Legal shield for Purdue Pharma owners is at heart of appeals

The end of the Purdue Pharma bankruptcy case has left a bitter taste for those who wanted to see more accountability for members of the Sackler family.

The Sacklers will give up ownership of the company, go out of the international opioid business and pay $4.5 billion in cash and charitable assets under the settlement. But they also will escape any future liability over the nation’s addiction and overdose crisis as part of the deal that was given preliminary approval this week by a federal bankruptcy judge.

Some state attorneys general and one federal government office are planning appeals.

The question at the heart of their arguments: Is it appropriate for members of a wealthy family that did not file for bankruptcy themselves to get such a broad protection?

Attorneys and victim advocates involved in a case that included lawsuits from some 3,000 governments and other entities said the members of the Sackler family who have owned Purdue played instrumental roles in overseeing the company and marketing OxyContin. Critics say the company's best-selling prescription painkiller helped fuel the opioid crisis in the U.S.

“They get to retain literally billions of dollars they took out of Purdue Pharma while it was causing addiction and death all across our country and all across the world,” Maryland Attorney General Brian Frosh told The Associated Press in an interview.

Frosh said he was considering an appeal.

Lawyers for Connecticut, the District of Columbia, Washington state and the U.S. Bankruptcy Trustee, an arm of the federal Department of Justice tasked with protecting the bankruptcy process, have said they intend to appeal.

Under the settlement, Sackler family members are getting what's known in the bankruptcy world as a “third-party release.” It's one of the most contentious issues in bankruptcy law.

The releases have been used in complicated bankruptcy cases involving multiple parties to encourage settlements that might be difficult or impossible to reach otherwise. Dow Chemical, an owner of Dow Corning, was released from lawsuits in the 1990s over dangers of the latter company's silicone breast implants. Owners of companies that produced asbestos were protected from lawsuits over cancer risks associated with their products that began in the 1980s.

Some federal appeals courts have rejected the releases, but the majority have accepted them. That includes the 2nd Circuit, which could handle appeals of decisions from U.S Bankruptcy Judge Robert Drain, who ruled in the Purdue case from his courthouse in White Plains, New York.

Longshot legislation pending in Congress, titled "The SACKLER Act," would ban third-party releases. Even if it were adopted, it would be too late to affect its namesake case.

In his preliminary ruling from the bench earlier this week, Drain discussed at length the reasons he was allowing the protection for family members as part of the settlement.

“I wish the plan had provided for more" from Sackler family members, he said, “but I will not jeopardize what the plan does provide by denying confirmation.”

The settlement forces the Sacklers to give up ownership of Purdue and turns it into a new company with a board of directors appointed by government officials. Money from the family, company accounts and future profits are to be used to pay some individual victims of the opioid crisis and to fund treatment, education programs and other efforts to combat the epidemic.

The crisis has been linked to more than 500,000 overdose deaths in the U.S. since 2000 involving either prescription painkillers or illicit ones such as heroin or illegally made fentanyl.

Purdue Pharma, based in Stamford, Connecticut, has estimated that the settlement could be worth $10 billion, including the value of overdose antidote and addiction treatment drugs it's been developing.

Sackler family members, whose combined wealth has been estimated at over $10 billion, have been clear that without protection from lawsuits, they would not contribute to the settlement.

During a hearing on the reorganization plan last month, experts said it could be impossible to force payments without a settlement because much of the family's fortune is overseas. The bankruptcy judge said some family members are foreign citizens, potentially putting their assets further out of reach.

A further complication: Purdue pleaded guilty last year to federal criminal offenses, agreeing to a $2 billion forfeiture. Under their plea deal, the company has to pay only $225 million of that to the federal government as long as it settles its other opioid lawsuits and uses proceeds to fight the crisis. If the bankruptcy settlement is upended, Purdue would have to pay the federal government another $1.7 billion — and that would leave far less money to divide between the states, local governments and opioid victims.

“If they continue to appeal, if they win, what do they get?" said Lindsey Simon, an assistant law professor at the University of Georgia School of Law who teaches bankruptcy law. "The answer is, probably complete chaos and less money.”

That's a view that many state government lawyers have adopted.

About half the nation's state attorneys general, including nearly every Democrat to hold the office, initially opposed the settlement. In an interview with the AP last June, Massachusetts Attorney Genera Maura Healey heavily criticized the protections for Sackler family members: “They want to continue to be rich and they will likely be richer after paying the settlement than they are today. That doesn’t sit right with me, and it shouldn’t sit right with anyone,” she said.

But in July, Healey and the majority of other attorneys general came to accept the plan after Sackler family members agreed to pay more money and dole it out faster. Purdue also agreed to make public millions of company documents, including some that would normally be protected by attorney-client privilege.

Those still pushing against the deal include Connecticut Attorney General William Tong.

“This is some of the worst corporate misconduct we have ever seen," he told the AP. "It's not just about taking the deal or getting as much money as you can and getting out of Dodge. It's about doing justice, holding them accountable.”

Anthony Casey, a professor at the University of Chicago Law School, said those upset at the judge for the third-party releases might not be steeped in bankruptcy law: “The criticisms of him are a little outrageous in the fact that he’s doing what bankruptcy judges do."