The Sacklers Did Not Get Away With It

A Divided Supreme Court Upends the Purdue Bankruptcy Plan

A 5-4 split Supreme Court delivered a little predicted - but much hoped for - decision today that rejected personal liability protection for the Sackler family owners and directors of Purdue Pharma. It was that much-contested provision that was at the heart of the multi-billion-dollar Purdue Bankruptcy plan.

Four conservative justices (Gorsuch, Thomas, Alito, and Barrett) were joined by Ketanji Brown Jackson in a bipartisan majority.

Today’s decision is a major corrected to the bankruptcy law that has long been abused, particularly by drug companies and their wealthy owners.

Gaming bankruptcy is nothing new for the pharmaceutical industry. The precedent was set in 1985 by the A.H. Robins Company, the manufacturer of the Dalkon Shield, an IUD contraceptive device. About 3.5 million women in dozens of countries had the Dalkon Shield. The FDA and Robins had started getting reports in 1970 of serious pelvic infections, blood poisonings, and a laundry list of gynecological complications. However, the company did not suspend sales for another four years. Robins instead declared bankruptcy after 200,000 women had sued for damages. The litigation charged that the Robins family, the company’s owners, had fraudulently concealed information about their IUD’s adverse effects. None of the rich Robins family filed for bankruptcy protection.

Instead, the Robins family asked the bankruptcy court for an unprecedented accommodation: they would contribute some money to an overall settlement plan so long as the bankruptcy court discharged them of all liability. The court went along and set the legal precedent the Sacklers followed decades later. The releases obtained by the Robins family went so far as to prohibit some injured women from suing their doctors for medical malpractice claims.

OxyContin, Purdue Pharma, and the Sackler family, were at the heart of my 2020 history of the American pharmaceutical industry, PHARMA. After its publication, I wrote about how the Sacklers were trying to take advantage of the unwarranted precedent in U.S. bankruptcy law. I highlighted the issue in a May 2020 Los Angeles Times OpEd: “What sets Purdue’s bankruptcy apart is that Judge Robert D. Drain of the U.S. Bankruptcy Court in White Plains, N.Y., extended the no-litigation shield to eight members of the Sackler family, which owns the company . . . . The Sacklers have benefited from the arcane and opaque nature of bankruptcy proceedings. They have ostensibly converted the court’s protective order into an ‘injunction to evade.’”

In a July 22, 2020, in a New York Times OpEd titled “The Sacklers Could Get Away With It,” written with Ralph Brubaker, a bankruptcy law professor, we said: “In a bankruptcy filing, debts are forgiven — ‘discharged,’ in legal terms — after debtors commit the full value of all of their assets (with the exception of certain types of property, like a primary home) to pay their creditors. That is not, however, what the Sacklers want, and indeed the members of the family have not filed for bankruptcy themselves.

What they propose instead is to be shielded from all OxyContin lawsuits, protecting their tremendous personal wealth from victims’ claims against them. What’s more, a full liability release would provide the Sacklers with more immunity than they could ever obtain in a personal bankruptcy filing, which would not protect them from legal action for fraud, willful and malicious personal injury, or from punitive damages.”

Our conclusion was blunt; “At stake is whether there will ever be a fair assessment of responsibility for America’s deadly prescription drug epidemic. Protection from all OxyContin liability for the Sackler family would be an end-run around the reckoning that justice requires.”

The Purdue bankruptcy judge, Robert Drain, was infuriated by that editorial. In open court he called me a “misinformed reporter,” and denigrated me and Brubaker as a “numbskull,” even an “idiot.” Drain complained that the New York Times had run the piece as “click bait.”

In December 2020, in another New York Times Oped, “The Sacklers’ Last Poison Pill,” written with bankruptcy professor, Jonathan Lipson, we called on the Department of Justice to challenge the bankruptcy plan. Our conclusion was: “For many victims of the opioid crisis, and the legitimacy of the bankruptcy system itself, the ‘it’ here — a plan that exonerates the Sacklers without any meaningful disclosure or accountability — may be Purdue’s most poisonous pill.”

While I always hoped that the Supreme Court might do the right thing and invalidate the litigation releases for the Sacklers, I thought it unlikely. Although the Sacklers were walking away from the deal with billions in OxyContin profits, courts are reluctant to interfere with complicated settlements that have taken years to craft. Rejecting the Sackler releases means that years of litigation are ahead for many victims. And, without the upwards of $6 billion in Sackler family funds that were set aside for the overall settlement, it is likely the entire bankruptcy might fall apart. That would greatly disappoint the majority of individual victims, states, and Native American tribes, who had voted to approve the plan. It could delay some urgently needed money needed for recovery and harm reduction. In a statement released this morning by the Sacklers, the family played to this fear: “The unfortunate reality is costly and chaotic legal proceedings in courtrooms across the country.”

However, victims should not have to settle for a bad deal to close the chapter on the lethal legacy of OxyContin. The Sacklers, who became one of America’s richest families, should not be able to abusing the system and walking away with billions in Oxy profits. The Supreme Court has made a tough decision. It would be less unsettling to many parties if it had just rubber-stamped the existing bankruptcy deal. To the Court’s credit, it opted for the right decision and opened the door to some 11th-hour justice.

Now, victims again have a real opportunity to make the Sacklers pay for igniting and fueling America’s deadliest prescription drug epidemic.