Supreme Court Reviews Purdue Pharma’s Bankruptcy Plan, Reopening Legal Battle
The Supreme Court is currently scrutinizing Purdue Pharma’s bankruptcy plan, reigniting the legal battle surrounding America’s opioid epidemic. On August 10th, the country’s highest court announced its decision to review an earlier settlement secured by Purdue Pharma, a key player in the ongoing saga.
In 2021, a federal judge had approved a bankruptcy plan for Purdue Pharma, the manufacturer of OxyContin, a highly addictive painkiller. The plan involved restructuring the company as a public-benefit corporation, with all future profits dedicated to compensating victims and supporting addiction treatment programs. As part of the settlement, the Sackler family, who own Purdue, agreed to contribute $4.5 billion towards resolving claims, an amount later increased to $6 billion.
The controversy lies in a legal mechanism called a third-party release, allowing entities associated with bankrupt companies to gain immunity from liability, even if they hadn’t filed for bankruptcy themselves. In the case of Purdue Pharma, the Sacklers were granted protection from future opioid-related lawsuits, a result that has left many unsatisfied, particularly those who hold the family accountable for their alleged role in exacerbating the opioid crisis.
Companies in the United States have increasingly turned to bankruptcy courts to address product-liability claims in recent years. This approach offers certain advantages, such as pausing all litigation and consolidating claims under one roof. Additionally, the third-party release arrangement shields the parent company from future liabilities. Businesses argue that bankruptcy courts are more efficient for both defendants and plaintiffs, while claimants appreciate the potential for speedier resolution compared to the often lengthy and uncertain process of traditional tort litigation.
Critics, however, argue that bankruptcy should be reserved for genuinely insolvent companies rather than those burdened with lawsuits. In the case of Johnson & Johnson, the pharmaceutical giant faced numerous lawsuits alleging that its talcum powder caused cancer. To address these claims, the company utilized a legal maneuver known as the Texas two-step, shifting liability to a separate entity and declaring bankruptcy for that entity. Other examples include Aearo Technologies, a subsidiary of 3, a conglomerate based in Minnesota, which faced around 260,000 lawsuits related to allegedly defective earplugs. By declaring bankruptcy for its subsidiary, 3 aimed to limit its exposure. Both Johnson & Johnson and 3 deny the allegations against them.
Some argue that companies using such tactics are seeking the advantages of bankruptcy without truly subjecting themselves to the courts. Advocates for victims argue that bankruptcy proceedings often minimize discussions of a company’s wrongdoing, unlike traditional tort battles that allow for a more comprehensive examination of culpability.
Courts are increasingly skeptical of companies employing these strategies. In June, an Indiana judge rejected the bankruptcy filing of Aearo, noting that the company was using bankruptcy as a litigation-management tactic. Similarly, a New Jersey bankruptcy court dismissed Johnson & Johnson’s insolvency plea, citing the substantial resources available to the parent company. The Supreme Court’s scrutiny of Purdue’s third-party releases carries significant implications. If the justices decide to restrict the use of such releases, corporations will find that bankrupting smaller subsidiaries to combat sprawling lawsuits is no longer the saving grace it once appeared to be.
In summary, the Supreme Court’s review of Purdue Pharma’s bankruptcy plan has breathed new life into the legal battle surrounding the opioid crisis. The controversial practice of using bankruptcy courts as a means to resolve product-liability claims has drawn scrutiny, with critics arguing that it allows companies to avoid true accountability. As courts increasingly challenge these tactics, the resolution of such high-profile cases may shape the future landscape of corporate bankruptcies and legal battles.
