Sacklers/Purdue: judges do not want perfect to be enemy of good

A federal appeals court just described the US civil legal system thus: “Satisfaction of all [that is] owed — whether in money or in justice — rarely occurs.”

Quite so. The imperfection was illustrated in the rest of the court’s complex opinion. The subject was a settlement between victims of the US opioid crisis and some members of the billionaire Sackler family,

The federal court said it would over-rule a district-court decision disallowing civil liability releases. Some members of the dynasty behind Purdue Pharma had secured the releases by putting around $6bn into a settlement with victims.

The new ruling clears the way for the Purdue bankruptcy to conclude with swift payments to claimants and abatement programmes. It bolsters a system where those accused of wrongdoing can run to bankruptcy court and efficiently manage financial liabilities.

The key issue in the Purdue legal case is whether parties such as the Sackler family members can get the benefits of US Chapter 11 proceedings without themselves filing for bankruptcy.

The same issue features in several “mass tort” product liability bankruptcy cases involving the likes of 3M and Johnson & Johnson. In those two, parent companies attempt to use a subsidiary company to ringfence a bankruptcy. 

The appeals court said it did not matter if there is no explicit statutory provision on non-debtor, third-party releases. Judges still have latitude to accept them in settlement agreement. This is particularly valid in cases like Purdue, which included more than 90 per cent of creditor groups. Victims accepted a deal as the quickest way to get payouts and ensure equitable treatments across groups of claimants. 

Businesses with histories as apparently reprehensible as that of Purdue have latched on to bankruptcy courts to pay off claims under legal protection. Court blessings now put pressure on judges, mediators and creditors committees to apportion accountability justly. Perfect should not be the enemy of good.