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Purdue Pharma and its owners, members of the Sackler family, are nearing the end of their decades-long association with opioids, seeking court approval to pay billions of dollars and walk away from the business that helped make their fortune.
US bankruptcy judge Robert Drain will on Thursday begin what is expected to be an 11-day trial — the longest in his career — to review a proposal the company values at more than $10bn to settle trillions of dollars in liabilities over its addictive painkiller OxyContin.
If Purdue’s plan is approved, the family will pay $4.5bn over nine or 10 years and essentially hand over the keys to the business, with almost all future proceeds benefiting states, counties and cities hit hard by the opioid epidemic. In exchange, the Sacklers get lifetime immunity from a broad array of opioid-related lawsuits. If the settlement is rejected, family members are likely to find themselves ensnared in costly litigation that would drag on for years.
The trial in New York is the culmination of years of political pressure and public outcry over Purdue. Critics oppose the bankruptcy and say the company remains a symbol of corporate greed. US Senator Elizabeth Warren of Massachusetts last week called for an immediate appeal against Purdue’s plan, arguing it allows the Sacklers to “avoid personal accountability” through “abuse” of the courts, while comedian John Oliver this week delivered a 23-minute diatribe decrying the deal for leaving the family with much of the riches it earned from OxyContin sales.
“Purdue aggressively marketed what was essentially an uncontrolled experiment on the American public,” lawyers for the states of Washington and Oregon said in an objection to the plan. “While the billions of dollars dealt with under the plan create the appearance of being massive and substantial, they are woefully insufficient in the context of the opioid epidemic.”
But trial onlookers hoping for a Sackler-bashing spectacle and sweeping debate over the effect of OxyContin on Americans are likely to be disappointed.
The judge has made clear that he is expecting narrow argument and testimony regarding the often arcane machinations of bankruptcy law that make Purdue’s plan legally viable. On Monday, Drain went so far as to say he would “simply cut people off if they’re wasting time”, signalling little patience for time spent analysing the wealth of Purdue’s owners, who are the descendants of the brothers Raymond and Mortimer Sackler, and the merits of legal action against them.
Those hoping to disrupt Purdue’s plan have little reason for optimism. Voting tallies show the company’s creditors are generally supportive of the settlement. Long-time dissenters such as the states of New York and Massachusetts have dropped their opposition in recent weeks. And Drain has not expressed serious concern about the legality of the plan despite ample opportunity to do so.
“I would be shocked if it wasn’t confirmed,” said Bruce Markell, a former bankruptcy judge and current visiting professor at Cornell University. Skilled bankruptcy judges tend to make their concerns known well in advance of confirmation hearings, and high-quality lawyers understand how specific judges tend to rule on important issues, he said. “What we’re seeing here is very good lawyering.”
In an e-mailed statement, Purdue highlighted the broad creditor support for its settlement and said the proposed plan complies with bankruptcy rules. “This plan is what the private and governmental plaintiffs asserting trillions of dollars of claims against Purdue and the Sacklers overwhelmingly want, voted for and support,” according to the statement.
Representatives for the Mortimer Sackler wing of the family declined to comment while those for the Raymond Sackler wing did not respond to a request for comment.
Still, obstacles remain. Attorneys-general from about 10 states are still opposed to the plan and have filed objections, along with the US department of justice’s bankruptcy watchdog. The federal government itself has called aspects of the plan unconstitutional, but stopped short of trying to block it. Much of the debate centres on whether Purdue’s bankruptcy judge has the authority to release members of the Sackler family from legal claims even though they have not filed for bankruptcy themselves.
So-called nonconsensual third-party releases are a divisive issue, with federal court districts for years disagreeing on when they are appropriate, if ever. But Purdue’s judge has granted similar releases in the past, and the company will argue that they are a crucial part of the bankruptcy plan, which will shuttle billions of dollars towards programmes aimed at addiction treatment and combating opioid abuse.
In court papers lawyers for the Mortimer Sackler family have said they “firmly believe that, if litigation were to proceed to conclusion, they would ultimately be vindicated. But the burden of defending that litigation would be unrelenting; the cost of defence would be enormous.”
“I look forward to the time that the billions of dollars that my family and the Mortimer Sackler family have offered in the proposed Shareholder Settlement can be put to work to abate the opioid crisis,” David Sackler, a descendant of Raymond Sackler, said in a court declaration filed last week. “The alternative to the Shareholder Settlement is litigation. I believe that we have good legal defences to the claims asserted against my family. If the Shareholder Settlement and releases are not approved, my family and I will vigorously defend ourselves.”
The bankruptcy case is Purdue Pharma LP, 19-23649, US Bankruptcy Court for the Southern District of New York (White Plains)
Bloomberg News. More stories such as this are available on bloomberg.com
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.