For years, Purdue Pharma, the maker of the prescription painkiller OxyContin, was embroiled in lawsuits seeking to hold it accountable for its role in the growing opioid crisis.
A groundbreaking deal reached last year appears to mark the end of thousands of such cases, pumping billions of dollars into the fight against the epidemic in exchange for exemption from civil lawsuits against members of the billionaire Sackler family, who formerly controlled the company.
But on Monday, the Supreme Court will hear arguments on whether the deal constitutes a violation of federal law in a case that could have consequences not only for Purdue but also for organizations that turn to bankruptcy court , as the company has done, to resolve mass injury claims.
“Corporate bankruptcies have enormous implications for everyone,” said Anthony J. Casey, a law professor at the University of Chicago. “I think this is probably the most significant bankruptcy case to come before the courts in 30, maybe 40 years.”
The question before the justices is whether a legal maneuver in the settlement agreement can give the Sackler family the kind of broad legal protection it has sought for years: complete immunity from civil lawsuits related to a crisis of devastating public health.
This tactic, part of Purdue’s hotly contested bankruptcy restructuring, has figured in all sorts of settlements involving massive injury claims, such as the sexual abuse accusations against the Boy Scouts of America and Catholic Church.
Legal experts said the government has long questioned the validity of the practice, known as nonconsensual third-party releases, raising the possibility that a sweeping ruling in this case would upend similar agreements.
“Purdue Pharma is exactly the case that they finally got the court to look at,” said Lindsey Simon, a bankruptcy expert who teaches at Emory University Law School.
Increasingly, legal experts say, organizations inundated with large numbers of lawsuits accusing them of undue harm are relying on the bankruptcy system — not the civil legal system, as is typically the case — to find regulations. By declaring bankruptcy, these entities are offered a path that protects them from future civil litigation, in part because bankruptcy is rooted in the idea that someone facing losses should have the opportunity to wipe the slate clean. slate.
The Purdue Pharma deal — and others like it — go further, granting similarly broad protections to members of the wealthy Sackler family. Not only are they shielded from liability without the consent of everyone who could potentially sue them, but the Sacklers themselves are not required to personally file for bankruptcy.
The U.S. Bankruptcy Monitoring Program, a Justice Department bankruptcy watchdog group that urged the Supreme Court to review the Purdue Pharma deal, described the tactic as an overreach of the bankruptcy system, in part because that such non-consensual releases “deprive crime victims of their time.” before the court without consent.
The plan exceeds the limits of the bankruptcy code, attorneys for the trustee program say, effectively leaving the Sackler family unscathed: “It allows the Sacklers to protect billions of dollars of their fortune while extinguishing, without payment, claims alleging billions of dollars in damage. .”
The government also questioned whether the agreement allowed the Sacklers to avoid other potential claims, particularly those “based on fraud and other forms of intentional misconduct.” (Lawsuits show that family members, aware of OxyContin’s abuse potential, continued to market the drug aggressively.)
But organizations and businesses facing similar lawsuits say removing those protections would mean they would face endless litigation, an outcome that would only have disastrous consequences.
In filing a brief in support of Purdue Pharma, the U.S. Conference of Catholic Bishops said these types of settlements offer a chance to fairly compensate survivors of sexual abuse while ensuring the longevity of the Catholic Church.
This release “provides the only viable way for the Catholic infrastructure of many communities to survive what has become decades of mission-crippling litigation,” the document states.
The Boy Scouts of America, for its part, warned that if the liability waiver had not applied to its settlement compensating tens of thousands of sexual abuse victims, it would have spelled the end for a group that , for more than a century, sought to instill good values in children.
“Most survivors of Scouting-related abuse would get nothing, and Scouting as an organization would likely be over,” the document states.
Lawyers for the Boy Scouts declined to comment. Lawyers for the U.S. Conference of Catholic Bishops did not respond to a request for comment.
Legal experts said it was unclear how the court would view the case. Although the court’s conservative majority is generally seen as sympathetic to corporate interests, the issue before the court relies on aggressive litigation tactics, which Chief Justice John G. Roberts Jr. and Justice Clarence Thomas have generally resisted.
The case also hinges on the latitude given to bankruptcy courts, including without express authorization from Congress — another scenario that the conservative majority tends to view with skepticism.
Already, companies are pursuing other strategies that would allow them to retain the benefits of the bankruptcy system — an automatic freeze on other lawsuits, consolidation of claims, a mandatory settlement that binds everyone — in cases of massive harm, they say. the experts. They said companies would likely look for simple ways to obtain consent from applicants, such as adding a checkbox on the applicant’s form, so they can continue to use liability waivers.
“The bankruptcy system is being used to deal with enormous societal problems,” said Stephen W. Sather, chief of the bankruptcy section of the law firm Barron & Newburger, who has written about the tactic.
“It’s like Dr. Ian Malcolm says in ‘Jurassic Park’: Nature will find a way,” he added. “In this case, the lawyers will find a solution.”