America’s courts weigh in on how firms resolve liability claims
The long-running legal battle over America’s opioid epidemic was reignited when, on August 10th, the country’s Supreme Court said it would review an earlier settlement secured by Purdue Pharma, a main character in the saga. Back in 2021 a federal judge had approved a bankruptcy plan for Purdue—the maker of OxyContin, a highly addictive painkiller—under which the business was to be restructured as a public-benefit company with all future profits going towards settling claims from victims and funding addiction-treatment programs. Members of the Sackler family, which owns the drugmaker, were to contribute $4.5bn (later increased to $6bn) towards the settlement.
At issue is a controversial legal arrangement called a “third-party release”, which shields entities associated with bankrupt companies from liability even if they have not filed for bankruptcy themselves. In Purdue’s case, the Sacklers were granted immunity from any future opioid-related claims, an unsatisfying outcome for those who blame the family for their role in fuelling the opioid crisis.
American firms have been turning to bankruptcy courts to resolve product-liability claims since the 1980s, but in recent years have done so in increasingly creative ways. In 2021, faced with thousands of lawsuits alleging that its talcum powder caused cancer, Johnson & Johnson (J&J), a pharmaceutical giant, deployed the “Texas two-step”—a legal manoeuvre that shifts a company’s liabilities to a separate entity and then declares that entity bankrupt. J&J established a Texan subsidiary, called LTL Management, assigned more than 40,000 talcum-powder claims to it, then filed it for bankruptcy. Last year Aearo Technologies, a subsidiary of 3M, a Minnesota-based conglomerate, was hit with some 260,000 lawsuits related to allegedly defective earplugs. By declaring its subsidiary bankrupt, 3M was also able to limit its exposure. Both…
2023-08-17 08:33:27
Post from www.economist.com
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