Supreme Court blocks Purdue Pharma's bankruptcy settlement, threatening immunity to Sackler family

It’s been a rough summer for pharmaceutical companies trying to resolve lawsuits by declaring bankruptcy.

Last month, a federal bankruptcy judge denied Johnson & Johnson’s second effort to Texas two-step its way to an $8.9 billion settlement to resolve talc claims. And now, the Supreme Court has blocked (PDF) Purdue Pharma’s bankruptcy settlement, which granted the company’s former owners—the Sackler family—immunity from civil suits related to the opioid crisis.

The action is temporary as it allows the court to hear the Justice Department’s claim that a reorganization of a company under Chapter 11 can’t be used to extinguish lawsuits against “third party non-debtors”—in this case, the Sacklers—without consent of the claimants. The court will hear oral arguments in December.

"We are confident in the legality of our nearly universally supported Plan of Reorganization, and optimistic that the Supreme Court will agree," Purdue said in an email. "Even so, we are disappointed that the U.S. Trustee, despite having no concrete interest in the outcome of this process, has been able to single-handedly delay billions of dollars in value that should be put to use for victim compensation, opioid crisis abatement for communities across the country, and overdose rescue medicines."  

In May of this year, a U.S. appeals court signed off on the settlement, which provided legal protection to the Sacklers in exchange for $6 billion. The ruling reversed a previous lower court decision, which removed legal protection for the family.  

Overall the settlement is worth $10 billion, with the Sacklers’ $6 billion contribution.

Through sales of Purdue’s blockbuster painkiller OxyContin, the Sacklers amassed an estimated $13 billion. The company’s aggressive marketing tactics have been credited as a driving force behind the opioid crisis in the U.S. Purdue filed for bankruptcy in 2019.

Several other companies also faced lawsuits for their roles in contributing to the crisis. Last year, Johnson & Johnson and distributors AmerisourceBergen, Cardinal Health and McKesson finalized a $26 billion settlement from states, counties and other government entities.

Two weeks ago, New Jersey judge Michael Kaplan ruled against J&J’s bankruptcy settlement attempt, saying that a company must demonstrate that it is suffering from financial distress.

“Observing smoke may not be enough—one must see flames,” Kaplan wrote in the court’s ruling. “The court smells smoke, but does not see the fire.”