. The order specified that arguments in the case will be heard in December. This development marks the latest twist in the ongoing legal battle over compensation for victims of the prescription drug crisis.

In May, the U.S. Court of Appeals for the Second Circuit approved the settlement plan as part of a court review of Purdue Pharma’s bankruptcy restructuring. The company had filed for bankruptcy protections in September 2019. What made this agreement unusual was that it extended liability protection to the company’s owners, the Sackler family. The family insisted on this protection to sign onto the settlement.

The U.S. Trustee Program, an office in the Justice Department, has long argued that bankruptcy judges do not have the power to permanently block lawsuits against company owners who haven’t sought personal bankruptcy protection. The government fears that the settlement agreement could set a troubling precedent, allowing wealthy corporations and individuals to misuse the bankruptcy system to avoid mass tort liability.

The appeals court’s decision had created a split among federal appeals courts on this issue, which the government sees as problematic. The government argues that the settlement agreement releases the Sackler family from liability to an “untold number of claimants” who did not specifically consent to its terms. They view this as an abuse of the bankruptcy system and a matter of serious constitutional concern.

Purdue Pharma expressed confidence in the legality of the bankruptcy plan, while clarifying that members of the Sackler family are no longer part of the company’s board. Once the bankruptcy is finalized, the family will no longer be owners, as the company will be renamed Knoa Pharma and be owned by its creditors. However, the Sackler family remains wealthy with an estimated fortune of $11 billion, much of it in offshore holdings.

Victims’ groups have voiced frustration with the government’s position, as they fear further delays in receiving compensation. They stress the urgency of accessing the abatement and victim compensation funds provided by the Sackler family in exchange for releases.

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