Purdue Pharma’s bankruptcy plan OK’d
Judge’s decision includes provision to hold Sacklers free from liability for opioid deaths
STAMFORD — Connecticut Attorney General William Tong vowed Wednesday to keep fighting OxyContin maker Purdue Pharma’s settlement plan after the judge overseeing its bankruptcy approved the proposal — a framework that the state opposes in large part because of the far-reaching legal protections it provides to the company’s owners.
In a decision that comes nearly two years after Stamford-based Purdue filed for Chapter 11 bankruptcy, Judge Robert Drain confirmed a plan that would lead to the company’s dissolution as part of the resolution of several thousand lawsuits alleging the firm fueled the opioid crisis with deceptive OxyContin marketing.
Purdue values the proposal at more than $10 billion, but Connecticut and several other states still object because they said they see its funding as insufficient to tackle the opioid epidemic and unacceptable in the legal protections it gives to the Sackler family members who own the firm.
“I wish the plan had provided for more, but I will not jeopardize what the plan does provide for by denying confirmation,” Drain said Wednesday afternoon at the end of his bench ruling, which took him about six hours to deliver during a remotely held hearing.
He reached his decision after
presiding over a “confirmation hearing,” which started Aug. 12 and included six days of witness testimony and two-and-a-half days of oral arguments from parties supporting and opposing the proposal.
Tong said in a statement after Drain’s ruling that he plans to file a notice of appeal and that the state is “actively weighing all options for next legal steps in conjunction with other opposing parties.
“This decision is a slap in the face to the millions of suffering and grieving Americans who have lost their lives and loved ones due to the Sacklers’ calculated and craven pursuit of opioid profits,” Tong said in the statement.
Having secured Drain’s approval, Purdue officials said that they intend to move forward with enacting the settlement plan, which they refer to as a “plan of reorganization.”
“Confirmation is proof positive that representatives of disparate stakeholders can work together under difficult circumstances and produce an outcome that is truly in the public interest,” Purdue Chairman Steve Miller said in a statement. “Instead of years of valuedestructive litigation, including between and among creditors, this plan ensures that billions of dollars will be devoted to helping people and communities who have been hurt by the opioid crisis.”
Purdue is still finalizing the timeline to transfer its assets into NewCo, its successor company, which would focus on using its funds to tackle the opioid crisis. Marshall Huebner, an attorney representing Purdue, said at the end of the hearing Wednesday that the process could take several months.
When NewCo emerges, Purdue will be dissolved, according to company officials.
Purdue’s plan allots approximately $5 billion “in value” for trusts to fund programs to abate the opioid epidemic. In addition, it would allocate an additional $700 million to $750 million, minus certain deductions, to “qualified” personal injury claimants. Those recipients are expected to each receive payments ranging between $3,500 and $48,000.
“It is very clear to me that the use of the bulk of the debtors’ value for abatement purposes is clearly in good faith — and in fact highly beneficial — to those who have individual claims against the debtors as well as the communities and states that also have claims,” Drain said. “It is also clear to me that those procedures, both for abatement and the governance of NewCo, are facilitating not only the purposes of the bankruptcy code, but the broader good.”
Despite agreeing to settle, Purdue has denied the lawsuits’ allegations.
Objections to Sacklers’ legal protections
Arguably the most controversial component of Purdue’s settlement plan is a stipulation for the Sacklers who own the company to be released from the pending lawsuits, as well as potential opioid-related claims. The plan also seeks releases for many other parties associated with Purdue and its owners, including Sackler family members not directly involved with the company.
Those protections are a condition of the Sacklers’ offer to contribute $4.325 billion in cash to the settlement and also allow $175 million held in Sackler family charities to help tackle the opioid crisis. In addition, the Sacklers agreed last year to a $225 million settlement with the Department of Justice to resolve allegations of marketing and financial misconduct, although they did not admit any wrongdoing as part of that agreement.
“It is without doubt the case that without these releases, the Sackler shareholder released parties would not agree to the payments under the plan,” Drain said. “They understandably, I believe, are insisting on that because that is their consideration in return for the consideration they’re providing to the estate. I’ve already concluded that without the releases, the plan would unravel and, in all likelihood, the debtors’ case would convert to a case under Chapter 7 of the bankruptcy code.”
The releases, however, do not prohibit potential criminal prosecution. Last November, Purdue as a company pleaded guilty to three criminal charges of conspiring to defraud the government and violate antikickback law. No individuals, however, were charged in connection with that plea.
“If anyone that is obtaining a civil release under this plan has engaged in criminal activity, either before or during this case, they are not relieved from the consequences of that,” Drain said. “If any prosecutor wants to pursue such a claim against the released parties, they can.”
