The Supreme Court justices seemed divided on Monday over a fiercely contested bankruptcy settlement for Purdue Pharma that would funnel billions of dollars into addressing the opioid epidemic in exchange for shielding members of the wealthy Sackler family from related civil lawsuits.
The U.S. Trustee Program, an office in the Justice Department, had challenged the deal, saying that it violated federal law by guaranteeing such wide-ranging legal immunity for the Sacklers even as they themselves had not declared bankruptcy.
Questions from the justices reflected why the agreement, which pits money against principle, has drawn intense scrutiny to start. Under debate was the practical effect of unraveling the settlement, painstakingly negotiated for years, and broader concerns over whether releasing the Sacklers from liability should be allowed.
“The opioid victims and their families overwhelmingly approve this plan because they think it will ensure prompt payment,” Justice Brett M. Kavanaugh said. He asked why the government was pushing to end a tactic, known as third-party nonconsensual releases, that has figured in settlements approved over “30 years of bankruptcy court practice.”
The lawyer for the government, Curtis E. Gannon, acknowledged the tension, but he argued that the U.S. trustee “has been given this watchdog role” and that a ruling for the government would not foreclose an opioid deal with the Sacklers.
Although the question before the court was a narrow one — whether the bankruptcy code allowed such nonconsensual third-party waivers — the deal’s effect on a public health crisis that has left tens of thousands of people dead was on full display.
While Justice Kavanaugh and others repeatedly questioned what any ruling would mean for victims of the opioid crisis and their families, others asked what consequences there would be for other settlements, including sexual abuse lawsuits against the Boy Scouts of America and the Catholic Church, that have included this release of liability.
Justice Amy Coney Barrett raised what a victory for the U.S. trustee would mean “for other victims of mass torts.”
Mr. Gannon responded that Congress could pass legislation that specified how such deals could work. It was not the government’s role, he said, to speak for victims but rather to be “concerned about the entire process.”
Inside the crowded courtroom, the justices appeared deeply engaged in the case, leaning forward periodically during two hours of argument.
Their questions did not appear to line up along ideological lines, signaling the decision could be a close one.
Justice Ketanji Brown Jackson seemed skeptical of claims that third-party nonconsensual releases were the only way to solve the thorny problem of compensating opioid victims. She asked a lawyer for victims’ groups, Pratik A. Shah, why the agreement needed to be reached through bankruptcy court.
Mr. Shah insisted that the releases were critical to the deal. Without it, members of the Sackler family would not sign on to an agreement, he said, which risked leaving victims with nothing.
“Without the release, the plan will unravel,” he said. “There will be no viable path to any victim recovery.”
“Well, that sounded very emphatic,” Justice Elena Kagan replied, to laughter.
Justice Kagan appeared to be puzzling through her views from the bench. She seemed skeptical of the U.S. trustee’s position and asked whether the government was standing in the way of an agreement that had the overwhelming approval of victims, people who were among those “who think that the Sacklers are pretty much the worst people on Earth.”
But she later pointedly asked the lawyer for Purdue Pharma, Gregory G. Garre, whether such deals subverted the bankruptcy process by allowing wealthy people to shield themselves from lawsuits, including claims of fraud, without putting “anything near their entire pot of assets on the table.”
“In some ways, they’re getting a better deal than the usual bankruptcy discharge,” Justice Kagan said, because “they’re being protected from claims of fraud and claims of willful misconduct.”
Justice Jackson seemed to share those concerns. She pointed to frustrations voiced by the original bankruptcy judge that the Sacklers had moved money out of Purdue into offshore accounts. The Sacklers “took the assets from the company, which started the set of circumstances in which the company now doesn’t have enough money to pay the creditors,” she said.
Outside the courtroom, dozens of demonstrators called on the justices to overturn the bankruptcy deal, saying that they believed it did little for families of victims and failed to hold the Sacklers to account.
Many wore red T-shirts that read “Sackler v. the people” under an image of the Supreme Court and brandished signs with photos of family members who had died from drug overdoses.
“I don’t want their money,” said Ralph DeRigo, who said one of his sons had died of an opioid overdose in 2014 and another had struggled with addiction. “They should lose it or, at least, every bit that they made on OxyContin.”
He added that he did not believe a cash settlement was enough: “I think they should be in jail.”
A decision could come as late as June, near the end of the court’s term.
In recent years, bankruptcy court has become a popular place to deal with mass-injury settlements. The Purdue case and others like it rely on a system that courts in some parts of the country say allows third parties, like the Sacklers, to be freed from liability, even though they themselves are not declaring bankruptcy.
The U.S. trustee had asked the Supreme Court to intervene after an appeals court upheld the settlement. The agreement violated federal law, the government said, by allowing the Sacklers to take advantage of protections meant for those in “financial distress” and offered “a road map for wealthy corporations and individuals to misuse the bankruptcy system.”
Lawyers for Purdue said in court filings that the plan would “provide billions of dollars and lifesaving benefits to the victims of the opioid crisis.” The suggestion that the plan laid out a strategy for the rich seeking to avoid accountability was “unfounded,” they added.
Purdue, which is widely viewed as helping to spark the opioid crisis, has faced a flood of challenges since OxyContin’s addictive qualities and potential for abuse became clear.
The company continued to aggressively push the painkiller regardless. In 2007, a holding company for Purdue pleaded guilty to a felony charge of “misbranding” the drug, including its risk of addiction, and agreed to pay some $600 million in fines and other fees.
As the number of overdose deaths soared, municipalities, tribes, families and others sought funding to address the ravages of the drugs. Many pinned much of the blame on OxyContin.
Purdue filed for bankruptcy protection in September 2019 as civil lawsuits against the company and, increasingly, the Sacklers themselves mounted.
Under a restructuring plan, filed in March 2021, the company would dissolve and become a public benefit company focused on trying to counter the opioid epidemic. In turn, members of the Sackler family would pour billions from their personal fortune into aiding states, municipalities, tribes and others in fighting the opioid crisis. More than 90 percent of the plaintiffs who voted on the plan approved it.
That September, Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y., approved the plan. The U.S. Trustee Program was among those that appealed the decision.
As an appeal wound through the courts, members of the Sackler family increased their cash offer in February 2022 to settle the thousands of opioid claims up to $6 billion. They continued to insist that they be insulated from all opioid-related lawsuits.
The United States Court of Appeals for the Second Circuit ruled in favor of the plan more than a year later, handing a victory to Purdue.
In agreeing to take the case, the Supreme Court temporarily halted the deal, most likely suspending payments to plaintiffs until it issues a ruling.
The plan authorized by the appeals court “includes one of the most significant and expansive” release of claims to a party that had not even declared bankruptcy, the solicitor general, Elizabeth B. Prelogar, wrote in asking the court to hear the case.
Lawyers for Purdue argued that if the court were to strike down the deal, “the individuals and entities with an actual stake in the outcome would lose everything.”
They pointed to the unusually high support among claimants for the plan, adding that “countless lives will be helped — and literally saved — by the billions of dollars that will flow to communities nationwide under the plan.”
Jan Hoffman contributed reporting from New York, and Aishvarya Kavi from Washington.