Be Still My Beating Heart

A federal judge on Thursday evening unraveled a painstakingly negotiated settlement between Purdue Pharma and thousands of state, local and tribal governments that had sued the maker of the prescription painkiller OxyContin for the company’s role in the opioid epidemic, saying that the plan was flawed in one critical area.

The judge, Colleen McMahon of the U.S. District Court for the Southern District of New York, said that the settlement, part of a restructuring plan for Purdue approved in September by a bankruptcy judge, should not go forward because it releases the company’s owners, members of the billionaire Sackler family, from liability in civil opioidrelated cases.

Although the Sacklers did not file for personal bankruptcy protection, they had made immunization from opioid claims an absolute requirement in exchange for contributing payments amounting to $4.5 billion to the agreement.

But the bankruptcy code, Judge McMahon said, does not explicitly permit a judge to grant such releases, which she called “the great unsettled question.”

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Lawyers for a small group of states that had appealed the plan immediately hailed the ruling. “This is a seismic victory for justice and accountability that will re-open the deeply flawed Purdue bankruptcy and force the Sackler family to confront the pain and devastation they have caused,” said William Tong, the attorney general of Connecticut.

In recent months, members of Congress have proposed legislation called “The Sackler Act” to preclude owners from receiving such protections unless they file for bankruptcy themselves. But even if eventually passed, it is unlikely to become law in sufficient time to resolve the Purdue case.

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Nearly two years later, Judge Robert Drain, the bankruptcy court judge in White Plains, N.Y., confirmed a plan that had been approved by a majority of creditors who voted. Purdue would be formally dissolved and would re-emerge as a new company called Knoa Pharma that would still produce OxyContin but also other drugs. The new company’s profits would go to states and communities to fund opioid treatment and prevention efforts.

The Sacklers would renounce their ownership, eventually sell their foreign pharmaceutical companies as well, and contribute $4.5 billion of their fortune to the state and local opioid abatement funds.

In exchange, all lawsuits against Purdue would be extinguished, a benefit typical of bankruptcy. What made the settlement so contentious was the Sacklers’ insistence on being released from all Purdue-related opioid claims, although they had not personally filed for bankruptcy.

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After Judge Drain approved the plan, it was immediately appealed by the United States Trustee, a branch of the Justice Department that monitors bankruptcy cases; eight states, including Maryland, Washington and Connecticut; the District of Columbia; and about 2,000 individuals. The appeal was filed in federal district court.

Lawyers challenging the plan argued that the Sacklers had essentially gamed the bankruptcy system. Moreover, they argued, Judge Drain lacked the authority to shut off a state’s power to pursue the Sacklers under its own civil consumer protection laws.

During oral arguments, Judge McMahon said she was troubled by what she saw as a red flag: the more than $10 billion that the Sacklers withdrew from Purdue between 2008 and 2018, as the opioid epidemic was cresting. The Sackler dividends were largely deposited in offshore accounts and trusts that are inaccessible to American authorities.

And notably, she said, the withdrawals escalated after Purdue and three top executives pleaded guilty in 2007 to federal criminal and civil charges related to aggressive marketing of opioids, paying more than $600 million.

As Judge McMahon wrote: “Concerned about how their personal financial situation might be affected, the family began what one member described as an ‘aggressive[]’ program of withdrawing money from Purdue almost as soon as the ink was dry on the 2007 papers.”

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