Tong, however, is vehemently opposed to the releases.
“Our bankruptcy system is broken. Connecticut is prepared to appeal, and we are weighing all viable options to preserve our claims against the Sacklers,” he said. “The Sacklers are not bankrupt, and they should not be allowed to manipulate bankruptcy laws to evade justice and protect their blood money… We need bankruptcy reform now to close the nondebtor release loophole to ensure wealthy bad actors cannot misuse our bankruptcy courts to escape justice.”
Sen. Richard Blumenthal, D-Conn., has taken a similar position. He is advancing legislation in Congress that seeks to bar the types of legal protections that the settlement plan provides to the Sacklers whom he said in a statement had embarked on “a shameful quest to avoid responsibility for their deliberate, reckless disregard of human life.”
“This ruling should be an impetus for Congress to enact strong and substantial reforms to the bankruptcy code to ensure that future Sacklers cannot follow their immoral example,” said Blumenthal, who sued Purdue when he previously served as state attorney general. “While Congress works to pass legislation, I urge the U.S. Department of Justice to appeal today’s misguided ruling and demand that the Sacklers be held accountable.”
In a statement, the family of late Purdue co-founder Mortimer Sackler expressed support for Drain’s ruling and denied any wrongdoing related to Purdue.
“We want to express our determination to make a constructive difference through this resolution,” the Mortimer Sackler family said in the statement. “While we dispute the allegations that have been made about our family, we have embraced this path in order to help combat a serious and complex public health crisis. We hope that the resolution will signal the beginning of a farreaching effort to deliver assistance where it is most needed.”
The family of late Purdue co-founder Raymond Sackler said in their own statement that “this resolution is an important step toward providing substantial resources for people and communities in need, and it is our hope these funds will help achieve that goal.”
Among the approximately 40 witnesses who testified in the confirmation hearing were four of the Sacklers who own Purdue and are named as individual defendants in Connecticut’s lawsuit against the company.
In reference to the Sacklers’ testimony, Drain said that “none would state an explicit apology, which I suppose is understandable given the legal risks they face in making an apology before a settlement, when there is an objection to the statement.”
He went on to say “one of the witnesses frankly did not accept any level of responsibility. The other three, with differing degrees of emotion, did in terms of stating their regret for what their company had done. A forced apology is not really an apology, so we will have to live without one.”
At another point Wednesday, Drain said “nor do I have any particular fondness for the Sacklers or sympathy for them.”
The Sacklers, whose family net worth was estimated last year by Forbes to be nearly $11 billion, have not personally filed for bankruptcy.
Acknowledging criticism of plan
Before Drain’s ruling, the settlement plan had already gained the support of about 95 percent of voting creditors. But the turnout comprised only about 20 percent of the total number of claimants.
Thirty-eight states backed the settlement framework, although many said they still have misgivings about the agreement. In addition to Connecticut, California, Delaware, Maryland, Oregon, Rhode Island, Vermont and Washington oppose the plan, while West Virginia filed a limited objection to certain parts of the proposal. Other objectors include the District of Columbia and the U.S. Trustee, which represents the Department of Justice in the bankruptcy.
“There is no conceivable way to determine the preferences of those who didn’t vote other than that they didn’t object and they took no position and no vote,” Drain said. “But where a vote is as extensive as this — with well over 100,000 people voting — under any measure, this plan has been overwhelmingly accepted. Of course, it is the vote that counts under section 26 of the bankruptcy code and in every election.”
Among other key moments, Drain acknowledged criticisms of the distribution of the settlement funds, including unhappiness among many victims’ family members about the amount of the payouts for personal-injury claimants.
The opioid epidemic is one of the worst public health crises in American history. It resulted in nearly 500,000 deaths from overdoses in the U.S. between 1999 and 2019, according to the Centers for Disease Control and Prevention. Last year, opioids were involved in 1,273 deaths in Connecticut — up 13 percent from 2019, according to the state Office of the Chief Medical Examiner.
“I have said more than once… that one cannot put a price on a human life or an injury such as opioid addiction,” Drain also said. “And yet that’s what courts do with respect to personal injuries. They take into account a number of factors which are relevant legally including potential defenses or dilution of the claim and causation. The amount the courts reach is rarely, in terms of dollars, sufficient compensation. That is particularly the case where the wrongdoer is insolvent.”
Drain also said that he was hopeful that the repository of documents created through Purdue’s bankruptcy would help improve oversight of prescription opioids such as OxyContin, by providing a “guide (to) legislators and regulators as to how better to address the company that has a legal product that is also incredibly dangerous.”