Rejection of the Purdue Pharma bankruptcy plan is a good long-run verdict

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Overdosing on opioids has resulted in the deaths of over 500,000 Americans. A key player in this saturnine saga is Purdue Pharma, formerly owned by the Sackler family, which introduced its blockbuster painkiller drug OxyContin into the U.S. market in 1996.

Amitrajeet A. Batabyal

It is now well known that Purdue Pharma aggressively and even deceptively marketed OxyContin in an attempt to boost sales and profits. As a result, lawsuits against Purdue Pharma and against the Sackler family mounted with Purdue Pharma pleading guilty to misbranding and fraud charges.

The company eventually sought bankruptcy protection in 2019 in exchange for monetary contributions from the Sackler family into a global settlement fund. Specifically, under a deal approved by a bankruptcy judge in 2021, Purdue Pharma was dissolved, $6 billion was set aside for the victims of the opioid epidemic, the hundreds of legal cases against the company ended, and, most importantly, the Sackler family was guaranteed protection from any and all future civil cases stemming from the opioid epidemic.

It is this guaranteed future protection offered to the Sackler family that the U.S. Supreme Court objected to in its 5-4 decision overturning the Purdue Pharma bankruptcy plan in Harrington v. Purdue Pharma L.P.

This SCOTUS decision means that a very carefully negotiated bankruptcy plan involving eight states and the District of Columbia, which took a long time to negotiate, may now mean absolutely nothing. At the very least, the relevant parties will have to go back to the drawing board and attempt to renegotiate the deal with no guarantee that a deal will, in fact, be reached. This also means that the over 100,000 victims from the opioid epidemic will have to wait much longer to receive compensation and, as Justice Brett Kavanaugh noted in his dissent, they may never receive any money from Purdue Pharma.

More on this Supreme Court ruling: How the Purdue Pharma decision could affect the Rochester Diocese bankruptcy in undetermined ways.

To make sense of this decision, it is helpful to look at what’s true in the short run and in the long run, separately. In the short run, it sure looks like this decision is not only inequitable but perhaps even cruel to the long-suffering victims of the opioid epidemic.

That said, let us now consider the long run implications of the court greenlighting the Purdue Pharma bankruptcy plan. First, it would mean that even though some of the parties harmed by opioids disagreed with the terms of the bankruptcy plan, potentially because they could do better for themselves by bringing civil suits against the Sacklers, they would still be forced to go along with the plan.

Second, it would mean that even though the Sackler family did not declare bankruptcy, they could hide behind the bankruptcy protection sought by a company they owned to avoid civil actions by one or more of the parties harmed by OxyContin during the opioid epidemic. To see this another way, note that the Sackler family wanted to be immunized from civil claims forever even though Purdue Pharma, a company they owned, admitted to drug-marketing crimes.

Finally, the U.S. Bankruptcy Code does not provide for the kind of protection that the Sackler family was asking for. Congress amended this code in 1994 to provide nonconsensual releases of liability for nondebtors in the case of asbestos-related liability. Even so, there is no “catchall” release of the sort sought by the Sackler family.

In sum, the court majority’s correct decision in Harrington v. Purdue Pharma ensures that the wealthy and the powerful are not able to use the nation’s bankruptcy code to evade accountability for actions that have manifestly damaged and even destroyed the lives of so many Americans.

Amitrajeet A. Batabyal is a Distinguished Professor, the Arthur J. Gosnell professor of economics, and the Interim Head of the Sustainability Department, all at RIT, but these views are his own.

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