A recent U.S. Supreme Court decision has thrown a wrench in the use of bankruptcy to settle extensive lawsuits. The ruling against OxyContin manufacturer Purdue Pharma’s Chapter 11 settlement significantly limits courts’ power to dismiss legal claims against entities that haven’t filed for bankruptcy.
Mass Litigation and Bankruptcy Tools
Bankruptcy courts have been pivotal in settling large-scale tort cases, such as those involving sexual abuse allegations against Catholic dioceses and the Boy Scouts of America, the opioid crisis, and claims that consumer products cause cancer. The proceedings halt ongoing litigation, provide a chance for reorganization or settlement, and can bind holdout claimants. Additionally, bankruptcy allowed for non-debtor releases, giving legal immunity to entities contributing to settlements despite not filing for bankruptcy.
Purdue Pharma’s Controversial Settlement
The Supreme Court’s ruling disallowed non-debtor releases, stating U.S. bankruptcy law does not permit courts to release claims against non-debtors without plaintiffs’ consent. Purdue’s proposed settlement would have shielded its wealthy owners, the Sackler family, from lawsuits while contributing up to $6 billion to address the opioid crisis.
Implications for Future Mass Tort Resolutions
This decision forces reliance on alternative strategies, such as consolidating cases in federal multidistrict litigation or enduring numerous trials. Critics argue this could reduce compensation for victims, as non-debtors like the Sacklers might withhold funds without legal protections.
Dissenting Opinion and Broader Impact
Justice Brett Kavanaugh, dissenting, emphasized the importance of non-debtor releases in managing mass-tort bankruptcies, citing the Purdue settlement as a prime example of effective resolution. Without such protections, he warned, victims risk losing substantial funding.
Alternatives to Bankruptcy
Mass torts have been resolved outside bankruptcy, as seen with 3M’s $6 billion settlement over defective earplugs after its subsidiary’s bankruptcy was dismissed. Advocates suggest bankruptcy courts offer a superior forum by pooling assets for claimants, but this ruling challenges that approach.
Future Legislative and Legal Debates
Justice Neal Gorsuch, writing for the majority, acknowledged potential for the Sacklers to increase their contribution to appease holdout litigants. He stressed that such financial debates belong in legislative arenas, reinforcing the law’s current stance against non-debtor releases.
This landmark ruling reshapes the landscape for mass litigation, steering future cases away from bankruptcy resolutions and towards alternative legal avenues.
