Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y., said Wednesday he will confirm a restructuring plan that will transform Purdue into a public benefit company and settle civil lawsuits filed by governments and opioid victims against the drugmaker and its owners.
The ruling can be appealed by the handful of federal and state authorities that opposed Purdue’s bankruptcy-exit plan and argued at trial that the settlement structure is unconstitutional and the Sacklers aren’t contributing enough of their wealth. Purdue’s family owners collected more than $10 billion from the company between 2008 and 2017, about half of which went to taxes or was reinvested in the business.
The bankruptcy plan’s approval means those family members can put behind them numerous lawsuits and investigations from state regulators and private litigants over their stewardship of Purdue. The Sacklers who own Purdue and sat on its board are getting broad releases that extinguish civil litigation currently pending against them as well as lawsuits that could be brought in the future.
The order approving the chapter 11 plan is contingent on Purdue lawyers making relatively minor changes that Judge Drain described Wednesday. He said he wished the Sacklers had contributed more but that he couldn’t force any particular outcome.
Purdue is the latest in a series of drugmakers and distributors to resolve legal liabilities over opioids, which caused nearly 500,000 overdose deaths between 1999 and 2019, according to federal data. Other drug companies in July struck a $26 billion settlement with states to resolve thousands of opioid lawsuits while consulting giant McKinsey & Co. agreed early this year to a $573 million settlement over advice it gave Purdue and other companies to aggressively market opioids.
U.S. drug-overdose deaths surged nearly 30% last year during the Covid-19 pandemic, driven by the proliferation of fentanyl, a powerful synthetic opioid.
Judge Drain didn’t consider Purdue or the Sacklers’ potential culpability in the opioid crisis. Instead, he weighed whether the roughly $4.5 billion contribution the family offered to Purdue’s creditors was a fair resolution to the chapter 11 case. Judge Drain noted four members of the Sackler family testified during the bankruptcy trial, saying that “none would state an explicit apology” but that some members of the family had expressed regret for what Purdue had done.
“A forced apology is not really an apology, so we will have to live without one,” Judge Drain said, adding that he recognized “bitterness” over the bankruptcy case is understandable, in reference to the harm OxyContin has caused across the country.
Purdue pleaded guilty last year to three federal felonies over its marketing and sale of OxyContin, its flagship opioid painkiller. The Sacklers have denied wrongdoing and last year separately settled civil allegations with the Justice Department for $225 million, without admitting any liability.
A lawyer representing Washington state, one of the states opposing the settlement, said last week that Judge Drain would be making a “historic mistake” if he approved Purdue’s bankruptcy plan and said the bankruptcy court’s ruling would be overturned on appeal.
Washington Attorney General Bob Ferguson and Connecticut Attorney General William Tong, the top law enforcement officer in Purdue’s home state, said they intend to challenge Judge Drain’s ruling in appellate court. Mr. Ferguson said the ruling “lets the Sacklers off the hook” in exchange for a fraction of the profits they have made from the opioid epidemic.
“This order is insulting to victims of the opioid epidemic who had no voice in these proceedings—and must be appealed,” Mr. Ferguson said.
The roughly $4.5 billion being paid by the Sacklers likely exceeds the amount the opposing states would obtain if they were allowed to pursue family members through litigation, Judge Drain said.
The judge said the settlement reflects risks of any litigation against the family, which would have strong legal defenses. Even if the opposing states obtained a legal judgment, he said, collecting from certain family members would be difficult because their wealth is located offshore, in hard-to-reach trusts.
“It is incredibly frustrating that people can send their money offshore” to trusts that may not recognize U.S. law, the judge said.
The ruling vindicates Purdue’s bankruptcy strategy after nearly two years in chapter 11, where it sought refuge from lawsuits over OxyContin. Now that the bankruptcy deal is approved, Purdue is poised to be transformed into a public benefit company dedicated to providing opioid addiction medicine and overdose treatments with no involvement from its controlling family.
The new company will continue selling opioids when it emerges from bankruptcy later this year, but will be overseen by outside directors with expertise in pharmaceuticals, public health policy, ethics and other areas. Last week, Judge Drain said that although the new company will be allowed to continue selling opioids, it will not engage in the same marketing practices that gave rise to its guilty pleas and will be subject to a “very strict set of guidelines” and monitoring.
Settlement funds from the Sacklers will be used to fund opioid-abatement programs and will be paid by family members over nine or 10 years, with an initial $300 million payment immediately when the deal takes effect and an additional $350 million due in June 2022.
The bankruptcy plan approved by Judge Drain also creates several trusts, including one expected to pay as much as $750 million to hundreds of thousands of people who can show they or their family members were harmed by Purdue’s products. Individual claimants would be eligible for payments of $3,500 for the least severe injuries to as much as $48,000 for opioid addiction and overdose deaths, court papers say.
Members of the Sackler family testified at trial that while they believed they had no legal liability for opioid addiction, the settlement would avert costly and time-consuming litigation and provide funding relatively quickly to address the drug epidemic.
Former Purdue President Richard Sackler denied on the witness stand that his family or the company were responsible for the opioid epidemic. Former Purdue director David Sackler said his family has a “moral responsibility,” though not a legal responsibility, to help combat addiction.
Descendants of the late Purdue co-founders Raymond Sackler and Dr. Mortimer Sackler said after Wednesday’s ruling they hope the settlement will provide assistance to people and communities in need.
“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,” descendants of Mortimer Sackler said.
Lawyers for Purdue and key creditor constituencies have said that although they hoped for more money, the settlement is the best deal available to fairly and relatively quickly disburse funds to communities harmed by opioid addiction.
Purdue and a committee representing company creditors said that even if lawsuits found the Sacklers liable, recovering judgments in excess of $4.5 billion would be challenging because some family members’ assets are housed in overseas trusts.
An appeal by Washington state or other government authorities opposing the deal would likely shift the dispute to federal appeals courts in New York that would be asked to weigh in on the legal releases granted to the Sacklers. The legal releases will protect the family from civil litigation that could be brought by state authorities, regardless of whether they agreed to the deal.
The holdout states as well as the Justice Department have argued that no bankruptcy plan can force government authorities to give up claims against the Sacklers since the family members are third parties to the chapter 11 case and didn’t file for protection themselves. The authorities have also argued that the nonconsensual releases granted to the Sacklers violate individual claimants’ constitutional rights to due process.
Federal appeals courts are split over nonconsensual third-party releases, but they have been authorized by the Second U.S. Circuit Court of Appeals, which covers New York.