Supreme Court tosses Purdue Pharma opioid bankruptcy settlement

June 27 (UPI) -- The U.S. Supreme Court Thursday threw out Purdue Pharma's multi-billion dollar bankruptcy settlement that included provisions to resolve lawsuits in many states over its connection to the opioid crisis.

The court voted 5-4 in favor of staying the bankruptcy reorganization plan that would have provided billions to victims of the opioid crisis while blocking new lawsuits against the Sackler family that owned the company.

Writing the opinion for the majority, Justice Neil Gorsuch said the Sacklers moved to stop the claims against them without putting all their assets on the table in bankruptcy and without the true consent of those affected by Purdue Pharma's opioid marketing.

"From the court overseeing Purdue's bankruptcy, they sought and won an order extinguishing vast numbers of existing and potential claims against them," Gorsuch wrote. "They obtained all this without securing the consent of those affected or placing anything approaching their total assets on the table for their creditors."

Gorsuch said in the opinion that creditors were polled on the proposed plan and although most of the ballots returned were in favor, "fewer than 20% of eligible creditors participated."

The Supreme Court held that the bankruptcy code does not authorize a release and injunction under Chapter 11 that effectively seeks "to discharge claims against a non-debtor without the consent of affected claimants."

The court said the Sacklers "seek to pay less than the code ordinarily requires and receive more than it normally permits."

According other Supreme Court syllabus of the case roughly 247,000 people in the United States died from prescription opioid overdoses between 1999 and 2019.

Purdue, under Sackler family control and ownership, marketed Oxycontin. Thousands of lawsuits were filed against them after a company affiliate in 2007 pleaded guilty "to a federal felony for misbranding OxyContin as a less-addictive, less-abusable alternative to other pain medications."

According to the Supreme Court filing the Sacklers then started a "milking program" to take approximately $11 billion out of the company over about ten years.

Purdue filed for bankruptcy in 2019 and during that legal process the Sacklers offered to give about $4.3 billion back to the bankruptcy estate of the company in return for "a judicial order releasing the family from all opioid-related claims and enjoining victims from bringing such claims against them in the future."

The bankruptcy court approved that deal.

The decision said the Sacklers did not enter personal bankruptcy, yet sought "what essentially amounts to a discharge" similar to bankruptcy.

"Nothing in what we have said should be construed to call into question consensual third-party releases offered in connection with a bankruptcy reorganization plan," the Supreme Court said.

The court also said the Thursday decision "involves only a stayed reorganization plan."

"We do not address whether our reading of the bankruptcy code would justify unwinding reorganization plans that have already become effective and been substantially consummated," the court opinion said. "We hold only that the bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a non-debtor without the consent of affected claimants."

The thousands of lawsuits filed against the Sacklers collectively sought more than $40 trillion in damages.

Purdue Pharma's lawyer Gregory Garre argued before the Supreme Court that overturning the bankruptcy deal means "the billions of dollars that the plan allocates for opioid abatement and compensation will evaporate, creditors and victims will be left with nothing and lives literally will be lost."

While there were claims that more than 95% of the opioid victims who sued supported the bankruptcy deal, the Supreme Court said that just 20% of the victims were polled on it.

Chief Justice John Roberts , Justice Sonia Sotomayor , Justice Elena Kagan and Justice Brett Kavanaugh dissented.

Kavanaugh wrote in the dissent describing the decision as "wrong on the law and devastating for more than 100,000 opioid victims and their families.

"The Court's decision rewrites the text of the U. S. Bankruptcy Code and restricts the long-established authority of bankruptcy courts to fashion fair and equitable relief for mass-tort victims," he wrote.

The dissenting justices called the bankruptcy plan that the court majority overturned "a shining example of the bankruptcy system at work."

They argued that in the Purdue Pharma settlement, the bankruptcy court exercised appropriate discretion appropriately and even admirably.