The U.S. Supreme Court has issued a temporary halt to the ongoing bankruptcy proceedings of Purdue Pharma, the manufacturer of OxyContin, and has scheduled oral arguments for the case in December. This decision comes amid a circuit court split regarding the matter, prompting the U.S. Solicitor General, Elizabeth Prelogar, to request the intervention of the high court.
Prelogar’s petition pointed out that the Sackler family, the billionaire owners of Purdue Pharma who recently relinquished control of the company, had withdrawn $11 billion while seeking to shield family members from liability. The Biden administration has termed the arrangement between Purdue Pharma and the Sackler family as “unprecedented.” Officials raised concerns about litigation releases in the bankruptcy reorganization plan that aimed to protect the Sackler family, who have been criticized for their role in the ongoing opioid epidemic in the United States.
In May, the U.S. Appeals Court for the Second Circuit ruled that the Sacklers could be shielded from future opioid lawsuits as part of the bankruptcy plan. This decision stands in contrast to rulings from the Fifth, Ninth, and Tenth circuit courts, creating a split on the issue. The question at the heart of this matter revolves around whether bankruptcy courts can approve releases that extinguish claims held by non-debtors against non-debtor third parties without the claimants’ consent.
“The parties are directed to brief and argue the following question: Whether the Bankruptcy Code authorizes a court to approve, as part of a plan of reorganization under Chapter 11 of the Bankruptcy Code, a release that extinguishes claims held by nondebtors against nondebtor third parties, without the claimants’ consent,” the Supreme Court wrote in its order granting the petition to hear the case.
The decision by the Supreme Court to temporarily halt the proceedings and take up the case reflects the significant legal and ethical questions surrounding the Sackler family’s involvement in Purdue Pharma’s actions and the concerns over the extent of liability protection provided in bankruptcy proceedings. This case has far-reaching implications for how such litigation releases are handled in the context of bankruptcy reorganization, and it underscores the complexities of balancing the interests of claimants, debtors, and third parties.