Judge approves Purdue’s controversial bankruptcy plan, paving the way for immunity for Sacklers

After two years of contentious bargaining, a U.S. bankruptcy court judge on Wednesday approved a controversial plan that will dissolve Purdue Pharma, which has been blamed for triggering a widespread opioid crisis, and shield members of the Sackler family who control the company from future lawsuits.

The settlement calls for some Sackler family members to contribute more than $4.3 billion over nearly a decade to compensate people, local governments, and tribal communities that were harmed by the OxyContin painkiller. Another $175 million will be contributed after the Sackler family members relinquish control of several charitable institutions.

The drug maker, meanwhile, will be transformed into a new trust or public benefit company that will assume control of the Purdue product portfolio. The goal is to harness future sales of OxyContin and other medicines toward the overall settlement, although concerns remain that such an arrangement would entangle state and local government officials in the sale of prescription opioids.

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The settlement follows nearly two decades in which nearly 500,000 overdoses and deaths related to opioids in the U.S., according to federal health officials. The ongoing crisis was sparked, in part, by false and misleading marketing by several companies that downplayed the risks of addiction and improperly persuaded physicians to prescribe the painkillers.

During this time, Purdue was widely cited for helping to precipitate the calamity. One year ago, the company pleaded guilty to three felony criminal charges as part of an $8.3 billion settlement with the U.S. Department of Justice that resolved civil charges against the company. As part of that agreement, some Sackler family members agreed to separately pay $225 million to the federal government.

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In his ruling, U.S. Bankruptcy Court Judge Robert Drain noted “it’s clear that marketing contributed to a massive public health crisis.” But despite strenuous objections to the plan by several states and the U.S. Department of Justice’s U.S. trustee, “it’s clear to me that, after a lengthy trial, there is no other conceivable means” to resolve the tangled bankruptcy other than approving the proposed settlement. … “I wish the plan had provided more. I will not jeopardize what the plan does provide.”

In a statement, the Raymond Sackler family said “this resolution is an important step toward providing substantial resources for people and communities in need, and it is our hope these funds will help achieve that goal.”

Separately, the family of the late Mortimer Sackler had this to say: “We want to express our determination to make a constructive difference through this resolution. While we dispute the allegations that have been made about our family, we have embraced this path in order to help combat a serious and complex public health crisis. We hope that the resolution will signal the beginning of a far-reaching effort to deliver assistance where it is most needed… We are truly sorry for the suffering and loss people have experienced and recognize the anger or hurt that many people have felt alongside their grief.”

For more than six hours, Drain read aloud his ruling and offered detailed legal explanations for his decision, which he hopes will “set a standard” for such situations. In particular, he pointed to the fact that the settlement was approved overall by 95% of the creditors who voted on the plan and 80% of the states. “Under any measure, this plan has been overwhelmingly accepted,” he said.

At the same time, Drain swatted aside objections over legal immunity from future lawsuits that would be extended to members of the Sackler family and a lengthy list of associates, none of whom filed for bankruptcy protection. The Sacklers demanded this stipulation and otherwise suggested that costly litigation would continue, delaying any potential payouts. However, consultants and advisers are no longer covered by the releases, and Drain demanded that most claims related to other Purdue medicines must be excluded from the deal.

In a court filing, U.S. Trustee William Harrington called the legal shield “extraordinarily” broad and also argued the maneuver is “impermissible.” However, the judge opined that “without the releases, the plan would unravel” and the litigation would progress to a stage of bankruptcy, known as Chapter 7, that would make it much less likely that any claims against Purdue could be collected.

The trustee, who oversees the federal bankruptcy system for the Justice Department, also maintained the deal violates due process rights, because the opioid victims would not be notified or have a chance to be heard in court. Harrington had further argued that bankruptcy courts lack the “constitutional authority” to approve these sorts of releases. But Drain rejected both notions.

Drain also chastised the U.S trustee for objecting to attorney fees that will total at least $500 million. “Sometimes, being a watchdog that has no regulatory power requires backing off when the facts show that a provision is reasonable,” Drain said. “There is no evidence for insinuations that [attorney] fees provided for [in the settlement] are somehow improper.”

Nonetheless, the U.S. trustee and some states are expected to appeal the settlement. Several state attorneys general believe the Sackler family members not only will avoid future liability, but will walk away with billions of dollars. Drain, for instance, noted that, collectively, the Sacklers are worth approximately $11 billion, although some money is placed offshore, potentially placing those funds out of reach.

