(Note: Information on how to listen to this hearing today is at the end of the report.)
On Monday, the Supreme Court examines a $40,000,000,000 (trillion) fight over legal blame for the quarter-century-long epidemic of drug addiction and deaths due to opioid overdose. The federal government took the case to the Court to try to prevent the cancellation of tens of thousands of claims against a large drug company and its former private owners.
The outcome turns on the legality under federal bankruptcy law of a massive corporate reorganization plan for the drug company, Purdue Pharma L.P., a lengthy list of its affiliates, and the grandly wealthy Sackler family, who have given up ownership of the firm.
Today’s hearing: William K. Harrington, U.S. Bankruptcy Trustee, v. Purdue Pharma, L.P.
Background on opioids and the epidemic: The latest data from the U.S. Centers for Disease Control and Prevention showed that, in a single recent year, nearly 107,000 people in the U.S. died from a drug overdose, and opioid abuse was the cause for more than 80,000 of those deaths – about 75 percent. The opioid epidemic began in 1999. The CDC calculates that there were about 645,000 deaths from opioid overdose through the year 2021. The epidemic continues.
Opioid drugs are now recognized as the most effective pain relievers available. A derivative of opium (from the poppy plant), its laboratory identity is oxycodone hydrochloride. (A much stronger, synthetic version is fentanyl.) Opioids ease pain in a way similar to morphine, depressing the central nervous system by acting on the spinal cord, the brain or body tissues. Doctors prescribe oxycodone for both episodic and chronic pain.
The problem with oxycodone, since it entered the market in 1996, is that it “has a high abuse potential,” according to one study, which added: “Most individuals who abuse oxycodone seek to gain the euphoric effects, mitigate pain, and avoid withdrawal symptoms.”
In the U.S., the central corporate figure in marketing oxycodone has been Purdue Pharma L.P., based in Stamford, CT. It introduced its oxycodone product under the brand name OxyContin in 1995, and won federal government approval to put it on the market the next year. The government found it safe and effective for pain relief.
Purdue Pharma was founded 131 years ago by two doctors in New York City. It originally made earwax removal and laxatives. In 1952, it was sold to the families of Richard and Mortimer Sackler. Ultimately, they turned Purdue into an aggressive marketer of oxycodone and fentanyl. (The Sackler regime’s reputation has suffered greatly from its role in the opioid epidemic. One vivid illustration of that came four years ago when Purdue University in Indiana felt the need to publicly declare that it “is not and has never been affiliated in any way with Purdue Pharma.” The University asked journalists to include that disclaimer in any story they wrote about the drug company.)
The first wave in the opioid epidemic began in 1999, and accelerated each year after that. Purdue Pharma’s OxyContin was originally prescribed in tablets of 80 milligrams or less, typically taken two to four times a day. In 2000, Purdue Pharma developed a tablet of 160 milligrams, in a slow-release form that it promoted as lasting for 12 hours. One study of the drug in that form found that “the strength, duration and known dosage of OxyContin are the primary reasons the drug is attractive to both abusers and legitimate users.”
What has caused profound legal trouble for Purdue Pharma were its marketing techniques, and the effects those were found to have in worsening the epidemic. It chose to market the drug primarily through an army of primary-care doctors, paid for their role in a campaign to make OxyContin widely and quite easily available. It sent musical discs to doctors, urging them to “Get in the Swing with OxyContin.” The company’s agents told prescribing doctors that only patients who had an “addictive personality” would become dependent upon it.
In appealing this case to the Supreme Court, the Biden Administration’s Justice Department told the Justices that Purdue Pharma, “under the Sackler’s leadership” had “aggressively marketed OxyContin to doctors and pain patients while downplaying the risks of addiction. But many patients who had been prescribed OxyContin became addicted to the drug. Many other people began using OxyContin recreationally.”
The legal response to the epidemic: In time, the epidemic turned into what lawyers call a “mass tort” – a devastating event due to widespread wrongdoing, harming a broad swath of the population. In this instance, the epidemic led to a steadily building pile of lawsuits: 3,000 cases against Purdue Pharma and affiliates, and more than 400 against members of the Sackler family. The epidemic also led to criminal charges by the Justice Department against the company, leading to a guilty plea in 2020 and a financial penalty of $225 million.
The many lawsuits against the company and the family, by private individuals and by all of the 50 states and a variety of local governments, raised many legal claims, including fraud, gross negligence, deceit and concealment, public nuisance, and unjust enrichment. Evidence in the Supreme Court case shows that, together, those lawsuits sought $40 trillion overall. These are the cases that now are at risk of being scuttled by the case the Court will hear on Monday.
Although there was no certainty that those lawsuits, if tried, would lead to verdicts in that staggering amount, the prospect of financial ruin led the family to withdraw money from the company. Beginning in 2007, the company distributed $11 billion to the Sacklers, amounting to 75 percent of the company’s total assets. Much of that wound up in overseas accounts, insulating it from the legal claims in the U.S.
Details of the bankruptcy: The next move in the legal saga came in 2019, with Purdue Pharma and some of its affiliates filing for bankruptcy, under what is known as “Chapter 11.” Like much of bankruptcy law for those deeply in debt and facing financial ruin, Chapter 11 is designed to provide a fresh start, and it is used mostly by troubled business firms. It allows the firm to stay in business.
