The Register Citizen (Torrington, CT)
Bankruptcy filing will send asset fight to court
With Saturday’s announcement that settlement talks with Stamfordbased OxyContin maker Purdue Pharma over the nation’s deadly overdose crisis have hit an impasse, and the drugmaker is expected to file for bankruptcy protection, virtually every state and some 2,000 local governments suing Purdue would have battle it out in bankruptcy court for the company’s remaining assets. Purdue threatened to file for bankruptcy earlier this year but was holding off while negotiations continued.
“Bankruptcy proceedings are far more complex than Purdue simply writing a ‘check’ to all the claimants,” said Robert Bird, a professor of business law at the University of Connecticut. “Bankruptcy proceedings can go on
a very long time, even years. It’s up to the states and cities that have sued Purdue to determine when it is worth rejecting a Purdue settlement offer and when it is not. If you reject a settlement offer, you increase the risk of bankruptcy.”
Purdue, which has denied the lawsuits’ allegations, declined to comment for this article.
Prior to Saturday’s announcement, Connecticut Attorney General William Tong and a number of his counterparts were willing to negotiate a deal — but with hardline conditions.
Tong and other state attorneys general, such as Maura Healey of Massachusetts, argued that demanding not only a multibillion dollar payout, but also a company shutdown, to resolve the approximately 2,000 complaints was necessary to hold Purdue and its owners accountable for their allegedly deceptive marketing of OxyContin, a powerful painkiller.
In a statement last week, the company said it “has made clear that it prefers a constructive global resolution. We are actively working
with state attorneys general and other plaintiffs on solutions that have the potential to save tens of thousands of lives and deliver billions of dollars to the communities affected by the opioid abuse crisis.”
Connecticut’s position
Highlighting his key role, Tong participated in an Aug. 20 meeting in Cleveland that included Purdue representatives and eight other state attorneys general who have sued the drugmaker.
He has declined to comment on which, if any, settlement conditions were discussed at that gathering. But Tong has made clear he would only support a pact that allocated billions of dollars for opioid prevention and treatment programs and broke up Purdue. The company has been owned since 1952 by members of the billionaire Sackler family, whose controversial business practices have also provoked growing scrutiny of their philanthropy.
“Any resolution needs to include, at a minimum, the shutdown of Purdue Pharma, its dissolution, the liquidation of its assets, and the same thing for the Sacklers’ international businesses,
including Mundipharma,” Tong said in an interview this week. “And the Sacklers and the management of Purdue and Mundipharma have to get out of the opioid business for good.”
Tong’s position aligned with potential terms under discussion among the plaintiffs and defendants.
In one scenario, Purdue would file for bankruptcy and then be converted into a public trust that would generate billions of dollars for a settlement, while the Sacklers would relinquish control and make an additional multibilliondollar payout.
“It doesn’t surprise me what the Connecticut attorney general has said,” said Richard Ausness, a professor of law at the University of Kentucky. “There’s a lot of back and forth about how bad the other side is. It’s part of the process. These cases are as much about public relations as they are about the law.”
Healey, another of the attendees at the Aug. 20 meeting, has taken a similar stance.
“Our fight against Purdue and the Sacklers is about exposing the facts, making them pay for the harm they caused and shutting
them down for good,” Healey said in a statement last week. “The people who have been hurt by Purdue’s misconduct have spoken, loud and clear, about how important it is to have real accountability. Our lawsuit exposed the roots of this crisis, and we will continue to push for the full truth to be made public and to secure the justice these families deserve.”
In addition to the 46 states with pending lawsuits against Purdue, about 2,000 complaints that have been filed against the company and other opioid makers and distributors have been consolidated in a “multidistrict litigation” group in federal court in Cleveland. Dan Aaron Polster, the MDL’s presiding judge, convened the Aug. 20 meeting because a settlement involving the MDL plaintiffs could also encompass the state lawsuits.
Paul Hanly, colead counsel for the MDL plaintiffs, declined to comment on Tong’s settlement requirements.
Cloud of bankruptcy
Purdue had prepared to file for bankruptcy by the end of this month, if a comprehensive settlement is not hammered out before then, Reuters reported last week. Such a “freefall” filing would differ from the type of bankruptcy that has reportedly been discussed because it would lack prior agreement between the company and its claimants about the firm’s restructuring.
“If Purdue files for bankruptcy that way, it’s not the beginning of the end; it’s the end of the beginning,” Bird said. “The company’s assets would be distributed among a wide variety of claimants, and it’s not clear that the states would get more or less than they would from a settlement.”
Tong has attributed Purdue’s potential need to file for Chapter 11 protection to the Sacklers’ alleged siphoning of the company’s profits. Connecticut’s lawsuit accuses the owners of paying themselves several billion dollars between 2008 and 2016 through allocations to other Sacklerheld companies.
Other moves could further complicate the process.
Last month, Ohio Attorney General Dave Yost filed a petition in federal court seeking to prevent Polster from proceeding with the first of the MDL trials, which is scheduled to start Oct. 21. Yost, whose state sued in 2017, argues
the liability of opioid makers such as Purdue should be determined in a statewide case.
Few opioid lawsuits against pharmaceutical companies reach a trial. In such a case, an Oklahoma judge last month ordered Johnson & Johnson to pay $572 million after he found that the pharmaceutical giant’s paindrug marketing contributed to the state’s opioid crisis. J&J has said it will appeal.
Meanwhile, Purdue is also reportedly trying to negotiate an end to U.S. Department of Justice investigations, which have been pursued separately from the lawsuits.
History of settlements
If a comprehensive settlement had been achieved, it would likely have surpassed the scope of previous agreements to end cases alleging fraudulent marketing of OxyContin.
In its latest settlement, Purdue announced in March it would pay $270 million to resolve Oklahoma’s lawsuit.
Purdue incurred its largest penalty in 2007 when it pleaded guilty in federal court to misbranding OxyContin, resulting in $600 million in penalties.
In the same case, three former and thenexecutives pleaded guilty, as individuals, to misbranding charges and incurred close to $35 million in fines. None of them served prison sentences.
Also in 2007, when U.S. Sen. Richard Blumenthal was Connecticut’s attorney general, the state received about $700,000 as part of a nearly $20 million settlement that 26 states reached with Purdue tied to allegations that the company encouraged physicians to overprescribe OxyContin.
“If there is a lesson (from previous settlements) it may well be that the remedies have to be much tougher and they have to be enforced more rigorously,” Blumenthal said in an interview last week. “Tougher in terms of the amounts of money to compensate for the damage done and to deter future violations, stronger possible criminal penalties for wrongdoing and more stringent oversight, so that the violations of law are prevented going forward.”