On Tuesday, a federal appeals court granted members of the billionaire Sackler family a legal golden key they’ve been seeking for nearly four years: The Sacklers will be protected from all civil opioid claims related to their company, Purdue Pharma, the maker of the prescription pain reliever OxyContin. In return, they have agreed to make payments of up to $6 billion to thousands of plaintiffs in now-pending lawsuits.
The ruling was part of a judicial review of a bankruptcy restructuring plan for Purdue, which filed for Chapter 11 protection in September 2019. Businesses that go bankrupt are usually protected from legal claims; owners who have not filed for personal bankruptcy usually do not.
When the company filed for bankruptcy, the Sacklers faced about 400 lawsuits over their role in Purdue’s opioid business. They have long insisted that the company’s liability shield should also apply to them. Without such protections, they said, they would have no reason to pay billions to settle all opioid cases and help their company resolve bankruptcy.
Legal experts say the ruling by the US Court of Appeals for the Second Circuit has implications for the Purdue case in particular and for business owners seeking bankruptcy in general.
So the case is over?
Not yet. The ruling clears a major hurdle in what has been a winding road. But before any money can be disbursed to states, communities, tribes and individuals, the final draft of the bankruptcy plan must go back to a federal district court judge, who will apply the appellate court’s instructions. The plan, now in its 12th amended version, will then return to the US Bankruptcy Court in White Plains, NY, for final approval and administration.
Since each stage in the Purdue bankruptcy case has inflated any forecast of timing, it would be unwise to estimate how long it will take for the first check to be in the mail.
What does this mean for the Sacklers?
The family has been off Purdue’s board since 2018. If bankruptcy takes effect, they no longer own the business and receive no compensation. But they will still be very rich.
Some estimates put Sackler’s total fortune at $11 billion, with a significant amount in offshore accounts. The bulk of the payments will be paid out over nine years, mostly out return on their investments, supported by the eventual sale of their international opioid business.
The Sacklers have long been philanthropists, with the family name on numerous buildings, though many institutions have removed the Sackler name from public view in recent years. In the bankruptcy settlement plan, they agreed to allow U.S. academic, medical, and cultural institutions to remove the Sackler name from their physical facilities, so long as the programs agree not to discredit the Sacklers.
What does this mean for Purdue?
Purdue Pharma, which aggressively marketed OxyContin as a non-addictive extended-release pain reliever after it was introduced in the 1990s, will cease to exist and its assets will be transferred to a newly formed company called Knoa. It will produce opioid addiction treatments and opioid reversal drugs on a non-profit basis, while continuing to make existing drugs like OxyContin, with those profits helping to seed settlement funds. To reduce the risk of products being illegally diverted, Knoa will be overseen by an independent regulator.
What does it mean for states, counties, cities and towns?
Over time, they will collectively receive $6 billion in cash plus more from insurance schemes. Each state has its own formula for how Purdue funds are distributed, but the overarching mission is that the funds are largely used for measures to mitigate the opioid crisis, such as treatment and prevention programs.
What does this mean for tribes?
Each of the 574 federally recognized Indian tribes is eligible to receive payouts from a tribal trust set up under the settlement for approximately $161 million, even though not all of them sued Purdue.
What about individual victims?
A fund of between $700 million and $750 million will be distributed to individual victims and families of people who became addicted to OxyContin or died of an overdose. Approximately 138,000 claims filed; payments are expected to range from about $3,500 to $48,000. Guardians of about 6,550 children with a history of neonatal abstinence syndrome can receive about $7,000 each. While the payouts are relatively small, this is one of the few opioid settlements that pharmaceutical companies have negotiated that put money aside for individuals.
Will the decision be appealed?
Not necessary. Many states dropped their objections to the plan and the Sacklers’ push for immunity when, after months of furious mediation, the Sacklers increased their offer by about $1.73 billion to the current estimate of $5.5 billion to $6 billion.
The strongest candidate to continue attacking Sacklers’ legal shields — the underpinnings of the settlement itself — is the U.S. Trustee Program, an agency within the Justice Department that serves as a watchdog for bankruptcy proceedings. The agency has not publicly commented on Tuesday’s ruling.
The larger issue at the heart of the case is whether a bankruptcy court has the power to permanently bar plaintiffs from suing business owners who have not sought personal bankruptcy protection. The US Trustee Program has long argued that doing so would deprive plaintiffs of basic due process rights.
Federal appeals courts are conflicted. The Ninth, Tenth, and Fifth Circuits are among those that prohibit the practice in bankruptcy cases filed in their domains.
But the Sixth and Seventh Circuits have ruled that owners who contribute substantially to resolving their company’s bankruptcy restructuring can benefit from the permanent block of lawsuits against them.
The Second Circuit’s bankruptcy rulings apply to cases filed in Connecticut, Vermont, and especially New York, where the Southern District is a popular place for major bankruptcies. The Second Circuit’s previous opinions on the matter have been mixed.
Now the decision in the Purdue case, which is in favor of the Sacklers, is more solid: the practice can continue if certain criteria are met.
Given the disagreement between the federal circuits, would the US Trustee Program continue to take the issue to the Supreme Court?
Lindsey Simon, an expert on the bankruptcy system at the University of Georgia School of Law, didn’t rule out the possibility, but was skeptical. While many people hate the Sacklers and this outcome, she said, “states and other plaintiffs want their money.”
She added: “I don’t think it is beneficial for anyone to push for this matter to be settled.”