Supreme Court to Decide on Unconventional Bankruptcy Maneuver in Public Harms Litigation

Washington, D.C. – In an era of unprecedented civil procedure tactics, corporations facing public harm litigation are increasingly turning to bankruptcy court as an alternative to traditional civil litigation. From the Catholic Diocese and Boy Scouts in abuse cases to Johnson & Johnson’s talc litigation, corporations are leveraging bankruptcy’s special powers to address pending claims that traditional tort litigation has failed to resolve efficiently. The Supreme Court is set to hear Purdue Pharma’s bankruptcy deal, which raises questions about the effectiveness of using bankruptcy court in resolving public health crises and whether it circumvents the legal processes of determining liability.

The central issue in the Purdue Pharma case is whether the Sackler family, owners of the company, can be shielded from civil liability in exchange for a $6 billion contribution to the settlement. This concept, known as a nondebtor release, not only determines the fate of the Sacklers but also highlights the wider question of how far the court is willing to stretch procedural boundaries to resolve mass tort lawsuits. The Supreme Court’s review of this case comes on the heels of a dissenting opinion by Justice Clarence Thomas, who cautioned against sacrificing constitutional protections for convenience in the context of multidistrict litigation.

The backdrop to this case is the court’s stringent criteria for nationwide class-action certification in cases involving public harm, which is why the national opioid litigation was initially pursued as a multidistrict litigation. However, the multidistrict litigation failed to reach a global settlement, leading to Purdue Pharma filing for bankruptcy. By utilizing bankruptcy court, Purdue Pharma gained unique leverage to centralize and resolve its sprawling case encompassing various plaintiffs and defendants nationwide. This approach allowed a sufficient number of plaintiffs to incorporate the Sacklers into the settlement agreement.

Beyond the immediate implications of the Purdue Pharma case, there are broader concerns about the impact on due process and federalism. Allowing parties in tort litigation to bypass the traditional legal process and release liability through bankruptcy court raises questions about the bedrock principle of everyone having their day in court. Additionally, the use of bankruptcy court prevents the elicitation of crucial information from powerful industry defendants, thereby hindering the potential for litigation to contribute to policy reforms addressing public health crises.

Purdue Pharma emphasizes the comprehensive power granted to bankruptcy courts and the urgent need for the settlement funds to support victims and opioid recovery programs. They contend that their bankruptcy plan offers a more efficient pathway to deliver financial assistance to victims promptly. However, the extent to which bankruptcy procedures should mirror trial-like proceedings remains a point of contention. The ability to streamline the process is one of the attractive aspects of bankruptcy court, and although trials can still occur, they are relatively rare.

In weighing the need for global peace in resolving mass torts, the tension arises from the inherent redundancy of a federalist system with separate state and federal court systems. However, the pressure exerted by mass torts and the needs of victims have spurred innovation on both sides of the litigation to seek resolution. The outcome of the Purdue Pharma case will shape the future landscape of public harms litigation and the role bankruptcy court plays in resolving such complex cases.