Purdue Talks Stall on Demand for More Cash From Sacklers

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Jan 28 2021, 1:00 AMJan 28 2021, 2:41 AMJanuary 28 2021, 1:00 AMJanuary 28 2021, 2:41 AM

(Bloomberg) -- Talks aimed at getting Purdue Pharma’s owners to increase their contribution to the opioid maker’s bankruptcy settlement have stalled, with members of the billionaire Sackler family resisting demands from states to boost their offer by more than $2 billion, according to people familiar with the matter.

The Sacklers are willing to add more than $1 billion to their cash contribution, bringing their total to more than $4 billion, the people said. But attorneys general for states involved in the court-ordered mediation are seeking more than $5 billion to beef up addiction treatment and police budgets, the people said.

Another sticking point is the Sacklers’ demand that they face no state criminal charges over Purdue’s illegal marketing of the painkillers, the people said, asking not to be identified because the talks are confidential. Members of the Sackler family have consistently denied any personal wrongdoing.

Negotiators are still trying to resolve objections to Purdue’s reorganization plan, which would help state and local governments pay for damage caused by OxyContin and other opioid-based drugs blamed for more than 400,000 deaths. All told, the plan may provide as much as $10 billion, but the value could plummet if there’s no agreement with the Sacklers. This would mean far less cash for governments and possibly leave some family members open to personal liability.

High Stakes

“If the Sackler money isn’t in the plan, that’s a serious hit to the state and local governments, who need those dollars now to get treatment for folks,” said Chuck Tatelbaum, a veteran bankruptcy lawyer who isn’t involved in the case. “This is a real high-stakes game of chicken.”

Officials of the New York and Massachusetts attorney general’s office, who the people said were leading the mediation, declined to comment on the status of the talks.

A representative for the Mortimer Sackler branch declined to comment on specifics of the talks, citing court-ordered confidentiality, but said the family “has been working constructively to reach a resolution that directs substantial funding to communities and individuals in need as soon as possible, rather than to lengthy and costly legal proceedings.”

Daniel S. Connolly, attorney for the Raymond Sackler family, denied any wrongdoing on their behalf. He described the talks as productive and aimed at helping communities in need, but couldn’t elaborate because of court-ordered confidentiality, adding that “public disclosure of the discussions during the mediation is a gross violation of the court’s order.”

Mediation Process

“Purdue remains committed to the bankruptcy process, including the mediation, as we seek to deliver 100% of our assets to address the opioid crisis,” the company said in a statement. Under the Chapter 11 plan, Purdue executives and the Sackler family are offering to hand over the drugmaker to a trust controlled by states and local governments suing to recoup billions in tax dollars spent battling the opioid epidemic.

One brother, Arthur Sackler, sold his shares in the company before OxyContin’s introduction.

At a Jan. 20 hearing before U.S. Bankruptcy Judge Robert Drain, Purdue’s lawyer said the Feb. 15 deadline for submitting the completed reorganization plan was approaching, and the details still hadn’t been hammered out.

“We’re not currently where we need to be” on the mediation, Marshall Huebner, the company’s lawyer, told the judge. “I don’t know exactly what plan we will be filing.”

Potential Fallout

The Sacklers are counting on the bankruptcy plan to be a basis for resolving all opioid suits against the family and Purdue. Family members risk being engulfed in a wave of state-court suits if they don’t make a deal with the states and municipalities, said Carl Tobias, a University of Richmond law professor who specializes in mass-tort cases.

“They have to worry about the threat of being held personally liable in some of these cases,” Tobias said. “That puts fortunes at risk. It sounds like they aren’t really that far apart. I’ll bet there will be a tipping point where the need to get rid of these cases will prompt folks to come together.”

As part of the mediation ordered by Drain, lawyers for the states originally sought as much as $7 billion in cash from the Sacklers, according to the people familiar with the talks. The states agreed to reduce their demand to more than $5 billion in hopes of jump-starting the talks, they added.

State Accords

No states have disclosed current criminal investigations against any of the Sacklers, and family members say they acted properly. But some states have statutes that could be used to bring charges against the Sacklers tied to OxyContin marketing and sales practices, the people said. In light of that possibility, family members are asking the states to promise they won’t face prosecution, the people said.

The federal bankruptcy court doesn’t have authority to grant that kind of immunity, according to Jared Ellias, a law professor at UC Hastings. Such deals could be part of the settlement negotiations, but they would have to be worked out with prosecutors in individual states, he said.

The states aren’t likely to grant immunity, Tatelbaum said. “I’ve never heard of that being done in a bankruptcy case and it would set a terrible precedent,” he said.

So far, the company has paid $270 million in 2019 to settle Oklahoma’s claims that illegal OxyContin marketing led to devastation of local communities. Purdue sought Chapter 11 protection that same year to put other suits on hold, and agreed last year to an $8.3 billion settlement with the U.S. calling for the drugmaker to plead guilty to three felonies over its OxyContin marketing. It was the second time in 13 years the company pleaded guilty on charges tied to opioid sales.

Members of the family agreed last year to a $225 million civil settlement of government claims that some of them who served on Purdue’s board in 2012 wrongfully urged executives to pump up OxyContin sales even though the legitimate market for the painkiller had shrunk. The family members denied doing anything improper.

The bankruptcy case is Purdue Pharma LP, 19-23649, U.S. Bankruptcy Court for the Southern District of New York (White Plains).