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5 min read . Updated: 12 Aug 2021, 06:39 PM IST The company most often blamed for the opioid epidemic, OxyContin maker Purdue Pharma LP, sought refuge in bankruptcy from an onslaught of lawsuits that threatened to put the drugmaker out of business.
Now, after nearly two years in chapter 11, Purdue heads to trial in a New York bankruptcy court to seek approval of a multibillion-dollar proposal to settle the nationwide litigation that hinges on a roughly $4.5 billion contribution from the company’s Sackler family owners. If successful, the bankruptcy plan will transform the drugmaker into a public benefit company dedicated to providing opioid addiction medicine and overdose treatments—with no involvement from the founding family.
Standing in Purdue’s way are a handful of state and federal authorities that oppose the Sackler deal and argue they can’t be forced into its terms. The Sacklers have been named as defendants in litigation alleging they share liability for fueling opioid addiction, which they deny. Purdue is among the drug manufacturers, distributors and pharmacies facing litigation over opioids, some of which separately agreed last month to a historic $26 billion settlement to address the epidemic.
The bankruptcy trial, scheduled to begin Thursday, won’t weigh Purdue’s or the Sacklers’ potential culpability in the opioid crisis. Instead, U.S. Bankruptcy Judge Robert Drain is expected to consider the settlement’s value and whether its economics offer a fair resolution to the chapter 11 case.
The bankruptcy court will consider the application of a legal tool known as a nonconsensual third-party release, which would extinguish claims against the Sacklers even by creditors that object. If approved, the settlement would begin funding abatement programs later this year, court papers show.
Purdue is testing the power of bankruptcy courts to both extend the benefits of chapter 11 to the Sacklers, and to force holdout creditors to accept settlements they don’t agree to. Both powers are important aspects of how chapter 11 gives troubled companies a fresh start and forge deals with creditors.
Critics of the proposal have argued the Sacklers aren’t contributing enough of their estimated $11 billion fortune to abate the opioid epidemic, which has intensified during the Covid-19 pandemic, though largely due to synthetic opioids like fentanyl. The Sacklers, who aren’t in bankruptcy themselves, have collected more than $10 billion from Purdue since 2008. Family members have said in court papers they retained less than half of that, with $4.7 billion going toward taxes and $1.5 billion invested in international ventures.
The settlement would shield the Sacklers from further litigation over opioids in exchange for about $4.5 billion the family would pay over time, as well as their agreement to relinquish ownership of Purdue to the public. The company pleaded guilty to federal felonies over its marketing and distribution of OxyContin, a powerful opioid painkiller.
Purdue has won support for the proposal from groups representing opioid victims, local governments and most states, saying it maximizes the money that litigants could have hoped for through civil litigation and fairly distributes those funds to communities across the country.
In the absence of federal assistance, the proposal is the only mechanism available to provide critical funds to communities damaged by the opioid crisis, according to a committee representing unsecured creditors that investigated the Sacklers during the bankruptcy case.
While the Sacklers have assets “far in excess" of the settlement offer, future litigation against them is uncertain and would likely take years to complete, the committee said in a letter to Purdue creditors. Recovering any potential judgment would pose additional challenges because many of the family’s assets are in overseas trusts, the creditors committee said.
Estimations of the family’s wealth are being fought over in court. An expert witness retained by Oregon, Washington and other states opposed to Purdue’s deal has estimated the Sacklers’ assets will be worth roughly $14 billion in 2030, after all settlement payments are made, according to court documents. Lawyers for the Sacklers have said that estimate is flawed and unreliable and are seeking to have it excluded from the bankruptcy trial.
Former Purdue board member David Sackler said in a sworn declaration earlier this month that his family members would only agree to fund the settlement if it included “broad releases" that protect them from future lawsuits, which he said they would otherwise defend against. Mr. Sackler said the settlement represents an “opportunity to bring much needed resources to abate the opioid crisis, rather than spending years and depleting those resources defending the lawsuits against us."
“We are not willing to endorse any resolution that leaves our family exposed to new lawsuits relating to historical Purdue conduct," his declaration said.
Those opposed to the settlement include nine states, the District of Columbia and the Justice Department’s bankruptcy unit, which have argued the releases are unconstitutional and deprive opioid victims of their day in court. Congressional Democrats including Sen. Elizabeth Warren (D, Mass) and Richard Blumenthal (D., Conn.) have also criticized the nonconsensual releases and have proposed legislation to ban them in chapter 11.
It is potentially the first time the Justice Department has challenged the constitutional authority of bankruptcy judges—who aren’t nominated by the president and confirmed by the U.S. Senate to serve lifetime terms like other federal judges—to approve such releases, Georgetown Law Professor Adam Levitin told House lawmakers last month.
Connecticut Attorney General William Tong told a congressional committee last month that the possibility of Judge Drain approving the binding releases gave the Sacklers leverage in negotiations with state authorities to limit the amount of money they would contribute.
“People rush to make a deal because they’re worried if they don’t make a deal, the judge will cram the deal down and force us to accept releases," Mr. Tong said during a House Judiciary Committee hearing.
Purdue and the Sacklers have disputed Mr. Tong’s characterization and said the nonconsensual releases were needed to boost the value of the settlement.
This story has been published from a wire agency feed without modifications to the text
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