Last month’s Supreme Court ruling blocking a proposed settlement of thousands of opioid lawsuits filed against Purdue Pharma gives individual plaintiffs in big bankruptcy cases more say. But the high court’s decision could also complicate other massive, multi-party litigation — including the sexual abuse claims brought against the Catholic Church and the Boy Scouts of America.

Legal experts say the extent of the impact of the Purdue ruling on other bankruptcy cases will depend on where negotiations are in the courts — and whether settlements already have been approved. 

The Supreme Court’s June 27 decision sent Purdue Pharma and its owners — members of the wealthy Sackler family — back to the negotiating table with plaintiffs. 

The rejected deal would have provided a shield for members of the Sackler family, but the high court tossed that, saying that any proposed settlement must obtain the consent of all victims or debtors before a third party can be released from liability. 

Steven Walt, a law professor at the University of Virginia, said the justices have been taking on more bankruptcy cases in recent years.

“There has been recognition by the justices that the bankruptcy code is very important and the present personnel of the court have recognized that business bankruptcies are important,” Mr. Walt said.

The 5-4 decision against Purdue, the maker of the highly addictive OxyContin, upends a complicated deal meant to compensate opioid victims by having the Sacklers transfer some of their billions to the company, then have Purdue declare bankruptcy and begin paying the hundreds of thousands of claims.

The catch was that the bankruptcy judge had to issue an order releasing the Sackler family from further liability, effectively putting much of the family’s wealth outside the reach of future claims.

Justice Neil M. Gorsuch, writing for the majority, said the agreement violates bankruptcy law.

“Describe the relief the Sacklers seek how you will, nothing in the bankruptcy code contemplates (much less authorizes) it,” Justice Gorsuch wrote.

The vast majority of opioid family victims backed the Purdue deal and the imminent cash payout it would have triggered. But the justices ruled that bankruptcy agreements must have consent from all plaintiffs and debtors.

How that plays out for other massive bankruptcy cases is unclear.

Legal experts say that the Boy Scouts of America already had their bankruptcy settlement plan approved by a lower court and although there is a challenge against it pending at the 3rd U.S. Circuit Court of Appeals, payouts have already begun.

The lower court will have to decide if enough of the plan has gone through. If so, the high court’s precedent in Purdue would not apply.

The Boy Scouts of America filed a brief with the justices siding with Purdue ahead of last week’s ruling, arguing the company’s bankruptcy deal from 2023 involves nonconsensual third-party releases, which the high court eventually shot down in ruling against Purdue.

The Scouts were driven into bankruptcy in 2020 amid legal battles over accusations the organization mishandled accusations of sexual misconduct by some chapter officials dating back decades.

The Scouts brokered a deal that would pay more than 82,000 abuse survivors from nearly $2.5 billion in cash and other insurance benefits. 

More than 85% of plaintiffs voted to approve the deal. Some challengers opposing the settlement have moved to halt that deal, but the lower courts have thus far allowed the plan to move forward.

The fact that the deal has been consummated could allow it to escape the Purdue precedent, according to legal experts.

“The Third Circuit will decide the appeal of the Boy Scouts plan, and Purdue arguably strengthens the arguments of those in opposition to the plan. 
However, it is by no means a sure thing that the Boy Scouts’ plan would be overturned — it is entirely possible, for instance, that the court would find the appeal to be equitably moot given the time that has passed since the Boy Scouts confirmed the plan and exited bankruptcy,” said Laura N. Coordes, a law professor at Arizona State University.

Bankruptcy dealings regarding the Catholic Church may end up more impacted by the Supreme Court’s newest precedent because some of those are currently in negotiation, according to bankruptcy experts.

Like the Scouts, the U.S. Conference of Catholic Bishops filed a brief supporting Purdue.

In the filing, the organization argued that nonconsensual third-party releases have aided the Catholic Church in settling some of the litigation against dioceses for sexual assault and misconduct allegations that date back decades.

Since 2000, more than 30 Catholic dioceses have filed for bankruptcy.

“The dioceses and archdioceses that are currently in bankruptcy will likely have to renegotiate because third-party releases are a mainstay in Catholic Church bankruptcy plans. My guess is that we’ll see a lot of outreach to claimants that seem likely to want to opt out of a release, and maybe these cases will raise issues about what it means to “consent” to a release, since those issues were left open in Purdue,” Ms. Coordes said.

“But overall, Purdue has struck a blow at a critical tool that has been a cornerstone of Catholic Church bankruptcy plans. These cases, and the negotiations that ensue, will be ones to watch,” she said.

Chieko Noguchi, a spokesperson for the U.S. bishops, said the organization filed their Supreme Court brief in support of Purdue Pharma since it had an interest in “continued access to a just and orderly system for compensating survivors of sexual abuse, while continuing the mission of the Catholic Church.”

Other big cases may fall under different rules altogether. 

Johnson & Johnson, a major corporation embroiled in litigation over its talc baby powder, has been unable to reach a bankruptcy settlement with claimants.

But Melissa B. Jacoby, a law professor at the University of North Carolina at Chapel Hill and author of “Unjust Debts: How Our Bankruptcy System Makes America More Unequal,” said the Johnson & Johnson litigation involves asbestos and there are certain rules regarding asbestos under the bankruptcy code.

“I believe Purdue still applies in part, and expect claimants to argue that they should have the right to refuse to release claims against J&J and other parts of the enterprise that did not file for bankruptcy,” she said.

Erik Haas, worldwide vice president of litigation at Johnson & Johnson, pushed back on the notion that the Purdue Pharma opinion would upend any of his company’s negotiations.

“Both the majority and dissent agreed that Congress expressly conferred upon the bankruptcy courts the authority to extinguish asbestos-related claims against debtors and their affiliated third parties where — as we expect in our case — the requisite majority of claimants vote in favor of the reorganization plan,” he said. “The Purdue decision, therefore, only serves to reinforce our confidence the talc claimants will approve, and the bankruptcy court will confirm, the proposed Plan.”

— Stephen Dinan contributed to this report. 

• Alex Swoyer can be reached at aswoyer@washingtontimes.com.