Bankruptcy law is all about fresh starts. But just how much of a fresh start does the Sackler family deserve – without having to declare bankruptcy themselves?
The family’s former company, Purdue Pharma, has become synonymous with the U.S. opioid epidemic and filed for bankruptcy in 2019. Plaintiffs harmed by that epidemic came to an agreement with the company that if the Sacklers paid $6 billion to victims and states, the family would be protected from further civil suits, even though they hadn’t personally declared bankruptcy. On Monday, the Department of Justice argued before the Supreme Court that the deal went too far.
At oral argument, Chief Justice John Roberts suggested that Congress would have to pass a law expressly authorizing a bankruptcy court to offer protection from civil suits for defendants in cases like this one. Since the justices seemed to be split between liberals and conservatives, if Roberts can convince at least one other justice of his view, it is likely to determine the outcome of the case.
The factual background here belongs to the realm of mass tort litigation – the realm where private lawsuits can combine with lawsuits brought by state attorneys general to impose liability on companies and people that damage others by failing to exercise reasonable care. Such suits are rarely brought to a jury because the risks – to both sides – are too great.
Instead, these cases typically settle, often through a judgment in bankruptcy. Through complex, multipronged negotiations, the companies agree to enter Chapter 11 and to designate funds to make victims as whole as possible. To give companies and those who own them the incentive to settle, it’s valuable – perhaps in some circumstances, necessary – to promise that they won’t be subject to further suits.
What makes the Purdue case unusual is that the family was able to negotiate a promise that its members – without declaring bankruptcy – would also be immune from future civil lawsuits. Nevertheless, the parties on all sides agreed. The bankruptcy judge in charge of the case expressed his moral discomfort with the deal, but reasoned that the compromise was necessary to bring the case to a close. Then the federal government, acting through a bankruptcy trustee, objected.
Before the Supreme Court, the key legal question is whether federal bankruptcy law authorizes a judge to block potential lawsuits from parties, like the federal government, who didn’t consent to the deal.
In legal jargon, at issue is what’s called, I’m sorry to say, a “nonconsensual third-party release.”
There are complex policy and constitutional issues in play. On one hand, the whole point of bankruptcy is to give creditors and debtors a framework to negotiate a deal that will leave them all better off than if bankruptcy were not an option. The debtors are supposed to get as much of what they could possibly get. The creditors are supposed to be able to move on, pursuant to the agreed-upon terms of repayment. Seen from this perspective, guaranteeing that third parties cannot also sue seems sensible and desirable. Several of the justices, especially those who are generally pro-business, seemed sympathetic to this conclusion.
Yet any time a judicial decision like a bankruptcy order binds a party who isn’t involved in a given case, it raises the question of whether that party’s basic constitutional property rights have been respected. When it’s the government that would bring a civil lawsuit to recover money, it isn’t just property rights that matter, but the public’s interest in seeing justice done. Some of the court’s liberals seemed at least open to the Biden administration’s argument that the bankruptcy deal would improperly block the federal government from seeking further civil action against the Sacklers.
Roberts often finds himself at the court’s ideological center. In oral argument, he quickly suggested that the case should be controlled by his own influential theory, the “major questions doctrine.” That doctrine says, roughly, that when government action would represent a major change from existing legal practices, Congress should have to authorize it explicitly.
If his argument prevails, it would represent a meaningful extension of the major questions doctrine – and it would mean that the immunity provision of the Purdue deal would have to be scrapped absent new lawmaking action by Congress. Roberts would have to build a coalition including at least one conservative, however, so it is far from clear what will happen.
But one effect of a decision on major questions grounds is that the court could skirt the case’s grand questions of policy and principle, saying they are matters for Congress. That outcome seemed to appeal to Justice Brett Kavanaugh, who likes to argue for judicial restraint on controversial political issues. If that’s how the case plays out, the Purdue saga is far from over.
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