The Supreme Court is reviewing Purdue Pharma’s bankruptcy plan
Management, assigned more than 40,000 talcum-powder claims to it, then filed it for bankruptcy. Last year Aearo Technologies, a subsidiary of 3, a Minnesota-based conglomerate, was hit with some 260,000 lawsuits related to allegedly defective earplugs. By declaring its subsidiary bankrupt, 3Lawyers for the companies argue that the bankruptcy courts are more efficient than the tort system for both defendants and plaintiffs. It is easy to see the appeal for businesses.
Critics point out that bankruptcy is intended for companies that are genuinely insolvent, not merely burdened with lawsuits. In 2022generated $95bn in sales, handed out $12bn in dividends, had cash holdings of $25bn—and set aside just $9bn to resolve the talcum-powder claims. 3is similarly unlikely to be sunk by the lawsuits against it.
Courts are increasingly sceptical of the companies’ arguments. In June a judge in Indiana rejected the bankruptcy filing of 3’s subsidiary Aearo, noting that the company was using bankruptcy as a “litigation-management tactic”. A month later a New Jersey bankruptcy court quashed. The Supreme Court’s scrutiny of Purdue’s third-party releases may be the most consequential of all.
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