Purdue’s bankruptcy agreement exempts the owners of the Sackler family from opioid liability

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The members of the Sackler family, which owns Purdue Pharma, will pay $4.5 billion to resolve the bankruptcy of the company that invented the powerful painkiller OxyContin. The high prices have brought some rewards: to withstand future financial responsibilities in the deadly opioid epidemic in the United States.

The proposed release opens a function of the US bankruptcy law to protect the third party from litigation even if the third party does not file for bankruptcy. Critics say the clause allows powerful actors to use the legal system to avoid full accountability.

All parties, including the two departments of the U.S. Department of Justice and Purdue University’s hometown of Connecticut, have spoken out. But the deal seems likely to be approved by New York Federal Bankruptcy Judge Robert Delane at a court hearing that begins later this week.

Purdue University filed for bankruptcy protection in 2019 because it fought with municipalities, states, individuals, and others over its role in opioid overdose, which has caused nearly 500,000 deaths. The proposed settlement will transfer the assets of Purdue University to a newly formed company that will develop opioid abuse treatments and manufacture drugs that are not related to pain relief.The Sacklers’ cash will fund the “Emission Reduction Trust” to fund targeted The opioid crisis And compensate the victims.

In return, the release will protect the company’s family owners from future civil lawsuits, even if they are not debtors in the bankruptcy proceedings.

These concessions to so-called non-debtor third parties originated in the 1990s, when Congress passed legislation to protect insurance companies from the bankruptcy of industrial companies facing asbestos liability.

But judges later began to grant third-party releases more freely, especially for private equity companies accused by creditors of divesting portfolio company assets that have entered bankruptcy court.

Now, members of the Sackler family who own Purdue University will receive similar protection — a prospect that some people find disturbing. The U.S. Trustee, a department of the U.S. Department of Justice, wrote in a recent bankruptcy court document that “the release of the Sackler family violates the U.S. Constitution” and added that “the Sackler family will be authorized to purchase hundreds of Individuals were discharged from the hospital because they did not actually apply for bankruptcy relief during the opioid crisis, and to subject themselves to the transparency and creditor protection rules that every consumer and corporate debtor who filed for bankruptcy must comply with.”

Similarly, the U.S. Attorney for the Southern District of New York, Audrey Strauss, filed a letter to the bankruptcy court, claiming that the release was “violating due process” and depriving opioid victims of their “property rights”. Connecticut Attorney General William Tong, who sued Purdue University and members of the Sackler family, complained that the settlement would invalidate the sovereign “police power” of his state.

Judge Drain temporarily suspended the lawsuit against the Sacklers in the early part of the Chapter 11 case, hoping to reach a mutually agreed settlement through mediation. Purdue believes that a permanent exemption from Sackler’s liability is reasonable because it will help ensure that family members and the company make a significant contribution to opioid victims. Purdue’s law firm Davis Polk & Wardwell warned that if there is no global settlement agreement approved by the court, there will be “court races” and “destructive” litigation.

Purdue stated that the company’s bankruptcy reorganization plan “received the support of more than 95% of voting creditors and nearly 97% of state and local government creditors”, calling its level of support “unprecedented”.

A spokesperson for the Sackler family said: “The proposed resolution has overwhelming support from the government and private creditors. It is an important step in providing substantial resources to people and communities in need. The Sackler family hopes that these funds will be available. Help achieve this goal.”

In a court document, the descendants of the late Mortimer Sackler stated that if there is no legal release, the families “will not and cannot agree to provide the necessary funds for the program”.

“The Sackler family firmly believes that if the lawsuit can be concluded, they will eventually be proven correct,” they wrote. “But the burden of defending this lawsuit will be ruthless; the cost of defense will be huge; as 750 current plaintiffs and countless other future plaintiffs compete for the verdict, the chaos that follows cannot be overemphasized. “

Even some critics of Purdue’s bankruptcy process have expressed settlements with the proposed resolution. Leticia JamesThe New York State Attorney General stated that “the Sackler family has used all possible delaying tactics and abused the court to protect their misconduct.”

However, in July, New York and other places signed an enhanced Settlement plan The Sacklers agreed to give up control of the family foundation and not seek any naming rights in cultural institutions. Sackler’s name currently graces several famous museums including the Metropolitan Museum of Art in New York.

“Although this deal is not perfect, we are accelerating the provision of US$4.5 billion in funding to communities ravaged by opioids,” James said when the deal was concluded.

A long-term bankruptcy adviser representing the company believes that a global compromise to resolve civil litigation is still the best outcome. “If creditors are not satisfied with Sackler’s donation, they can insist on asking for more, or vote to veto their approval,” the consultant said.

Purdue has paid billions of dollars in the OxyContin scandal.Last fall it agree Pleaded guilty to three federal felony charges, including defrauding the United States, and paid $3.5 billion in criminal fines and $2 billion in forfeiture. The company also agreed to pay $2.8 billion to settle its federal civil liability. Purdue University previously admitted in 2007 to federal allegations of improper marketing of OxyContin.

No members Sackler family Has been criminally charged for OxyContin. The pending settlement before Judge Drain will not prevent the government from filing criminal charges in the future.

Line chart of deaths per 100,000 shows the rise in deaths from opioid overdose in the U.S.

A document released with the company’s 2020 plea agreement stated that between 2013 and 2018, several family members “approved an initiative that strengthened marketing to a large number of prescribers and resulted in the failure to prescribe OxyContin. It is safe, ineffective and medically unnecessary”.

In 2020, the relevant Sacramento agreed to pay a federal civil fine of $225 million when Purdue reached a settlement with the U.S. Department of Justice.

Although members of the Sackler family paid billions of dollars, some believe that as the bankruptcy draws to a close, they are using the mechanisms of the judicial system for their own benefit. According to an analysis commissioned by Davis Polk, between 2008 and 2019, family members received a net cash distribution of $10.3 billion from Purdue University.

“Courts and cases must not only be fair, but also fair to the public. From this perspective, the bankruptcy of Purdue Pharmaceuticals has public relations issues,” said Melissa Jacoby, a bankruptcy law professor at the University of North Carolina.

Connecticut Attorney General Tang believes that Purdue’s reorganization was mistakenly confused with the Sackler family facing the judicial system. “The Sacklers shined in the opioid crisis. This result shows that powerful people in this world can get away with it.”

In late July, Senator Elizabeth Warren and other members of Congress introduced a bill restricting the release of non-debtors, citing bankruptcies such as Purdue Pharmaceuticals and the Boy Scouts of America and the U.S. Gymnastics Team. They claimed that a “loophole” allowed offenders. “Evasion of personal accountability.”

Documents disclosed by the U.S. Department of Justice last fall indicate that some Sacklers have been paying attention for years that they are facing the financial liquidation of Purdue’s opioid franchise.

In an email in 2007, David Sackler, a former member of Purdue’s board of directors, wrote to his family, telling him that an investment banker once told him: “Your family is already very rich, you don’t want to One thing to do is to become poor.”

He went on to write: “My idea is to increase leverage as much as possible and try to generate some additional revenue. We will probably need it… Even if we have to keep cash, it is better to have leverage now and we can get it. Instead of thinking that it will be by our side when we are sued.”

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