SCOTUS rules corporate offenders can't dodge lawsuits with bankruptcy filings

The US Supreme Court rejected Purdue Pharma’s $6 billion opioid settlement, a move that will likely limit the ability of corporate wrong-doers to use the bankruptcy system to wiggle out of litigation. 

Purdue, the maker of Oxycontin, is widely blamed for spurring the opioid crisis by deceptively marketing and aggressively pushing addictive prescription painkillers. Six Sackler family members have served on the company's board, including its chairman, Richard Sackler.

Under growing scrutiny and up against mounting litigation, the company filed for bankruptcy in 2019. Bankruptcy is an appealing way to end mass litigation because it allows a company to end claims all at once and get immunity from future claims so long as a majority of stakeholders agree to it.

Johnson & Johnson, for one, has tried several times to resolve its talc lawsuits through a so-called "Texas Two-Step" bankruptcy. However, it has been repeatedly told by judges that it's a healthy company with no business seeking bankruptcy protection.

But the question before the court was whether that benefit of immunity should extend to third parties, in this case the Sackler family. In a 5-4 decision, the high court decided it doesn't.

The ruling could mean that kind of immunity isn't on the table for future settlements that involve thousands of victims. What might be the next case where this plays out is a $2.46 billion bankruptcy settlement with Boy Scouts of America, in which a minority of childhood sex abuse victims want to retain the right to sue groups that ran local scouting programs.

In the Purdue settlement, the Sacklers would pay $6 billion (compared to the $11 billion they paid themselves between 2008 and 2016) and get immunity from being sued in the future. Victims would be eligible for at least $3,500 with a ceiling of $48,000, before legal fees.

While the majority of victims were in favor of the settlement, about 5% didn’t want to give up the right to sue the Sacklers. The majority of the Supreme Court, led by Justice Neil Gorsuch, ruled that they can’t be forced to. 

The dissenting justices, led by Justice Brett Kavanaugh, argued that rejecting the settlement is delaying relief for more than 100,000 victims, many of whom lost loved ones decades ago.

But the majority points out that now the Sacklers will now have to fight to convince every victim that they deserve immunity, likely resulting in a higher settlement amount.