Dems aim to close ‘loophole’ to Purdue owners
A few months after two of Purdue Pharma’s owners were grilled by a Congressional committee about their company’s alleged culpability in the opioid crisis, the panel’s chairwoman is spearheading an effort to overturn legal protections that they have gained through the firm’s bankruptcy.
Rep. Carolyn Maloney, D-New York, and Rep. Mark DeSaulnier, D-Calif., have introduced the “Stop Shielding Assets from Corporate Known Liability by Eliminating Non-Debtor Releases Act,” or SACKLER Act. It aims to close a “loophole” by preventing those who have not filed for bankruptcy from obtaining releases from lawsuits brought by government bodies.
The legislation reflects the widespread pressure against the Sackler family members who own Purdue, as the company tries to negotiate through its Chapter 11 bankruptcy a comprehensive settlement of approximately 3,000 local and state lawsuits. The federal court handling the case has frozen the litigation — with many of those complaints, such as Connecticut’s, naming the owners among the defendants.
“Allowing non-debtor releases from lawsuits brought by government entities deprives taxpayers of relief, even if the defendant — in this case, the Sacklers — can afford it,” Maloney, D-New York, chairwoman of the House Committee on Oversight and Reform, said in a statement. “Passing the SACKLER Act to close this loophole is one way Congress can help to ensure that the Sacklers — who never filed for bankruptcy themselves — are held accountable for their role in fueling the opioid epidemic and promote justice for the victims and families who have been harmed by their actions.”
Among its key components, the SACKLER Act would generally bar courts from issuing stays exceeding 90 days on actions against “non-debtors,” such as the Sacklers, who have not personally filed for bankruptcy.
Purdue officials declined to comment on
the bill and referred comment to the Sacklers who own Purdue.
Messages left this week for a spokesperson for the Sacklers were not returned. In previous statements, the Sacklers have denied any wrongdoing related to their ownership of Purdue.
Connecticut Attorney General William Tong told Hearst Connecticut Media this week that “the Sacklers should not be allowed to hide behind bankruptcy to escape accountability. The SACKLER Act has my full support, and I hope it passes.”
Asked about his position on the bill, Sen. Richard Blumenthal, D-Connecticut, said in an interview that “there should be no bankruptcy court order interfering with the pending lawsuits against the Sacklers — that principle I strongly and fully support.”
Blumenthal, who sued Purdue when he previously served as state attorney general, added that “I’ll consider introducing a similar measure, if necessary and appropriate, but I want to first see the exact wording in the SACKLER Act.”
Many activists such as Fernando Luis Alvarez, who led a protest last month outside Purdue’s downtown Stamford headquarters, also expressed their support for the legislation. Among their concerns, Alvarez and others who have protested against the company said that they are unsettled by the wealth of the Sacklers, whose family net worth was estimated at nearly $11 billion by Forbes in 2020.
“The so-called stay has benefited the family as they can use their wealth to further enrich themselves and continue to bribe politicians, hire the largest law firms in the country with influence all the way to the Department of Justice, and buy special-interest groups,” Alvarez said.
In previous statements, representatives of the Sacklers have denied that the owners have committed any financial fraud or engaged in any illegal or otherwise inappropriate dealings with government officials or other groups.
Fueling their discontent, Tong and Alvarez and other critics of Purdue and the Sacklers were outraged when settlements reached last year by the company and the owners with the Department of Justice — which entailed Purdue pleading guilty to three criminal charges — did not include any charges against the Sacklers.
“A company can be sanctioned, but if the Sackler family has shields from these lawsuits, it will feed the public perception that justice has not been served against them as individuals, but only against the company,” said Robert Bird, a professor of business law at the University of Connecticut.
Reflecting the widespread animus against the company, the Democratic-controlled House Oversight Committee has taken a prominent role in probing Purdue and its owners.
Last December, two of the Sacklers who own Purdue and the company’s CEO, Craig Landau, testified during a committee hearing. In that meeting, Landau, Kathe Sackler and David Sackler denied personal wrongdoing, but said they sympathized with the victims of the opioid crisis. But those statements did not persuade Maloney and other committee members.
“Most despicably, Purdue and the Sacklers worked to deflect the blame for all that suffering away from themselves and onto the people suffering with OxyContin addiction,” Maloney said during the hearing.
With the SACKLER Act, Maloney is focusing on the impact of the company’s bankruptcy on the Sacklers.
To resolve the lawsuits — which allege that Purdue fueled the opioid epidemic with deceptive Oxycontin marketing — the company filed for Chapter 11 bankruptcy in September 2019. Company executives and the Sacklers have denied the complaints’ allegations, but they have proposed a comprehensive settlement of the lawsuits that they value at more than $10 billion.
The Sackers did not personally file for bankruptcy, but they have offered to contribute approximately $4.3 billion to the settlement.
In a move aimed at advancing the settlement talks, the judge overseeing the case approved in October 2019 a Purdue-requested “preliminary injunction” that froze the pending cases. Judge Robert Drain has subsequently granted a series of extensions of the injunction — the latest of which runs until April 21. Individuals covered by the injunction include current and former Purdue executives and the Sacklers who own Purdue.
Non-debtor releases have sparked controversy in other cases, but they have certain advantages, according to Bob White, a practitioner-in-residence who teaches bankruptcy law at Quinnipiac University.
“In some situations, it gets money into the hands of the creditors more quickly,” White said. “On balance, I think it makes sense at least when non-debtors are accused of tortious action. I don’t think capping the injunction against suits at 90 days is helpful to putting money into the hands of creditors. The bankruptcy judge should have the power to extend the stay as he sees fit, so the pressure to settle remains on the non-debtor.”
Connecticut and the 23 other “non-consenting” states that have not agreed to settle their lawsuits against Purdue had been voluntarily complying with the injunction.
“When entering the injunction, the court stated that ‘one of the main purposes of the preliminary injunction is to enable the parties to analyze whether they would support’ a plan of reorganization that releases claims against the Sacklers,” the non-consenting states said in a court filing last month. “An explicit corollary to this instruction was for the parties to explore the terms on which they might support such a release.”
But the non-consenting states’ unhappiness with a reorganization plan filed last month by Purdue contributed to their decision to oppose the injunction’s latest extension. Among their misgivings, they cited concerns about releases for the Sacklers.
“Although the language of the proposed compulsory releases in favor of the Sacklers has not yet been incorporated into the (reorganization) plan and (related) disclosure statement, providing nonconsensual releases of state police power claims against the Sacklers extends beyond even the most aggressive application of Second Circuit law,” the non-consenting states said in the filing.