The Supreme Court on Thursday temporarily blocked a bankruptcy deal for Purdue Pharma that would have shielded members of the billionaire Sackler family, which once controlled the company, from additional civil lawsuits over the opioid epidemic and that capped the Sacklers’ personal liability at $6 billion.
The order is likely to delay any payments to the thousands of plaintiffs who have sued the Sacklers and Purdue, the maker of the prescription painkiller OxyContin, which is widely blamed for igniting the opioid crisis. Under the deal, the Sacklers had agreed to pay billions to plaintiffs in exchange for full immunity from all civil legal disputes.
The order was in response to a Justice Department objection to the plan, which the government said allowed members of the Sackler family to take advantage of legal protections meant for debtors in “financial distress,” not for billionaires.
The justices said they would hear arguments in December to decide whether the agreement is authorized by the U.S. bankruptcy code. The case could have far-reaching implications for similar lawsuits.
That is because the Purdue agreement involves a popular but controversial practice: resolving lawsuits about mass injuries through bankruptcy courts, rather than allowing the cases to make their way through the traditional court system. In many of these agreements, third parties — in this instance, the Sacklers — are shielded from liability without being required to declare bankruptcy.
“What are the Sacklers getting out of this?” said Lindsey Simon, an associate professor at Emory University School of Law and a bankruptcy expert. “They’re getting one deal to be done. Whereas if they didn’t get it, individuals could still sue them forever.”
Put simply, Ms. Simon said, “they get all the benefit with none of the costs.”
A representative for the Sackler family did not respond to a request for comment. A spokeswoman for Purdue Pharma said in a statement it was “confident in the legality” of the bankruptcy plan.
The court’s decision to hear the case adds to the uncertainty around the plan to compensate states, local governments, tribes and individuals harmed by the opioid crisis, while offering protection for the Sackler family. Plaintiffs will also most likely have to wait at least another year before they receive payouts from the Purdue deal.
Any ruling in the case could affect how other mass tort cases — a broad term for lawsuits claiming injuries for a group of people who have suffered from things like an airplane crash, a toxic spill or pesticide spraying — play out.
“They’re taking on a question that’s literally the basis for billions of dollars in mass torts, from cases involving not just opioids, but the Boy Scouts, wildfires and allegations of sexual abuse in the church diocese — where third parties get a benefit from a bankruptcy they themselves aren’t going through,” said Adam Zimmerman, a law professor at the University of Southern California.
Experts cited Johnson & Johnson, which has sought to use bankruptcy court to resolve mass claims about its talcum-based baby powder.
The company faces about 40,000 lawsuits that have been on hold since 2021 over allegations that the powder contained asbestos and caused ovarian cancer. The company denies those allegations, and has said it needs the bankruptcy process to resolve current and future lawsuits.
The court’s decision is the latest twist in the yearslong legal battle over compensation for those harmed by the opioid crisis.
In May, the U.S. Court of Appeals for the Second Circuit approved the settlement plan after Purdue Pharma filed for bankruptcy protection in September 2019. At the time, the company and members of the Sackler family collectively faced thousands of lawsuits concerning opioids.
Although companies routinely seek bankruptcy protection to be shielded from legal claims, this particular agreement was unusual because it extended liability protection to the company’s owners. Sackler family members have said they would not sign on to a settlement without an agreement protecting them from lawsuits.
The Supreme Court has been skeptical of some aggressive litigation tactics, notably in cases involving class actions and patents, suggesting that it may be wary of allowing bankruptcy courts to provide legal immunity to rich and powerful people accused of grave wrongdoing who have not themselves declared bankruptcy.
The U.S. Trustee Program, an office in the Justice Department that oversees the administration of bankruptcy cases, has long argued that bankruptcy judges do not have the power to permanently block lawsuits against company owners if those owners have not sought personal bankruptcy protection.
In its brief, the government said that federal appeals courts were split on the issue and that the Purdue agreement could set a troubling precedent.
“Allowing the Court of Appeals’ decision to stand would leave in place a road map for wealthy corporations and individuals to misuse the bankruptcy system to avoid mass tort liability,” the solicitor general, Elizabeth B. Prelogar, wrote.
The appeals court, Ms. Prelogar wrote, had “pinned itself firmly on one side of a widely acknowledged circuit split about an important and recurring question of bankruptcy law.”
Ms. Prelogar called the agreement “a release from liability that is of exceptional and unprecedented breadth” given the “untold number of claimants who did not specifically consent to the release’s terms.” Ultimately, she added, the deal “constitutes an abuse of the bankruptcy system and raises serious constitutional questions.”
In its brief, lawyers for Purdue Pharma had countered that the government’s request to pause the deal was “baseless.” If the court granted it, they wrote, it “would harm victims and needlessly delay the distribution of billions of dollars to abate the opioid crisis.”
Members of the Sackler family are no longer on the board of the company. When the bankruptcy is completed, they will relinquish their ownership stake in the company, which would be renamed Knoa Pharma. However, the family remains wealthy, with some estimates putting its fortune at $11 billion.
Victims’ groups and entities that had expected to receive funds to combat the opioid crisis expressed frustration at the government’s challenge, raising concerns that it would further hamper payments to those harmed.
“We are very disappointed with the additional delay, but it does appear they are seeking to resolve as quickly as possible,” said Joe Rice, a lead lawyer for local governments that had negotiated with Purdue Pharma.
Ryan Hampton, a person in recovery who was a co-chair of the unsecured creditors committee in the Purdue bankruptcy, said he was pleased that the Supreme Court would hear the case.
Still, he added that he hoped it would be “decided by letter of the law and not politicized any further at the expense of the victims, who have been waiting over two years for their share of the settlement.”
Representatives for Native American tribes, which have been hard hit by the opioid crisis, said the money was urgently needed to prevent more deaths. Nearly 575 tribes in the United States are set to share in the Purdue settlement.
“The nation’s tribes cannot wait years for the help that was to come two years ago from the Purdue bankruptcy settlement, when all the while the bankruptcy estate continues being whittled away,” said Lloyd B. Miller, a lawyer who represents tribes that sued Purdue Pharma.
Mr. Miller said he was hopeful the case would move swiftly, adding, “Time is the enemy.”
Adam Liptak contributed reporting from Washington.
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