A DIFFERENT POINT OF VIEW: Supreme Court Rejects the Sackler Family’s Bankruptcy Plan

If I were the President of this land,
I’d declare total war on the pusher man
I’d cut him if he stands, and shoot him if he runs,
I’d kill him with my bible, my razor, and my gun.
Goddamn the pusher man…

— from ‘The Pusher’ by Hoyt Axton, 1968

I had an in-law, now deceased, whose life was ruined by drug addiction. As any family with a similar experience knows, the damage caused by addiction extends to other family members as well, sometimes for the rest of their lives. It’s a natural reaction of those impacted by the evils of drug addiction to direct their anger at whomever sold drugs to the addict.

So it was with personal satisfaction that I read the recent decision by the United States Supreme Court that, in a sense, facilitates holding some pushers accountable for the carnage they wrought.

In this case, the “pushers” were a family who made billions of dollars through their ownership of a pharmaceutical company that manufactured and sold Oxycontin (Oxy).

But this wasn’t a criminal matter. Far from it. It’s about bankruptcy. The case, Harrington v Purdue Pharma, required the Court to interpret a federal bankruptcy statute.

The facts are these:

Between 2007, and 2016, Purdue earned approximately $35 billion (with a ‘B’) from the manufacture and sale of Oxy. In doing so, Purdue engaged in what was subsequently determined to be deceptive representations to health-care providers about the drugs’ pharmacologic properties.

The Pusher don’t care — if you live or if you die…

Purdue’s deception came to light when one of its affiliates was convicted of falsely claiming Oxy is “‘less addictive’” and “‘less subject to abuse . . . than other pain medications.’”.

After that conviction, Purdue was inundated with lawsuits from addicts and their families.

Purdue is not a publicly owned corporation. It’s privately owned by the Sackler family. When the lawsuits started, the Sacklers began withdrawing funds from Purdue — stashing them in shell companies and off-shore accounts. Eventually the family members withdrew $11 billion (with a ‘B’).

Stripped of most of its working capital by the Sackler family, Purdue then filed for ‘reorganization’ under Chapter 11 of the federal bankruptcy law. This ultimately lead to the decision by the Supreme Court.

Under Chapter 11, the bankrupt entity (Purdue in this case) submits a proposed plan of how it will reorganize itself — and an accounting of its assets. The plan must also identify creditors — including those with lawsuits against the entity — and how much might be owed to them.

In Purdue’s case, that plan included establishing a fund to pay Oxy victims.

Under Chapter 11, a proposed reorganization plan must be presented to the creditors for their review and, if they agree with the plan, it is submitted to the bankruptcy judge. If that judge approves the agreed-to plan, it becomes the final settlement of the bankruptcy.

Purdue submitted a proposed plan which, even though not agreed to by those pursuing Oxy lawsuits , was nevertheless approved by the bankruptcy judge — in part because the Sackler family returned about $4 billion (with a ‘B’) of the $11 billion (with a ‘B’) to Purdue — to be available to settle lawsuits.

Damn generous of the drug pushers to give back about 35% of their ill-gotten profit, to those whose lives were destroyed by their product.

But the plan was even more generous — to the Sacklers. It included a provision that exempted them from being personally sued for the ravages of Oxy. In short, they would get to keep most of their profits (about $6 billion – with a ‘B’) and would be protected from the personal financial consequences of fraudulently marketing Oxy that resulted in untold damage to addicts and their families.

If you don’t think that’s fair, neither did the people suing Purdue — and they appealed the bankruptcy judge’s approval of the plan. Nor did the Supreme Court.  They ruled that the bankruptcy judge had no legal authority to approve such a sweetheart deal for the Sacklers.

In a previous column, I mentioned that ‘statutory interpretation’ (SI) is how justices on the Supreme Court spend most of their time.  Purdue Pharma was a SI case — and the Supreme Court referred to a canon (rule) of SI called ejusdem generis (of the same kind) in deciding the case.

Ejusdem generis means “that where general words or phrases follow a number of specific words or phrases, the general words are specifically construed as limited and apply only to persons or things of the same kind or class as those expressly mentioned.” In this case that canon was applied to Section 1123(b) of the federal bankruptcy statute.

That statute reads:

(b) Subject to subsection (a) of this section, a plan may—

(1) impair or leave unimpaired any class of claims, secured or unsecured, or of interests;

(2) subject to section 365 of this title, provide for the assumption, rejection, or assignment of any executory contract or unexpired lease of the debtor not previously rejected under such section;

(3) provide for—

(A) the settlement or adjustment of any claim or interest belonging to the debtor or to the estate; or

(B) the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any such claim or interest;

(4) provide for the sale of all or substantially all of the property of the estate, and the distribution of the proceeds of such sale among holders of claims or interests;

(5) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims; and

(6) include any other appropriate provision not inconsistent with the applicable provisions of this title.

The bankruptcy judge could approve Purdue’s reorganization plan — that allowed the Sacklers to keep their billions (with a ‘B’) while avoiding lawsuits — without the agreement of the lawsuit creditors only if 1123(b) authorized such a plan. The Sacklers argued, and the bankruptcy Judge agreed, 1123(b) gave him that authority.

Those wanting to sue, to get at the Sackler’s billions (with a ‘B’) of personal profits, disagreed that the statute gave such authority to the judge. This was a straight forward case of SI for the Supreme Court to decide.

The Court held that nothing in the language of subsections (1) thru (5) gave the bankruptcy judge authority to protect the Sacklers from lawsuits — which left subsection (6) as the only possibility. That’s where the canon ejusdem generis comes in to the play.

Following that canon, the Court said the “any other appropriate provision” phrase in (6) is “general” language that “follows a number of specific words or phrases” in (1) thru (5), and was therefore “limited and apply only to persons or things of the same kind or class as those expressly mentioned” in (1) thru (5). Since there was nothing in the language of (1) thru (5) that applied to the Sacklers (that language applied only to Purdue — the bankrupt entity), the language in (6) didn’t apply to the Sacklers either.

The Supreme Court held, in essence, that the Sacklers can’t plunder Purdue, then use the resultant bankruptcy reorganization plan to insulate themselves personally from Oxy lawsuits, without the agreement of those doin’ the suin’

This case illustrates that what some would call “legal technicalities” — such as the canons of SI — are not just intellectual exercises that lawyers engage in. They are tools that are used by judges to address issues that affect real people in the real world.

In this instance, a tool used to prevent a family (who enriched themselves selling an addictive drug) from evading the legal consequences of their greed.

Goddamn the Pusher-man…