Legal Docket: Bankruptcy overdose

NICK EICHER, HOST: It’s The World and Everything in It for the first day of January, 2024. We’re so glad you’ve joined us today. Good morning! I’m Nick Eicher.

MARY REICHARD, HOST: And I’m Mary Reichard. Happy New Year to you!

EICHER: Happy New Year to you!

REICHARD: Well, it’s good to return to our regular coverage of oral arguments at the U.S. Supreme Court.

But first, an early decision. It came in December, an opinion in the case of Acheson Hotels, LLC v Laufer.

That involved a disabilities activist who checks hotel websites for compliance: she checks to determine whether they post information about handicap accessibility. If not, she sues the hotel under the ADA, the Americans with Disabilities Act.

She’s sued hundreds of hotels in this way, including Acheson Hotels.

EICHER: In this Supreme Court case, Acheson disputed the woman’s legal standing to sue. After all, she never intended to book a room or visit the premises.

And before the dispute even made it to the Supreme Court, though, she’d dismissed the case. The hotel had new owners. So what dispute was left?

You could hear the eventual ruling in this comment from Justice Elena Kagan. Here she is during oral argument:

JUSTICE KAGAN: But when you look at a case that’s dead as a doornail several times over. The defendant's website, everybody agrees, is now in compliance with the ADA. So this is, like, dead, dead, dead in all the ways that something can be dead.

REICHARD: The unanimous decision sends the case back to lower court with instructions to—you guessed it—dismiss the case as moot, moot, moot.

Alright, now on to oral argument in the biggest bankruptcy case in years: the case of Harrington v Purdue Pharma. This case grows out of the deadly opioid crisis.

The day of the argument, the case attracted protesters outside the Supreme Court.

PROTERSTERS: Sacklers lie! People die!

Sound from NBC:

PROTERSTERS: Sacklers lie! People die!

EICHER: Protesters singling out the family that owns Purdue Pharma, the Sackler Family. Purdue makes OxyContin, the painkiller widely blamed for fueling the opioid epidemic.

The Sackler family is accused of profiting off the addictive nature of the drug, all the while aggressively marketing it and downplaying the risks.

This protester says he lost his son because of opioids.

FATHER: I came here today because I lost my son Eddie in Philadelphia in 2001. All the parents want justice. The Sacklers want all the benefits of bankruptcy without being in bankruptcy. Well, my dead son does not release them. And I don’t release them.

There’s a lot of anger against Purdue and the Sackler family, but it’s also fair to mention other parties involved in pushing opioids.

The federal Food and Drug Administration, for example. It approved OxyContin in the 1990s. The American Pain Society, now defunct, campaigned to promote opioids. The Joint Commission added its support. As did the Centers for Medicare and Medicaid Services: its support was financial. The government rewarding physicians for writing prescriptions.

REICHARD: Meanwhile, the Sackler family earned billions of dollars from OxyContin sales.

Then came the stories of addiction and death. Hundreds of thousands of stories. And myriad lawsuits followed, alleging the Sacklers knew of OxyContin’s addictive nature and yet pushed hard its use.

EICHER: Along the way, the Sacklers took money out of the company and placed it into trusts and holding companies. By 2019 Purdue filed for bankruptcy, Chapter 11, the kind that reorganizes a company.

Under the bankruptcy plan the Sacklers have to give up ownership of Purdue Pharma, settle with a subset of claimants, and put up to $6 billion toward fighting the opioid crisis.

Tracking all the moving money here is pretty complicated, but it’s not important to understand it, to grasp the legal question presented. For our purposes today, what’s important is the question of liability and where it ends.

The controversy is around the provision that wipes out victims’ lawsuits against the Sacklers — even if those victims didn’t agree to it.

REICHARD: Still, an appeals court approved of it.

That’s when the U.S. Bankruptcy Trustee under the Justice Department stepped in and objected. This overseer among other things represents the interests of the public trust in bankruptcy proceedings.

The Trustee’s lawyer is Curtis Gannon:

GANNON: The court of appeals approved a Chapter 11 reorganization plan that will release claims that Purdue Pharma's creditors have against other non debtors, principally, the Sackler family members who took billions of dollars from Purdue in the years before Purdue's bankruptcy but have not filed for bankruptcy protection themselves and have made only a portion of their assets available to the estate in Purdue's bankruptcy.

Gannon argued the release of the Sacklers goes far beyond the statute’s language and intent. The release lets the Sacklers out of liability for alleged violations that bankruptcy has never permitted. For example, fraud or other willful violations.

EICHER: But lawyers for Purdue and the Sackler family argue this release is not only lawful but sensible. Listen to Gregory Garre, lawyer for Purdue:

GARRE: If the Trustee succeeds here, the billions of dollars that the plan allocates for opioid abatement and compensation will evaporate. Creditors and victims will be left with nothing, and lives literally will be lost. Nothing in the code commands that tragic result.