Under that chapter, the company must put up all of its assets, and work out a reorganization plan that allows for the orderly payment to at least some of the firm’s creditors. One real advantage of this provision is that, at the exact moment that a bankruptcy case is filed, the court automatically blocks any and all lawsuits seeking money from the firm. A reorganization plan is to ultimately work out how much, if anything, suing creditors will receive.
The quite unusual feature of the Purdue Pharma case – and this is at the heart of the Supreme Court case — is that the Sackler family, though they, too, were facing deep debt as targets of all of those lawsuits, did not join in the bankruptcy case. Had the Sacklers done so, of course, all of their assets would have been at stake, and they could not be released from personal liability to any creditors they had defrauded.
Instead of joining their firm in the bankruptcy case, the family worked out a settlement between the company and some of those who had sued and some other creditors. Under the plan, the Sacklers would give up control of Purdue Pharma and it would be reorganized into a company using its remaining assets to pay for ways to ease the opioid epidemic. However, opioid victims, even those who had catastrophic injuries or lost relatives to OxyContin overdose, would get somewhere between $3,500 and $48,000, stretched out over years and subject to strict requirements of direct proof that they were harmed specifically by Purdue Pharma products.
Because what was left of the company’s assets would not cover the expected cost of the settlement, the Sacklers agreed to put $4.325 billion – paid over ten years – into the reorganization plan. Later, the Sacklers agreed to put in another $1.175 billion. (At the time, the family’s net worth was estimated at about $11 billion.)
In return for that payment and for its part in the reorganization, the family extracted an extremely favorable concession: almost all of the legal claims against the family, Purdue Pharma, and the company’s affiliates would be nullified – without the consent of those who had sued. Benefitting from that legal shield would be many members of the Sackler family, including grandchildren, plus potentially at least hundreds of others involved with the company who, like the Sacklers, had chosen not to file for bankruptcy to manage their potential debts to opioid victims.
That is the concession that led the federal bankruptcy trustee, and some states, to object to the reorganization plan. A special federal bankruptcy judge approved the plan; before doing so, the judge staged a vote on it among the more than 600,000 individuals or firms that had claims, but only 20 percent of those took part. The plan was ruled invalid when appealed to a regular federal trial judge, but was upheld in a split decision by a federal appeals court. That court said that courts handling bankruptcy cases have wide discretion to fashion the terms of reorganization, so long as the methods they chose are not explicitly forbidden by the bankruptcy code.
There is now a split among federal appeals courts on whether the bankruptcy code allows the kind of concession the Sacklers received.
The Supreme Court, at the Justice Department’s request, temporarily blocked the entire Purdue Pharma reorganization plan last August, before it could go into effect. It also granted expedited review of the bankruptcy trustee’s appeal.
The questions before the Court: Under bankruptcy Chapter 11, how much authority does a federal court have to approve a corporate reorganization plan that will wipe out tens of thousands of lawsuits, when those lawsuits are aimed at someone who has remained outside of that case? Is the Sackler family legally shielded against billions of dollars’ in lawsuits arising out of the opioid epidemic?
Significance: Under the Constitution, bankruptcy law is supposed to be uniform across the nation. Congress has been writing laws to carry out that provision since 1800, with a complete rewrite of the code in 1978. The bankruptcy clause’s mandate of uniformity is directly at issue in this case.
The Supreme Court has taken on this extremely high-stakes case, to sort out a conflict among courts over the legality of plans to use the benefits of bankruptcy even while avoiding its obligations, and in the process gaining a fortune’s worth of immunity to creditors’ demands for payment.
In a manner of speaking, one of the Founders, James Madison of Virginia, might have had situations like the Sackler family’s saga in mind in 1788, when he was promoting the ratification of the Constitution. He wrote in one of the Federalist Papers that uniformity in bankruptcy was necessary to “prevent many frauds where the parties or their property may lie or be removed into different states.”
That comes rather close to the Sacklers’ legal maneuvering: taking billions out of the firm, lingering on the sidelines of bankruptcy and thus keeping full control of their assets, including the undisturbed option of putting many of their assets out of the reach of creditors. This tale may well be a perfect study of lawyers’ gamesmanship, abusing the system.
But more is at stake than the legality of those specific maneuvers. The appeals court decision that the Justices are reviewing is based upon an unusually wide interpretation of bankruptcy courts’ powers. If that approach is validated, the chances are that more judges will feel freer to go their own way, and uniformity will be the casualty more often.
And there is still another significant factor: the plan – if implemented – would result in the nationwide frustration of two rights that the Constitution promises to those whose lawsuits will be wiped out: the right to a jury trial in court, and the right to fair procedures (“due process”). The bankruptcy process is not supposed to have that effect.
The reorganization plan does have its defenders, including a committee of creditors. The Supreme Court will hear from all sides.
Today’s hearing will begin at 10 a.m. and is scheduled for one hour. The audio (but not the video) will be broadcast “live” on the Court’s homepage, supremecourt.gov To listen, click on “Live Audio” and follow the prompt when the courtroom scene appears lower on the page. The audio also will be available, under the title of the case, on C-Span TV at this link: cspan.org/supremecourt