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Eight members of the Sackler family, including Richard, Jonathan, Mortimer, Kathe, David, Beverly, and Theresa, face lawsuits from numerous American cities, counties, and states. Pictured (left to right) are Dr. Thomas Lynch, Richard Sackler, Jonathan Sackler, and Dean Robert Alpern; seated are Mr. and Mrs. Raymond and Beverly Sackler.
The recent decision by the U.S. Supreme Court in the Purdue case significantly restricts strategies available to defendants in mass torts. The ruling clarifies that under federal bankruptcy law, the billionaire Sackler family cannot shield themselves from all lawsuits related to Purdue Pharma’s Chapter 11 bankruptcy.
While the Court didn’t directly address the Texas Two-Step maneuver—a tactic where healthy parent companies use a subsidiary’s bankruptcy to settle mass tort claims—it has profound implications.
Legal experts agree the Purdue decision compels companies facing mass tort liabilities to reconsider the viability of the Texas Two-Step. This tactic allows parent firms to manage liabilities without declaring bankruptcy themselves, utilizing their subsidiary’s bankruptcy process to negotiate comprehensive settlements. However, the Supreme Court’s stance now prevents bankrupt entities from forcing plaintiffs to release claims against non-bankrupt parties, such as parent companies or their owners, without their consent.
Justice Gorsuch emphasized the limits of bankruptcy courts, highlighting that only in specific scenarios, like asbestos-related cases governed by distinct rules, can non-debtors be compelled to release claims. This nuance underscores that the broader application of the Texas Two-Step, especially outside asbestos contexts, may face substantial hurdles post-Purdue.
The decision’s impact extends beyond theoretical discussions, particularly affecting non-asbestos companies contemplating similar strategies. Previously touted for its efficiency in resolving future claims, bankruptcy’s attractiveness diminishes if it can’t shield parent companies from litigation. This aspect poses a significant challenge for defendants seeking structured settlements amid uncertain future liabilities.
Despite these setbacks, some defendants may still view bankruptcy court as a preferred venue for negotiating settlements, albeit now requiring consent from a significant majority of plaintiffs. This could lead to higher costs but may still offer advantages over fragmented litigation across multiple jurisdictions.
In essence, while the Purdue decision refines the landscape for mass torts defendants, it does not eliminate bankruptcy as a potential avenue for resolution. The ruling’s practical implications compel companies to carefully weigh their options in navigating complex mass tort liabilities moving forward.
For more information on this topic, please contact the authors.
