Is the future of bankruptcy protections (and who has access to them) set to change? That's one of the central questions facing the US Supreme Court as it deliberates a multi-billion dollar settlement reached between Purdue Pharma, the Sackler Family, and the thousands of families who have fallen victim to the opioid crisis. 

At the heart of the case is a March 2021 restructuring plan which, as the New York Times reports, would dissolve Purdue Pharma and turn it into a public benefit company helping to combat the very opioid crisis it is accused of igniting. "In turn, members of the Sackler family would pour billions [$6 billion as of February 2022] from their personal fortune into aiding states, municipalities, tribes and others in fighting" the crisis, but would receive immunity from any future litigation in exchange. The deal was approved by more than 90 percent of families and state AGs involved in the case, yet the US Trustee Program (the DOJ arm responsible for overseeing bankruptcies) has appealed the case. 

"The court of appeals’ decision is a roadmap for corporations and wealthy individuals to misuse the bankruptcy system to avoid mass-tort liability," the US Government has argued to SCOTUS, adding "such releases deprive tort victims of their day in court without consent." And some Supreme Court Justices agree. Justice Neil Gorsuch was most vocal about what he considered constitutional violations, specifically that plaintiffs who did not sign on to the immunity deal have had their due process rights violated. Yet, Justice Brett Kavanaugh wondered why a tactic that has been used in bankruptcy court for over 30 years was now being questioned. 

The Texas Two-Step

Purdue Pharma and the Sackler family are not the only multi-billion dollar pharmaceutical entities dealing with a shift in bankruptcy practices. Earlier this year, Johnson & Johnson was blocked from attempting to use the Texas Two-Step tactic to rid itself of a roughly $9 billion mass-tort settlement related to its talc products. As Yahoo Finance notes, the judge ruled that Johnson & Johnson (with a market cap of nearly $400 billion) was not in financial distress, and thus was not using Chapter 11 bankruptcy appropriately. 

While the Sackler family is not attempting the same maneuver, the Sacklers have never filed for bankruptcy yet are still securing personal immunity. This led Justice Elena Kagan to "pointedly asked whether such deals subverted the bankruptcy process: Did the settlement allow wealthy people like the Sacklers to shield themselves from lawsuits, including claims of fraud, without putting 'anything near their entire pot of assets on the table?'" In other words: are the Sacklers manipulating bankruptcy court to evade any potential liability?

THE VERDICT:

Whatever the Supreme Court decides on this case will have far-reaching implications—both for victims of the opioid crisis, and for other mass-tort cases—but the question remains the same: should bankruptcy court be an avenue for corporations and the wealthy to side-step legal accountability? Constitutionally, Justice Gorsuch has a point that such deals as the Sacklers receive deny victims due process. However, what SCOTUS deems the reach and authority of Bankruptcy courts will ultimately decide the outcome.