Toby Talbot/AP file
- A narrow 5-4 ruling from Supreme Court justices resulted in Purdue Pharma's bankruptcy plan being nixed.
- Its owners, the Sacklers, won't get broad protection from lawsuits they wanted in exchange for billions.
- The decision may imperil other big settlements that involve creative uses of bankruptcy law.
The US Supreme Court has struck down a $7 billion bankruptcy plan for Purdue Pharma that would have protected the Sackler family from further lawsuits — a ruling that could mean "chaos" for other big legal liability cases.
Purdue's drugs, primarily OxyContin, were one the biggest contributors to the opioid crisis that sickened and killed thousands of Americans. Purdue was set to be converted into a nonprofit devoted to fighting the opioid crisis.
The Sackler family, which ran Purdue, agreed to provide up to $6 billion in funding in exchange for immunity from further legal action. But the court ruled 5-4 that bankruptcy law does not permit that kind of protection.
Anne Andrews, a leading bankruptcy lawyer for victims, predicted tumult if the Supreme Court struck down the Purdue plan in an interview with Business Insider ahead of the decision.
"There's gonna be a lot of chaos," she said.
Some other stakeholders expressed relief. William Tong, Connecticut's attorney general, who was one of the last holdouts until eventually making a deal, said the decision "is a definitive rebuke of the Sackler family's abuse of the bankruptcy code."
"The U.S. Supreme Court got it right — billionaire wrongdoers should not be allowed to shield blood money in bankruptcy court," he said.
The plan to immunize the Sacklers was supported by the vast majority of creditors who voted on the plan, a group that included people with opioid addiction-related legal claims. But the Justice Department was opposed, and as the court's majority opinion noted, "fewer than 20% of eligible creditors participated" in the vote.
In a dissent, the minority of justices said it was "paternalistic" to suggest that the victims could try to get a better deal when they may end up with nothing.
The rejection could spur months or years of new litigation. It could also lead to new rounds of fighting in other cases that have made creative use of federal bankruptcy law.
Johnson & Johnson, which has faced hundreds of thousands of lawsuits over claims that its talc-based baby powder contained cancer-causing asbestos, has tried three times to use the flexibility of bankruptcy law to bring a quick end to the litigation. Some lawyers support the deal, but others believe J&J can afford to pay more than the $8 billion it's offering over 25 years.
Leigh O'Dell, a lawyer at Beasley Allen seeking a better deal from J&J, said the decision could be consequential.
"The parallels of this case with J&J's continued and unsuccessful attempts to use the bankruptcy laws to mirror the fraud perpetrated by the Sackler family cannot be denied," she said in an emailed statement.
Other lawsuit-related bankruptcies that could now be up in the air include that of the Boy Scouts of America, which was confronted with thousands of sex abuse claims. Its plan, which would provide $2.5 billion, is currently on appeal in the Third Circuit Court of Appeals.