Purdue Pharma's Trust Strategy: Supreme Court Reviews Restructuring Amidst Opioid Crisis

The Supreme Court is set to examine Purdue Pharma's proposed restructuring, the opioid company that sought bankruptcy in 2019. This move may change a four-decade method for managing vast legal liabilities from large-scale lawsuits.

The Supreme Court temporarily suspended a multi-billion-dollar bankruptcy agreement involving Purdue Pharma. 

This arrangement would insulate the company's Sackler family owners from civil lawsuits linked to the opioid epidemic.

The tactic dates back to Johns Manville, a prominent asbestos firm that declared bankruptcy in 1982 due to myriad lawsuits. Despite bankruptcy laws permitting restructuring of present claims, many claimants wouldn't fall ill until years post-bankruptcy. 

These claimants had potential lawsuits against not just Johns Manville but also against its insurers and leadership, the Wall Street Journal noted. Typically, these suits would be separate from the bankruptcy process.

Johns Manville crafted a solution: it set up trusts for victim benefits, funded mainly by the company's worth, ensuring all compensation came through these trusts.

This method—redirecting victims to a trust while safeguarding potential defendants—was adopted in litigation involving breast implants, faulty airbags, and allegations against the Boy Scouts and USA Gymnastics.

Purdue Pharma adopted this approach.

Controversies arose since the major beneficiaries were Purdue Pharma's founders, the Sackler family. To shield the Sacklers from future litigations, they would contribute $6 billion. 

The U.S. Trustee criticized this deal, arguing it enabled influential entities to exploit the bankruptcy system. Despite criticism, the Sackler agreement is pragmatic. 

Without it, victims might face prolonged litigation. Given the Sacklers' significant offshore holdings, even victorious claimants might not secure the full $6 billion. Lawyers could be the only ones benefiting.