State presses on with appeal of Purdue deal

STAMFORD — Connecticut and other states contesting a bankruptcy court’s recent approval of OxyContin maker Purdue Pharma’s settlement plan said in court documents filed this week that the Sackler family’s alleged siphoning of billions of dollars out of the company should be considered as part of a federal appeals court’s review.

From 2008 to 2018, the Sacklers, who own the Stamford company, transferred more than $10.7 billion out of Purdue, making an “enormous” impact on the firm’s balance sheet and the family’s wealth, according to a brief filed by Connecticut, Delaware, Rhode Island, Vermont and Washington.

From 2008 to 2010, the Sacklers took distributions equaling about 70 percent of Purdue’s revenues each year, and from 2011 to 2016, their annual distributions ranged from 40 percent to 45 percent, according to the court documents.

The appealing states have leveled those accusations as part of their argument that the Sacklers should not receive “third-party releases” that would shield them from current and future lawsuits related to Purdue’s opioids if the company’s settlement plan was implemented.

Those states’ objections to the Sacklers’ prospective legal protections explain in large part why they are seeking an overturn of federal bankruptcy judge Robert Drain’s approval in September of the plan, a proposal valued by Purdue at more than $10 billion that would resolve several thousand lawsuits alleging the company fueled the opioid crisis with deceptive OxyContin marketing.

“Whatever lawyer-crafted excuses the Sacklers now offer, there are no innocent explanations for extracting billions from Purdue in the face of growing personal liability and stashing it in the Isle of Jersey and other assetshielding trusts,” the states said in their brief. “The bottom line is that this money would be available for distribution in this bankruptcy without the need for a release if the Sacklers had not taken it out of Purdue and shielded it from their victims.”

Through a spokesperson, the family of late Purdue co-founder Mortimer Sackler declined to comment on the latest brief filed by the appealing states. But he referred to court documents filed by attorneys for the Sacklers that denied they committed any financial wrongdoing.

“Nothing in the undisputed and extensive financial records suggests that any decisions about distributions were made as part of a secret plan to obtain leverage for releases in bankruptcy,” according to a brief filed this week on behalf of the Mortimer Sackler family members who would be covered by the third-party releases.

“To the contrary, the pattern of distributions here is instead entirely consistent with Purdue’s business results — including the sudden restoration in early 2008 of the patent on its key product (OxyContin) after Purdue had been subject to generic competition — and evolving needs at different points in time.”

A spokesperson for Purdue also declined to comment on the appealing states’ brief, but referred to documents filed this week by the company’s attorneys that said, “the bankruptcy court correctly determined that the shareholder (thirdparty) releases are not ‘abusive.’”

The third-party releases — which would cover many other parties, including Sackler family members not directly involved in Purdue — are a condition of the Sacklers’ agreement to contribute about $4.3 billion in cash to the settlement. The Sacklers, whose family net worth was estimated last year by Forbes to total nearly $11 billion, did not file for bankruptcy.

Colleen McMahon, the U.S. District Court judge in New York who is hearing the appeals, has indicated that she is closely studying the proposed legal protections for the Sacklers.

“That’s the big dog here,” she said in an Oct. 12 hearing. “That presents a pure question of law.”

While the appealing states vehemently oppose the third-party releases, their scope would not be unlimited. Most notably, they would not prohibit potential criminal prosecution. In November 2020, Purdue as a company pleaded guilty to three criminal charges of conspiring to defraud the government and violate anti-kickback law. No individuals, however, were charged in connection with that plea.

Coinciding with Purdue’s settlement last year with the Department of Justice, the Sacklers involved with Purdue agreed to a separate $225 million settlement with DOJ to resolve allegations of marketing and financial misconduct. The Sacklers did not admit any wrongdoing as part of that agreement, and they have also denied the allegations of malfeasance leveled against them in Connecticut’s lawsuit and other complaints filed against Purdue.

In light of the ongoing legal battle, Purdue has not yet carried out the restructuring outlined in its settlement framework. The plan calls for the company to be dissolved and for its assets to be transferred into a new public-benefit company, Knoa Pharma, that would focus on using its resources to abate the national opioid crisis. No assets have been transferred yet.

The earliest that Purdue could emerge from bankruptcy would be the first quarter of next year, according to company officials.