Judge begins Purdue review

Drain takes up bankruptcy settlement plan, starts with focus on legal protections sought by company and owners

STAMFORD — The federal judge overseeing the bankruptcy case of OxyContin maker Purdue Pharma began his review this week of the company’s settlement plan, with much of the first two days of the hearing focusing on contentious legal protections sought by the company and its owners.

Stamford-based Purdue is aiming to gain Judge Robert Drain’s approval of a plan that it values at more than $10 billion, but one that is opposed by Connecticut and eight other states. Also known as a “plan of reorganization,” it would resolve several thousand lawsuits from local and state governments alleging that the firm fueled the opioid crisis with deceptive marketing of OxyContin.

It also calls for making settlement payments to individuals, with more than 134,000 personalinjury claims filed against Purdue through the bankruptcy. At the same time, the proposal calls for the Sackler family members who own Purdue to relinquish control of the company and for the firm to be converted into a “public benefit company” focused on using its funds to tackle the opioid crisis.

Among other key terms, the settlement plan would release the company and the Sacklers from the pending complaints as well as potential claims related to Purdue. The Sacklers have not personally filed for bankruptcy.

The prospective releases are a condition of the Sacklers’ offer to contribute about $4.3 billion in cash to the settlement. In 2020, Forbes estimated the Sackler family’s net worth at nearly $11 billion.

“I think the debtors (Purdue) understood that a prerequisite to getting a settlement … would be a requirement by the Sacklers for, effectively, what I’ll refer to as ‘global peace,’” John Dubel, chairman of the special committee of Purdue’s board of directors, said Thursday on the first day of the hearing, which is being conducted remotely.

“That would include releases by the debtors and third-party releases. How that was going to be implemented was something that would ultimately have to be worked out and has subsequently been worked out through the mediation process and 95 percentplus support of the creditors for this plan of reorganization,” Dubel said.

Dubel was cross-examined by Irve Goldman, an attorney with the law firm Pullman & Comley, who is representing Connecticut in the hearing.

Purdue’s plan also seeks releases for Sackler family members who have not been directly involved in the company, as well as certain other people and entities associated with Purdue.

“The releases currently contemplated in the plan… are important because history has shown that plaintiffs will pursue individuals in litigation related to the debtors even if the individual has little or no connection to the debtors,” Garrett Lynam, general counsel for Kokino LLC, a family office owned by the family of late Purdue co-owner Jonathan

Sackler, and executor of the estate of Jonathan Sackler, said in a declaration submitted to the bankruptcy court. “For example, the children of Jonathan Sackler, who never had any role with the debtors (other than summer internships or similar short-term educational experiences when they were in school) were subjected to extensive document discovery in these bankruptcy cases.”

During Lynam’s testimony in the second day of the hearing on Friday, Drain sought further explanation of the need for releases for Purdue-associated parties.

“I took it from your answer to my prior question that the people who are putting up the money, either directly or through their companies, don’t want to have a risk that a consultant like (the hypothetical) ‘X Co.,’ be subject to (potential) Purdue-related litigation,” Drain said. “And I took it

from your answer… that people who are paying don’t want to be dragged into the litigation. But I’m asking you, how would they be dragged in other than as a witness or someone providing discovery?”

“Your honor, I’m not sure they would be dragged in other than as a witness or providing discovery,” Lynam replied.

At the end of Friday’s proceedings, Drain said that “I think the parties should take away today, though, that I do have some concerns about the breadth of these releases.”

In the first two days of the hearing, witnesses also testified about other issues such as the distribution of settlement funds to tackle the opioid crisis, major changes in the company’s operations in the past few years and key events in the bankruptcy in recent months.

The hearing’s first day lasted about five and a half hours, followed by about six hours on Friday. The hearing will continue Monday and could take up to about two weeks.

Connecticut maintains its opposition

Some of the top elected officials in Purdue’s home state are among the most vociferous critics of the company.

In December 2018, Connecticut filed its lawsuit against Purdue and the Sacklers. It has opposed Purdue’s settlement plan since the company filed for Chapter 11 bankruptcy in September 2019 in federal bankruptcy court in White Plains, N.Y.

California, Delaware, Maryland, New Hampshire, Oregon, Rhode Island, Washington and the District of Columbia have also rejected the company’s proposed settlement terms.

“We will not consent to a plan that seeks to strong-arm us into releasing our claims against the Sacklers and allowing them to walk away with their wealth intact while victims of the opioid epidemic and their families suffer and grieve,” Connecticut Attorney General William Tong said last month. “I remain firmly opposed and will continue to fight until all viable options are exhausted.”

In a related move, U.S. Sen. Richard Blumenthal, D-Conn., said last month that he would introduce a Senate version of the “Stop Shielding Assets from Corporate Known Liability by Eliminating Non-Debtor Releases Act,” or SACKLER Act. Introduced in the House of Representatives in March by U.S. Reps. Carolyn Maloney, D-N.Y., and Mark DeSaulnier, D-Calif., the bill aims to close a perceived loophole by preventing those who have not filed for bankruptcy from obtaining releases from lawsuits brought by government bodies.

While Purdue needs to secure Drain’s support to enact its settlement plan, it has already secured the backing of about 95 percent of voting creditors, including about 40 states.

If Drain were to approve Purdue’s plan, Tong has said that Connecticut would “consider all of our viable options at that time.”