Finance

Bill Seeks To Ban Rare Corporate Bankruptcy Maneuver Used By Sacklers To Dodge Opioid Liability

If the bill does not become law, the hopes of hundreds of thousands of grieving families to hold members of the Sackler family individually accountable could be snuffed out by a single bankruptcy judge.

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Congress abolished debtors’ prison in 1833. Since then, the Supreme Court has consistently ruled that people cannot wind up in a jail cell simply because of unpaid debt. Although there are all sorts of backdoor mechanisms that still put people in jail for infractions like failure to appear when a creditor is attempting to collect a debt, the U.S. does have a relatively robust bankruptcy system. Bankruptcy can help wipe the slate clean in the face of most kinds of overwhelming debt (student loan debt notwithstanding).

Of course, like individuals, qualifying corporate entities can also take advantage of the bankruptcy code to discharge or reorganize debt. Unlike flesh-and-blood human beings though, the stakes aren’t so high. There is no risk of a legal fiction being carted off to prison.

A corporate bankruptcy petition, if it is not seeking to reorganize the business so that it can hopefully become profitable again, is probably a means of liquidating the business to pay off investors and creditors before operations cease. Human beings can go through Chapter 7 liquidation too, but they, thankfully, get to keep on existing afterward (probably with a good portion of their assets intact, thanks to fairly generous exemptions in most locales).

But what about the human beings behind a corporate entity that is filing for bankruptcy? Lawyers understand that one of the chief benefits of forming a corporation in the first place is that it acts as a liability shield for investors. Investors in most companies have protections if the companies are unable to pay off debts, as a feature of the corporate form. Yet, in some cases (usually the most egregious), courts will pierce the corporate veil to hold directors or shareholders personally liable for a company’s debts or wrongful actions.

It stands to reason that in a corporate bankruptcy, the corporation’s obligations could be discharged or restructured. If piercing the corporate veil is on the table though, making some obligations the problem of a living, breathing human being, it would seem reasonable that that person should have to personally file for bankruptcy in order to get the protections offered by the bankruptcy code. Reason aside, that is not how it works in all jurisdictions. In fact, corporations with a nationwide reach are essentially able to forum shop for a jurisdiction in which that is probably not going to be how it works.

Purdue Pharma is the maker of OxyContin. Its aggressive opioid marketing tactics racked up a fortune of at least $11 billion for its owners, the Sackler family. These trailblazing (some might say “false and dangerous”) marketing tactics also arguably sparked the opioid epidemic and led to nearly half a million American deaths. In the face of close to 3,000 lawsuits filed by state and local governments, Purdue Pharma filed for bankruptcy in 2019.

Some lawsuits, including those filed by more than 20 state attorneys general, sought to hold individual Sackler family members personally accountable. But Purdue Pharma chose to file its bankruptcy petition in White Plains, New York, where it knew it would receive one of the friendliest receptions available to its argument that the resolution of the Purdue Pharma bankruptcy should forever shield Sackler family members from any further lawsuits, even though none of the Sacklers have filed individually for bankruptcy. If this tactic succeeds, the Sacklers will walk away with billions they reaped from unleashing a plague of opioid addiction.

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Congressional democrats are pushing a bill dubbed the SACKLER Act, which would disallow protections for nondebtors of the type being contemplated in Purdue Pharma’s bankruptcy case. If the bill does not become law, however, the hopes of hundreds of thousands of grieving families to hold members of the Sackler family individually accountable could be snuffed out by a single bankruptcy judge.

Very few people who have a shred of humanity and know anything about the subject think we should bring back debtors’ prisons. On the other side of the coin, when individual billionaires can get bankruptcy protections without even filing for bankruptcy themselves, to protect a fortune amassed peddling opioids, perhaps we have gone too far. Bankruptcy is supposed to help the struggling, the hard up, the indigent. The Sacklers are none of those things.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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