“Our bankruptcy system is broken. Connecticut is prepared to appeal, and we are weighing all viable options to preserve our claims against the Sacklers,” said Connecticut Attorney General William Tong. “The Sacklers are not bankrupt, and they should not be allowed to manipulate bankruptcy laws to evade justice and protect their blood money. This decision is a slap in the face to the millions of suffering and grieving Americans who have lost their lives and loved ones due to the Sacklers calculated and craven pursuit of opioid profits.”

Meanwhile, individual victims will receive anywhere from $3,500 to $48,000, although to receive the upper end of that range may require submitting hard-to-obtain pharmacy or hospital records to prove a claim.

“This is a bitter result,” Drain said. “It is incredibly frustrating that people can send their money offshore. … I believe that at least some of the Sackler parties also have liability for those claims [concerning harm from OxyContin]. … I would have expected a higher settlement.”

At the same time, though, Drain argued that “to suggest this was an ill-cooked or cooked in secret stew … is simply incorrect and dramatically so.” And he accused the states that oppose the settlement of telling “a lie … a flat-out lie” over claims there was insufficient transparency about Sackler assets. “They know what they had access to,” he continued. “They know how extensive it was.”

Nonetheless, one legal expert noted the settlement mirrors the Sackler proposal. “Today’s plan is based very closely on the term sheet that Purdue negotiated when the Sacklers controlled the Purdue board,” Adam Levitin, a Georgetown University law school professor who specializes in bankruptcy law, tweeted in response to Drain’s comments.

“Yes, some details of the plan have evolved and there were important issues that still had to be worked out… The basic framework, however, is the one the Sacklers designed: a public benefit company or the like, plus releases for the Sacklers in exchange for the Sacklers’ contribution of some of their assets. The other details are irrelevant to the Sacklers. This IS the Sacklers’ plan.”

The objections have also reflected debate that a bankruptcy court is not the most appropriate venue for deciding such a complicated case, given the magnitude of the opioid crisis and the issues raised by the sweeping immunity sought by members of the Sackler family.

“If there is an appeal, maybe they can put those issues to rest and provide more time for examination by a different court,” said Ryan Hampton, who is in recovery from opioid addiction and, until Tuesday, was a co-chair of the unsecured creditor’s committee. “The entire process has been completely inequitable when it comes to victims.”

The prospect that appeals will be filed suggests that the long-running saga involving Purdue and the Sacklers is not yet over. In 2007, the company already pleaded guilty to misdemeanors for misleading regulators, doctors, and patients about the addiction risks and potential for abuse of OxyContin. Purdue also paid a $600 million penalty.

Since then, Purdue attempted to grow OxyContin sales in ways that critics say continued to downplay those issues and, through it all, some members of the Sackler family micromanaged decision-making while sitting on the board, according to court documents.

The Sackler family members have denied allegations they were responsible for the opioid crisis. During bankruptcy court testimony last month, Richard Sackler, a former Purdue director, insisted that neither he, other family members, nor the company bear responsibility, although David Sackler, another former director, acknowledged a “moral responsibility” for the crisis.

For this reason, critics also complain that criminal charges should be brought against some Sackler family members. At the time that the company agreed to the $8.3 billion settlement with the Justice Department, federal officials noted that criminal charges were not ruled out. But there has been no sign of a criminal investigation.

Meanwhile, there is concern whether a trust or public benefit company is a proper vehicle to generate revenue to contribute to the settlement. Beyond the potential for entangling state governments in marketing opioids, there are questions about the extent to which OxyContin will continue to generate sufficient sales in the future.

“The settlement sounds like a lot of money being offered but it really isn’t,” said Andrew Kolodny, who heads the Opioid Policy Research Collaborative at Brandeis University and is executive director of Physicians for Responsible Opioid Prescribing, an education and advocacy group. He has also served as a paid expert witness for plaintiffs suing Purdue and other opioid makers.

“The money is spread out over multiple years and the figure is based, in part, on assumptions that a public benefit company will generate revenue, but how do we know the estimates will really be achieved? And ironically, the states now would have a financial stake in seeing OxyContin and other opioids prescribed aggressively.”

Drain, however, maintained that the new entity will make opioids under much safer governance. He said the oversight and safety systems in place “should serve as a model … to similar companies.”

Source: STAT