“Left with nothing” is precisely the worry of some of Purdue’s creditors—particularly unsecured creditors. Their lawyer Pratik Shah supports the bankruptcy plan as an alternative to suing piecemeal, victim by victim.

PRATIK SHAH: I think this is critically important. Whatever is available from the Sacklers, whether that's 3 billion, 5 billion, 6 billion, 10 billion, there are about $40 trillion in estimated claims. As soon as one plaintiff is successful, that wipes out the recovery for every other victim. That is why the victims insisted on this release. As soon as one plaintiff is successful, they get the recovery, every other victim gets exactly zero dollars. That is the most fundamental point I think to understand. That is why 97 percent of the victims agreed to this nonconsensual release. They have no love lost for the Sacklers.

REICHARD: For the justices, the question is a dry, legal one: does the Bankruptcy Code allow an agreement that cuts out current and future claims by victims without their consent while also shielding the Sacklers from further civil liability?

You can hear the justices grappling with that. First, Justice Elena Kagan addressing lawyer Gannon for the Trustee who objects to the plan:

JUSTICDE KAGAN: It's overwhelming, the support for this deal, and among people who have no love for the Sacklers, among people who think that the Sacklers are pretty much the worst people on earth, they've negotiated a deal which they think is the best that they can get.

EICHER: Justice Brett Kavanaugh along the same lines:

JUSTICE KAVANNAUGH: I think what the opioid victims and their families are saying is you, the federal government, with no stake in this at all, are coming in and telling the families, no, we're not going to give you payment, prompt payment, for what's happened to your family, and we're not going to -- your -- the federal government's not going to allow all this money to go to the states for prevention programs to prevent future overdoses and future victims and in exchange, really, for this somewhat theoretical idea that they'll be able to recover money down the road from the Sacklers themselves.

Gannon for the Trustee later had a rejoinder:

GANNON: Well, we -- the Trustee has been given this watchdog role and has been told by Congress to participate in these proceedings. And the Trustee does this in hundreds of cases a year, and so our interest is in having the bankruptcy law as a force- enforced appropriately.

Justice Ketanji Brown Jackson pointedly asked Purdue’s lawyer, Garre, about releasing the Sacklers, despite the family taking around $11 billion in profits and putting that money elsewhere:

JUSTICE JACKSON: So Justice Kagan says they're not putting all of their assets on the table. But my understanding is that not only are they not doing that, but most of the assets we're talking about were originally in the company and that they actually took the assets from the company, which started the set of circumstances in which the company now doesn't have enough money to pay the creditors. So even if there was a world in which categorically we -- we wouldn't say you can never do these kinds of releases, why wouldn't this be a clear situation in which we would not allow it?

GARRE: Well, first, the Trustee's position is it doesn't matter on the circumstances.

REICHARD: Garre answered that such a release should be allowed because first of all, 40 percent of the transferred money went to pay taxes. The rest, the bankruptcy court below found, was substantial and fair and the best available plan for the victims. Anything else leaves up in the air actually collecting any money for the victims.

Justice Jackson focused attention back to the Sacklers wanting a certain condition before settling:

JUSTICE JACKSON: Only because the Sacklers have taken the money offshore, right? I mean, it's not like -- it's not like by operation of law it's necessary to do this. It is necessary to do this because the Sacklers have taken the money and are not willing to give it back unless they have this condition.

EICHER: But, it must be noted, even the Sacklers don’t have the $40 trillion in estimated claims pending against Purdue and the family. For perspective: The entire annual Gross Domestic Product of the United States isn’t even $30 trillion, according to the Federal Reserve.

REICHARD: Finally, a back and forth between Justice Kagan and lawyer Shah for the unsecured creditors in favor of the plan. She begins with lawyer Gannon’s argument in favor of abandoning the bankruptcy plan on the table right now that releases the Sacklers from civil liability:

JUSTICE KAGAN: Mr. Gannon suggests that if we rule for him, it actually gives victims greater leverage in this kind of situation.

SHAH: If there's one thing you take away from my argument today, it is this, and let me be crystal-clear: Without the release, the plan will unravel, Chapter 7 liquidation will follow, and there will be no viable path to any victim recovery. The bankruptcy court --

KAGAN: Well, that sounded very emphatic. (Laughter.)

SHAH: Yes. But -- but -- but let me -- it's not just me being emphatic, Justice Kagan.

KAGAN: But I really want to know, like, you know, why?

SHAH: Yes, why.

KAGAN: Because there's something to what Mr. Gannon says. You rule for him, then you have another tool in your toolbox when -- when -- when the people that you represent sit around the table with Purdue and the Sacklers.

Back and forth they went, until Chief Justice Roberts announced:

JUSTICE ROBERTS: The case is submitted.

Whew. Almost two hours of argument!

Other drug manufacturers and distributors of opioids have already settled or gone to trial: among them, Johnson & Johnson, Teva, Cardinal Health, Walgreens, and CVS. But this case is uber significant in size and complexity, and any decision will affect the future of mass litigation like this and bankruptcy proceedings.

And that’s this week’s Legal Docket!

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