What you need to know about the Purdue Pharma case before the Supreme Court

The Supreme Court will hear arguments Monday on a bankruptcy deal for Purdue Pharma that would give billions of dollars to those harmed by the opioid epidemic in exchange for protecting members of the wealthy Sackler family from additional opioid-related lawsuits.

The settlement involving Purdue, maker of the prescription painkiller OxyContin, addresses one of the nation’s biggest public health crises. While hearing the case, the court temporarily suspended the deal until a ruling is reached. Experts say any decision could also have important implications for other cases in which the bankruptcy system is used to settle mass injury claims.

Here’s what you need to know:

What is at stake?

The question is whether a bankruptcy plan can be drafted to grant legal immunity to a third party – in this case, members of the Sackler family, who once controlled Purdue Pharma – even though they have not declared bankruptcy themselves.

If the court approves the deal, it could confirm a litigation tactic that has become increasingly popular in resolving lawsuits in which many people claim similar injuries from the same entity, whether a drug or a consumer product. By turning to the bankruptcy courts as a tool to resolve these claims, companies aim to free themselves from legal liability and avoid future lawsuits.

But if the Supreme Court were to block the use of such a mechanism, known as third-party disclosure, the Sackler family would no longer be protected from civil lawsuits. Purdue Pharma’s entire bankruptcy deal, which has been in the works for years, would also most likely be in jeopardy.

Such a decision could upend a number of similar agreements, including the Revlon bankrupt.

Why does the Supreme Court intervene?

It’s rare for the Supreme Court to agree to hear a dispute in bankruptcy court, experts say, especially if it involves a settlement agreement in what’s known as a mass tort.

Few such cases go to trial because all parties are under pressure to reach a settlement. Litigation all the way to the highest court in the land is expensive and time-consuming. In the Purdue case, the American trustee programa watchdog office at the Department of Justice, has filed a petition with the Supreme Court to revise the agreement.

Several other aspects of the case made it more likely that the Supreme Court would grant a review, legal experts said. First, the opioid crisis is an issue of national importance. And such agreements that allow third parties to be shielded from most liability without declaring bankruptcy themselves are becoming increasingly popular and have divided lower courts.

How is the Supreme Court likely to judge this case?

Legal experts say that is unclear. On the one hand, the court’s conservative majority tends to look favorably on business interests. Several conservative members, including Chief Justice John G. Roberts Jr. and Judge Clarence Thomas, however, are wary of aggressive litigation. In general, this court is skeptical of lower courts acting without express authorization from Congress.

It is also not clear how the liberal wing will vote, experts say. Some experts say this could be the kind of procedural case that ends in a split vote, but not necessarily along political or ideological lines.

Why is the US government objecting to the Purdue plan?

A battle between money and principles is at the heart of the Purdue lawsuit.

Thousands of Purdue plaintiffs, including states, local governments, tribes and individuals, have waited years for settlement funds, the value of which diminishes as litigation costs increase and time passes. As the Sacklers ramped up their offers, even the last handful of states that had blocked the deal relented. The bankruptcy court is ultimately a marketplace of crass pragmatism.

By the time the U.S. Court of Appeals for the Second Circuit heard the appeal, the Sacklers’ $6 billion was on the table, and a majority of the parties had signed on. One notable objector: the US Trustee Program.

The objection was that if the deal was approved, the Sacklers would get the benefits of bankruptcy, such as eliminating all Purdue opioid-related lawsuits, without the costs. People who would still want to prosecute individual family members in civil court would not be able to do so without being given the opportunity to intervene. The American trustee argued that their constitutional rights to a fair trial would be summarily extinguished.

At this point in the Purdue lawsuit, the Justice Department, along with a handful of other plaintiffs, is largely alone in emphasizing these principles. Tribes, states, local governments, and people suffering from the opioid crisis must address urgent costs.

What does the plan offer states, local governments and tribes?

Under the deal, Purdue would pay $1.2 billion for the settlement immediately after bankruptcy, with millions more expected in the coming years. The Sacklers would pay up to $6 billion over eighteen years, including nearly $4.5 billion in the first nine years.

Under an agreement with tribal claimants, all 574 federally recognized Native American tribes are eligible to receive payouts from a trust worth about $161 million.

Each state, along with its local governments, has devised a formula for distributing the Purdue money. But everyone should follow the guidelines for its use: that it should be largely applied to initiatives designed to alleviate the opioid crisis, including addiction treatment and prevention.

What about individual victims?

Under the current plan, a $700 million to $750 million fund would be created for individual victims and families of people who became addicted to OxyContin or died of an overdose.

Approximately 138,000 claimants filed claims; The payments are expected to range from about $3,500 to $48,000. Guardians of about 6,550 children who experienced withdrawal symptoms from drug exposure in utero could receive about $7,000 each. Although the payouts are small, the Purdue plan is one of the few opioid settlements nationwide that sets aside money for individuals.

What happens to Purdue if the plan is approved?

Purdue Pharma, which introduced OxyContin in the late 1990s and aggressively marketed the drug, would cease to exist. The assets would be transferred to a new company called Knoa Pharma. That company, which would be owned by creditors, would produce addiction treatment and opioid reversal drugs on a nonprofit basis. Knoa would continue making opioids such as OxyContin and non-opioid drugs, with profits going to the settlement funds.

Purdue, which no longer markets the opioids it produces, is overseen by an independent regulator. The Sacklers have been off the board since 2018.