Workers' Compensation: Potential Impact of the Purdue Pharma Bankruptcy Case

The Purdue Pharma bankruptcy case will significantly impact workers’ compensation cases nationally. The US Supreme Court heard oral argument this week, and the potential consequences are far-reaching.

The Bankruptcy Court vehicle has been utilized by companies for almost four decades in asbestos mass tort litigation to shield entities from liability in exchange for universal payment to past and future victims. The companies emerge from bankruptcy proceedings as an economic engine to fund a trust fund for payouts.

In the mass opioid litigation, the Shackler Family is attempting to extend the bankruptcy court jurisdiction to parties that have not filed for bankruptcy, thereby shielding billions of their own dollars gained from selling opioids.

The Direct Impact on Workers’ Compensation Claims:

Non-Consensual Third-Party Releases: The central issue in the Purdue case is whether bankruptcy courts can grant non-consensual third-party releases. These releases would shield Purdue's owners, the Sackler family, from future lawsuits related to the opioid crisis, including potential workers' compensation claims. If the Court allows such releases, it could set a precedent for other companies facing mass tort lawsuits, potentially hindering workers' ability to pursue compensation for injuries related to defective products or unsafe work environments and restricting employer/insurance companies from seeking subrogation/recovery from the ultimate third party wrongdoer.
Bankruptcy Plan Approval: The Court's decision could also impact how bankruptcy plans are approved, especially for mass tort cases. If the Court restricts the use of non-consensual releases, it may make it more difficult for companies facing large numbers of lawsuits to reorganize under bankruptcy protection successfully. This could lead to more liquidations and fewer opportunities for workers to recover liability compensation through bankruptcy proceedings and subrogation/reimbursement opportunities for employers/insurance companies.

The Indirect Impact on Workers’ Compensation Claims:

Increased Litigation: If the Court limits the use of non-consensual releases, it may increase litigation against companies like Purdue, potentially including workers' compensation claims. This could result in longer delays and higher costs for workers seeking compensation and strain the legal system.
Settlement Negotiations: The Court's decision could also influence how settlements are negotiated in mass tort cases. If the Court restricts the use of non-consensual releases, companies may be less likely to offer such releases in exchange for settlements. This could make it more difficult for workers to obtain compensation without going through the litigation process.
Legislative Change: The Court's decision may also prompt legislative action at the state or federal level. Lawmakers could introduce legislation to clarify the rules surrounding non-consensual releases in bankruptcy cases or protect the rights of workers injured in the workplace.

Current Status:

The Supreme Court heard oral arguments in the Purdue case on December 4th, 2023. A decision is expected in the coming months, but the exact timeframe and the Court's ultimate ruling are uncertain. The full impact on workers' compensation claims nationwide will depend on the specifics of the Court's decision and how lower courts interpret it. It is important to note that the potential effects discussed here are speculative, and the impact may differ.

What the Supreme Court’s Decision to Hear the Purdue Pharma Case Means NYTimes 8/11/2023

Why Purdue Pharma's SCOTUS case matters for bankruptcy law Axios

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Jon L. Gelman of Wayne, NJ, is the author of NJ Workers’ Compensation Law (West-Thomson-Reuters) and co-author of the national treatise Modern Workers’ Compensation Law (West-Thomson-Reuters). For over five decades, the Law Offices of Jon L Gelman 1.973.696.7900 jon@gelmans.com has represented injured workers and their families who have suffered occupational illnesses and diseases.