Starting in the 1990’s, Purdue Pharma L.P., a company owned by the Sackler family, marketed OxyContin as a less addictive drug, less subject to abuse from other forms of opioid medication. In 2007, a corporate affiliate admitted that this was not true, an admission that spurred the filing of thousands of lawsuits. In response, the Sackler family began withdrawing billions of dollars from the company, weakening its financial position until it filed for bankruptcy. The Sacklers are not parties to the bankruptcy. However, they offered to return approximately $4.3 billion of the $11 billion they had withdrawn in exchange for injunctive relief from all pending and future claims against family members. After objections were raised to this proposal, the Sacklers agreed to add another $1.2 to $1.8 billion to the reorganization plan of the company, all to be paid over time. This proposal met with the approval of the Second Circuit Court of Appeals and the plan of reorganization was approved. The plan included approximately $8 billion that would have been directed towards states, local governments, personal injury victims, schools, and hospitals. Objectors sought certiorari review by the Supreme Court in the case entitled Harrington v. Purdue Pharma L.P.
The question presented was whether the bankruptcy code permitted the court to release and enjoin claims against a third party (here the Sackler family) without the consent of the affected claimants. As phrased by the majority, “[t]he question we face thus boils down to whether a court in bankruptcy may effectively extend to nondebtors the benefits of a Chapter 11 discharge usually reserved for debtors.” The Court held that the answer is “no.”
The Supreme Court ruled that the Sackler family was not entitled to the protection from liability that the plan of reorganization would grant them. While the Sackler family may own Purdue, it was the company, not the family, that had filed for bankruptcy. No family member sought bankruptcy protection. The claims of the injured plaintiffs against the Sackler family could not be extinguished without the plaintiffs’ consent because the claims were not assets of the bankruptcy estate nor were they debts of the company. As nondebtors, the family members were not entitled to bankruptcy protection. Stated another way, the Court could not approve a reorganization plan that would release the Sackler family from liability, even if the Sackler family agreed to contribute significant funds to pay down outstanding debt and the overall company reorganization, without the consent of the creditors.
Clearly this case has a significant impact for cities and towns. Municipalities have been waiting for years for money from the various bankruptcy cases filed against manufacturers, distributers, and sellers of opioids whose actions caused millions of people to become addicted, stressing municipal heath and public safety resources. The Court’s decision means that the $110 million from the proposed Purdue Pharma plan of reorganization that was coming to the Commonwealth and its cities and towns is now in jeopardy, as the plan is returned to the bankruptcy court for further negotiations.
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