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A federal judge yesterday rejected the Purdue Pharma settlement that would grant lifetime legal immunity to the Sackler family for their role in the opioid crisis, finding that the bankruptcy court doesn’t have the authority to approve legal immunity for people who did not declare bankruptcy. The ruling to vacate the bankruptcy plan was issued by Judge Colleen McMahon in US District Court for the Southern District of New York.
Non-debtors like the Sackler family members aren’t obligated to “disclose their assets and apply them… to the resolution of the claims of their creditors,” McMahon noted. Because non-debtors do not have those obligations, they also “do not have any rights at all under the ‘special remedial scheme’ that is bankruptcy—certainly not the ‘right’ to have claims that are being asserted against them outside the bankruptcy process released.”
The $4.5 billion settlement was previously approved by a judge in US Bankruptcy Court for the Southern District of New York. While 15 US states agreed to the settlement, eight states and the District of Columbia objected to it and filed appeals. US government officials also objected to the settlement.
“Sackler Family must be held accountable”
“We are pleased with the District Court’s decision invalidating the Purdue Pharma bankruptcy plan,” US Attorney General Merrick Garland said. “The bankruptcy court did not have the authority to deprive victims of the opioid crisis of their right to sue the Sackler family.”
California Attorney General Rob Bonta applauded the ruling, saying that “the Sackler Family must be held accountable for their contribution to the ongoing opioid crisis. Too many California communities have unfairly paid the price for their willful misconduct, and the bankruptcy plan would have allowed them to exchange money for lifetime immunity—falling far short of true accountability.”
Purdue said it will appeal the ruling. “It will delay, and perhaps end, the ability of creditors, communities, and individuals to receive billions in value to abate the opioid crisis,” Purdue Chairman Steve Miller said, according to the Associated Press. “These funds are needed now more than ever as overdose rates hit record-highs, and we are confident that we can successfully appeal this decision and deliver desperately needed funds to the communities and individuals suffering in the midst of this crisis.”
The settlement money would be used for prevention, treatment, and recovery programs throughout the US.
Sacklers took $10.4 billion out of Purdue
“All Appellants assign the same reason for their opposition: the Plan provides broad releases, not just of derivative, but of particularized or direct claims—including claims predicated on fraud, misrepresentation, and willful misconduct under various state consumer protection statutes—to the members of the Sackler family (none of whom is a debtor in the bankruptcy case) and to their affiliates and related entities,” McMahon wrote. The judge continued:
As the opioid crisis continued and worsened in the wake of Purdue’s 2007 Plea Agreement, the Sacklers—or at least those members of the family who were actively involved in the day to day management of Purdue—were well aware that they were exposed to personal liability over OxyContin. Concerned about how their personal financial situation might be affected, the family began what one member described as an “aggressive[]” program of withdrawing money from Purdue almost as soon as the ink was dry on the 2007 papers. The Sacklers upstream[ed] some $10.4 billion out of the company between 2008 and 2017, which, according to their own expert, substantially reduced Purdue’s “solvency cushion.” Over half of that money was either invested in off-shore companies owned by the Sacklers or deposited into spendthrift trusts that could not be reached in bankruptcy and off-shore entities located in places like the Bailiwick of Jersey.
When the family fortune was secure, the Sackler family members withdrew from Purdue’s Board and management. Bankruptcy discussions commenced the following year. As part of those pre-filing discussions, the Sacklers offered to contribute toward a settlement, but if—and only if—every member of the family could “achieve global peace” from all civil (not criminal) litigation, including litigation by Purdue to claw back the money that had been taken out of the corporation.
The settlement approved by the bankruptcy court “extinguishes all civil claims against the Sacklers that relate in any way to the operations of Purdue—including claims on which certain members of the Sackler family could be held personally liable to entities other than Purdue (principally the various states),” McMahon wrote.
