The Supreme Court is grappling with the legal protection afforded to the Sackler family in the bankruptcy plan for Purdue Pharma.

The highest court in the United States, known as the Supreme Court, deliberated on Monday about whether to support or reject a certain issue.

Restructuring proposal for Purdue Pharma’s financial insolvency

Despite objections from the Biden administration, the Sackler family has been granted broad legal protections from civil lawsuits regarding their involvement in the opioid epidemic.

The main point of contention is a clause in the proposal that absolves the Sackler family and their associated entities from legal responsibility for their role in the opioid epidemic, which was aggravated by the distribution of OxyContin by Purdue. The Sacklers were in charge of Purdue during the peak of the opioid epidemic.

In 2019, Purdue declared Chapter 11 bankruptcy. The Sacklers, who did not declare bankruptcy, promised to provide $6 billion to address the opioid crisis in exchange for legal protection.

In September 2019, Purdue filed for Chapter 11 bankruptcy protection due to numerous lawsuits from states, local governments, Native American tribes, and individuals seeking compensation for harm caused by the company’s production and distribution of OxyContin. Purdue also filed separately.pleaded guiltyIn 2007, they pleaded guilty to a felony charge of improperly labeling OxyContin and have since paid over $600 million in penalties and additional expenses.

In a settlement reached with those making claims, the Sacklers have committed to providing over $4 billion over a 10-year period (which later increased to $6 billion) towards combatting the opioid crisis. Additionally, the settlement includes $750 million for compensating victims and the release of millions of documents to the public. Purdue will transform into a public benefit corporation, using its profits towards creating products to address opioid addiction.

The proposal also granted protection to the Sackler family from legal action related to the opioid epidemic. Additionally, the family may be able to retain a significant portion of the profits generated by Purdue from 2008 to 2017, as stated in court documents. During arguments, attorney Gregory Garre stated that 40% of those profits were used for taxes.

95% of the victims accepted the bankruptcy plan, but it was opposed by various states, Canadian cities and indigenous tribes, as well as over 2,600 individuals. This was due to concerns about the legal safeguards for the Sackler family, their associates and connected organizations.

The plan was approved by a New York bankruptcy court in September 2021. However, the decision was challenged in a federal district court in New York by states and other critics. Along with the U.S. Trustee, those against the plan raised concerns about whether those who did not agree to the federal bankruptcy agreements can still be held accountable by releases that protect entities that have not filed for bankruptcy, such as the Sacklers.

A federal district court ruled that bankruptcy courts are not authorized to approve such releases.and in December 2021

The plan was rejected.

Purdue and other supporters of the plan took their case to the U.S. Court of Appeals for the 2nd Circuit. During this time, the District of Columbia and eight states who had opposed the deal came to an agreement with Purdue and the Sacklers to increase their proposed contribution to the bankruptcy estate by $1.75 billion. This brings their total contributions to a range of $5.5 billion to $6 billion.

asked for briefs from both sides

The 2nd Circuit panel, divided, overturned the district court’s ruling in May. As a result, the Justice Department appealed to the Supreme Court to review the decision and temporarily block the bankruptcy plan. The Supreme Court requested submissions from both parties.agreed to pause the plan
In August, it was announced that the case would be taken.

During the court proceedings, Garre expressed concern that finding bankruptcy courts unable to approve releases would significantly damage the U.S. bankruptcy code. Pratik Shah, representing some of the victims supporting the agreement, cautioned that without the legal safeguards for the Sacklers, the plan could fall apart.

He stated that there will be no feasible way for victims to recover.

The justices are divided amongst themselves.

In a two-hour discussion, the judges seemed divided on whether those who did not agree to the agreement should be obligated by the release and thus unable to pursue their own legal actions against the Sacklers.

Justice Neil Gorsuch expressed constitutional concerns multiple times regarding the plan’s dissenters being unable to hold the Sackler family liable in civil court.

He informed Garre that it is not typically acceptable for a party who did not agree to have their property claim removed in this manner without consent or any legal process besides the one used here. This contradicts how we handle class-action cases and could potentially violate the due process and 7th Amendment rights. In most cases, a jury would be granted.

Many of the judges recognized that the Sacklers are receiving the benefits of bankruptcy protection without actually declaring bankruptcy, as they have transferred billions of dollars in profits from Purdue.

Justice Ketanji Brown Jackson stated that the majority of the assets being discussed were initially owned by the company. However, the assets were taken from the company, leading to a situation where the company does not have sufficient funds to pay its creditors.

Kagan pointed out the essential agreement in bankruptcy legislation, which is that the debtor is granted a release when all assets are disclosed to be distributed among creditors.

“They are being accused of not fully disclosing their assets,” she stated. “The concern is why they should receive the same benefits as a bankrupt individual when they have not fully disclosed all of their assets.”

Kagan stated that it would be quite remarkable if we granted the authority to essentially undermine the fundamental agreement in bankruptcy law.

Justice Barrett inquired about the potential effects of a Supreme Court ruling on forthcoming settlement discussions. Third-party releases are frequently utilized in significant Chapter 11 bankruptcy cases and were included in the reorganization plans for the Boy Scouts of America and Catholic Church, both of which were facing allegations of sexual abuse.

“What impact will the removal of this tool have on future cases similar to this?” she inquired.

The end of June is when a decision from the Supreme Court is anticipated.