A broad ruling by the Supreme Court could mean the end of a strategy for resolving claims of mass injury in bankruptcy court in which organizations receive expansive legal protections.
For years, Purdue Pharma, the maker of the prescription painkiller OxyContin, had been entangled in lawsuits seeking to hold it to account for its role in the spiraling opioid crisis.
A pathbreaking settlement reached last year appeared to signal the end to thousands of those cases, funneling billions of dollars toward fighting the epidemic in exchange for exempting members of the billionaire Sackler family, which once controlled the company, from civil lawsuits.
But on Monday, the Supreme Court will hear arguments over whether the agreement is a violation of federal law in a case that could have ramifications not just for Purdue but also for organizations that turn to bankruptcy court, as the company did, to resolve claims of mass injury.
“There’s huge implications for all of corporate bankruptcy,” said Anthony J. Casey, a law professor at the University of Chicago. “I think this is probably the most important bankruptcy case before the court 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 wide-ranging legal protection it has demanded for years: full immunity from civil lawsuits related to a devastating public health crisis.
The tactic, part of Purdue’s fiercely contested bankruptcy restructuring, has figured in any manner of settlements involving claims of mass injury, such as accusations of sex abuse leveled against the Boy Scouts of America and the Catholic Church.
Legal experts said the government had long questioned the validity of the practice, known as third-party nonconsensual releases, raising the possibility that a sweeping decision in the case would upend similar agreements.
“Purdue Pharma is just the case that they finally got the court to look at,” said Lindsey Simon, a bankruptcy expert who teaches at Emory University School of Law.
Increasingly, legal experts say, organizations flooded with a vast number of lawsuits accusing them of wrongful harm are relying on the bankruptcy system — not the civil legal system, as is typical — to devise settlements. By filing for bankruptcy, those entities are offered a path that shields them from future civil litigation, in part because bankruptcy is rooted in the idea that someone facing losses should have an opportunity to wipe the slate clean.
The Purdue Pharma deal — and others like it — goes a step beyond that by granting similarly expansive protections to members of the wealthy Sackler family. Not only are they insulated from liability without the consent of all of those who could potentially sue them, but the Sacklers themselves do not have to personally declare bankruptcy.
The U.S. Trustee Program, a bankruptcy watchdog group in the Justice Department that urged the Supreme Court to review the Purdue Pharma deal, has described the tactic as an overreach of the bankruptcy system, in part because such nonconsensual releases “deprive tort victims of their day in court without consent.”
The plan exceeds the bounds of the bankruptcy code, lawyers for the trustee program argue, effectively leaving the Sackler family unscathed: “It allows the Sacklers to shield billions of dollars of their fortune while extinguishing, without payment, claims alleging trillions of dollars in damages.”
The government also questioned whether the deal allowed the Sacklers to dodge other potential claims, particularly from those “based on fraud and other forms of willful misconduct.” (Lawsuits show that members of the family, aware of OxyContin’s risk for abuse, continued to aggressively market the drug.)
But organizations and companies facing similar lawsuits contend that removing these protections would mean they would face never-ending litigation, an outcome that only had dire consequences.
In filing a brief in support of Purdue Pharma, the U.S. Conference of Catholic Bishops said these types of settlements offered a chance to fairly compensate survivors of sexual abuse while ensuring the longevity of the Catholic church.
The release “provide the only viable means for the Catholic infrastructure in many communities to survive what has become decades of mission-crippling litigation,” its brief said.
The Boy Scouts of America, for its part, warned that if the liability release had not applied to its settlement compensating tens of thousands of victims of sexual abuse, it would have spelled the end of 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 finished,” its brief said.
Lawyers for the Boy Scouts declined to comment. Lawyers for the U.S. Conference for Catholic Bishops did not respond to a request for comment.
Legal experts said it was not clear how the court would view the case. Although the court’s conservative majority is generally seen as friendly to business interests, the question before the court hinges on an aggressive litigation tactic, which both Chief Justice John G. Roberts Jr. and Justice Clarence Thomas have typically resisted.
The case also rests on how much latitude is given to bankruptcy courts, particularly without express authorization from Congress — yet another scenario that the conservative majority tends to view skeptically.
Already, companies are pursuing other strategies that would allow them to keep the benefits of the bankruptcy system — an automatic freeze on other lawsuits, consolidation of claims, a mandatory deal that binds everyone — in mass-injury cases, experts say. They said that companies were likely to look for simple ways to get consent from claimants, like adding a box to check on a claimant’s form, so they can keep using liability releases.
“You see the bankruptcy system being used to cope with enormous societal problems,” said Stephen W. Sather, chief of the bankruptcy section at 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, lawyers will find a way.”
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