OxyContin maker faces growing state pressure

STAMFORD — Connecticut’s expanded lawsuit against Purdue Pharma and its owners positions the state to more aggressively pursue its claims, but does not ensure a full redress of its allegations of deceptive marketing and fraudulent finances against the much-maligned OxyContin maker.

The amended litigation, filed Monday, underscores a hard-line approach by state Attorney General William Tong, who said he would seek a court order to “claw back” funds and block Sackler family members who own the company from taking additional cuts of profits, money that he wants to see used to tackle the effects of the nation’s opioid crisis.

But the updated complaint would neither dispel the complexities presented by a potential Purdue bankruptcy nor eliminate the challenges of taking Connecticut’s case to trial.

“An amended complaint, with more facts, is just as useful as a context for settlement as it would be for going to trial,” said Robert Bird, a professor of business law at the University of Connecticut. “What Tong is doing is strengthening the state’s case.”

Alleged financial wrongdoing

The revised version of the lawsuit, which was originally filed in December against the company and eight of the Sacklers, seizes upon Purdue CEO and President Craig Landau’s recent acknowledgment that bankruptcy is an “option” for the company.

Tong attributes Purdue’s potential need to file for Chapter 11 protection to the Sacklers’ alleged siphoning of Purdue profits. He accuses the owners of paying themselves several billions of dollars between 2010 and 2016 through allocations to several other Sackler-held companies.

Purdue’s annual revenues have averaged about $3 billion, mostly from OxyContin sales, since the drug was approved by the U.S. Food and Drug Administration in 1995, according to the lawsuit.

“Despite knowing that Purdue faces certain liabilities to the states, including Connecticut, Purdue — at the Sacklers’ direction — continued to pay themselves hundreds of millions of dollars each year in distributions during the actionable period for no consideration and in bad faith,” the lawsuit charges. “As a result of defendants’ unlawful distributions to the Sacklers, assets are no longer available to satisfy Purdue’s creditors.”

Purdue and the Sacklers have denied the lawsuit’s allegations.

A bankruptcy could halt the pending litigation. Any subsequent moves would then have to be approved by an overseeing bankruptcy court — a framework that Tong said he would resist if it were used to shield the company from its legal liability.

“This is why we amended our complaint to include claims for fraudulent conveyances and fraudulent transfers,” Tong said Tuesday. “We seek to recover money in the case ... for fraudulent conveyances and fraudulent transfers, but it is also a very clear signal that if you try to run into bankruptcy court, and, I think, misuse our nation’s bankruptcy laws to protect yourself from liability, for which you are fully liable, we will chase you to the ends of the Earth.”

Connecticut’s fraud claims would factor into bankruptcy proceedings, but they would not guarantee the state a stronger position, said Jeff Hellman, a New Havenbased attorney, whose practice concentrates on commercial litigation and bankruptcy.

“If the money was fraudulently transferred to the Sacklers, a committee of Purdue creditors would, in all likelihood, be looking to pull that money back into the bankruptcy estate for all creditors, covering whomever Purdue owes money to, which could also include bondholders or banks,” Hellman said. “The state of Connecticut would get its share, but it wouldn’t necessarily get a bigger share than anyone else.”

Settlement vs trial

In announcing the amended lawsuit, Tong reiterated his intent to take the case to trial.

In doing so, he downplayed the legal influence of the $270 million settlement reached last month between Purdue and Oklahoma.

Oklahoma Attorney General Mike Hunter “made a judgment that $270 million was the right deal for the people of Oklahoma. It would not be the right deal for the people of Connecticut,” Tong said. “In my view, this is a national public health crisis, and the damages are extensive and significant and go far beyond any dollar I can put on it right now. They go far beyond $270 million.”

Meanwhile, the Sacklers have signaled their desire to avoid a trial.

Mary Jo White, an attorney for four of the Sackler defendants, said in an interview with Reuters that her clients would prefer to settle and reach a “global resolution” of the pending litigation, which includes more than 1,000 pending lawsuits against their company.

White represents three children of late Purdue cofounder Mortimer Sackler: Ilene Sackler Lefcourt, Kathe Sackler and Mortimer D.A. Sackler. Another, Theresa Sackler, is his widow.

The entire Sackler family “shares White’s view,” according to Reuters.

But Purdue and Connecticut are “not close” to reaching an agreement, Tong said.

If Tong took the state’s complaint to trial, he could face a skeptical courtroom audience.

In January, a Connecticut Superior Court judge dismissed a similar lawsuit filed against Purdue by about three dozen cities and towns in the state, including Bridgeport, New Haven, New Britain and Waterbury. The plaintiffs have appealed the decision.

Meanwhile, about 1,700 cities and counties’ lawsuits against Purdue and other pharmaceutical firms are proceeding through consolidated “multidistrict litigation,” in federal court in Cleveland.

The MDL parties have been holding their own settlement talks, although they are yet to reach an agreement.