Judge Clears Purdue Pharma’s Restructuring Plan for Vote by Thousands of Claimants

A federal bankruptcy judge in New York indicated Wednesday that he would permit Purdue Pharma’s proposal to remake itself as a nonprofit company to be put to a vote by thousands of plaintiffs, who have sued to compel the maker of OxyContin to help pay for the terrible costs of the opioid epidemic.

The restructuring plan is at the centerpiece of an intensely negotiated blueprint for a collective settlement with more than 600,000 claimants who contend that for two decades the company falsely and aggressively marketed its prescription opioid OxyContin as a nonaddictive painkiller and as a result contributed to hundreds of thousands of opioid-related overdoses and deaths.

Besides protecting the company from further legal action over opioids, the plan includes a blanket release from civil lawsuits for Purdue’s owners, members of the billionaire Sackler family.

The issue of the Sacklers’ liability has been perhaps the most contentious in the proceedings, ever since Purdue filed for bankruptcy protection in 2019, seeking a shield against rapidly accruing lawsuits. The individual Sacklers, members of one of the wealthiest families in the United States, did not seek bankruptcy protection, but they argue that they should be covered by the same release from all present and future lawsuits that their company would be given if the plan is confirmed.

In return, the Sacklers have agreed to relinquish ownership of Purdue and contribute $4.5 billion to the settlement, including $225 million to the federal government. The money would be paid in installments over nine or 10 years, most of it going to a national opioid abatement trust fund, which would then be disbursed to states and municipalities to support addiction prevention and treatment programs.

Judge Robert D. Drain, of the U.S. Bankruptcy Court for the Southern District of New York in White Plains, said that the plan provisionally cleared the legal hurdles of sufficiency, and that he was waiting for a handful of issues to be resolved before the plan is distributed.

Purdue is expected to mail out information packets next week that describe the reorganization plan to the roughly 614,000 claimants in the bankruptcy case, with voting to conclude by July 14.

A final confirmation hearing is scheduled for Aug. 9, at which Judge Drain , likely will hear a flurry of final challenges to the plan that will almost certainly include the question of whether the Sacklers personally can be shielded from further opioid-related lawsuits.

Once the packets are sent out, energetic lobbying for passage of the plan will most likely ensue during the next six weeks, as voters weigh the calculus of accepting less money than they wished in exchange for the immediacy of relief. Even if an overwhelming majority of claimants votes in favor of the plan, as seems apparent at the moment, ultimate approval is up to the judge.

“It’s not unprecedented, but it’s highly controversial” for a bankrupt company’s owners to be released from future litigation as part of a settlement, said Adam J. Levitin, a law professor specializing in bankruptcy at Georgetown University Law Center. “It’s not even clear that the bankruptcy court has the jurisdiction to do this,” as the Sacklers are not parties to the bankruptcy themselves.

Judge Drain has long urged the negotiators to work quickly, because no money can flow to the claimants until the bankruptcy case is concluded.

According to the plan, the reconstituted, as-yet unnamed company would fund about a half-dozen trusts, including separate ones for tribes, adults and children. Proceeds from the sales of the nonprofit’s overdose-reversing medications as well as from moderate quantities of OxyContin would continue to be pumped into these trusts.

But more than 100,000 individual claimants, including relatives of people who died from prescription overdoses, would receive relatively paltry compensation, ranging roughly from $3,000 to $48,000 apiece — before lawyers’ fees and costs are deducted.

Indeed, more than a half-billion dollars overall will go toward fees and costs accrued by plaintiffs’ public and private lawyers.

The oversight of the new trusts will also be expensive. The trust distribution is incredibly complex, said Lindsey Simon, an assistant professor at the University of Georgia School of Law, who has closely followed the case. “From my perspective, the biggest question is how much money will get eaten up in the administration of all those trusts,” she said.

Scott Bickford, a lawyer who represents individuals, families and babies who showed symptoms of withdrawal from drugs they were exposed to in utero, noted that the current proposal did dedicate $60 million for programs to assist these children.

But he contended that more than half the children affected would not receive anything from the settlement because of the strictness of the criteria imposed.

Echoing a sentiment expressed throughout Wednesday’s seven-hour hearing, he said, “As with any compromise, no side got what it truly wanted.”

With the exception of a group of two dozen dissenting states and a coalition of school districts, however, almost all the plaintiff groups have said the Purdue plan is fit to be put to a vote.

Most of the claimants also have cases pending against many other opioid manufacturers, distributors and dispensers.

During Wednesday’s hearing, the judge noted that the mediation of disputes — between groups of plaintiffs, between plaintiffs and Purdue, and between diverse Sacklers and Purdue and plaintiffs — was continuing.

As part of its legal obligation to account for its finances, Purdue commissioned an independent forensic audit of the Sackler withdrawals and expenditures, which showed that from 2008 through 2017, family members withdrew $10.4 billion in cash from the company and took another $1.4 billion in noncash transactions. Lawyers representing members of the Sackler family have said that about half that amount has gone to paying taxes.

Marshall Huebner, the lead bankruptcy lawyer for Purdue, said that while the company could continue to pursue the Sacklers to determine whether family members had fraudulently siphoned company cash into their own accounts, such a process would be lengthy and contentious and vacuum up funds that could otherwise swiftly go toward ameliorating the opioid crisis.

According to the Centers for Disease Control and Prevention, overdose deaths, including those from fentanyl and heroin, rose to rates during the past year that exceeded any year of the opioid epidemic.

Should voters reject the bankruptcy plan and instead choose to pursue the Sacklers, Mr. Huebner said, “lawyers would make billions and the claimants potentially get little to nothing, and it’s years and years away.”

Lawyers for one group of Sackler descendants have introduced a website with documents and talking points intended to respond to the prevailing narrative about the involvement of family members in the epidemic.

Andrew M. Troop, a lawyer for the two dozen states that oppose the plan, said that it fell short of revealing the full extent of the family members’ wealth. A recent investigation by the House Committee on Oversight and Reform found that the Sacklers are collectively worth about $11 billion.

“Everyone is entitled to know what the Sacklers are worth today,” Mr. Troop said in the hearing. “Gauging a settlement and gauging a claim has a lot to do with what are they worth.”

But Judge Drain said that the $11 billion figure was misleading and that plaintiffs shouldn’t think they could claw back the entire amount. He said Sackler family members held varying amounts, and some were more involved in Purdue’s opioid strategies than others.

“It’s not like Scrooge McDuck, who takes a bath in his vault of cash in his apartment,” Judge Drain said in the hearing. “There’s not one Scrooge McDuck — there are a lot of them.” And it’s not all cash, he added.

Purdue lawyers agreed to add more information about the Sackler holdings to help inform the voting creditors. The creditors have been divided into groups, according to what kind of claims they have made, so that dozens of hospitals in the case, for example, will not have to vote against the 7,600 states and municipalities, which have different stakes and interests.

Judge Drain said that fundamentally the plan was about collecting money to abate the opioid crisis.

It is fair for parties to say the current amount is insufficient, he said, although he noted that negotiations were ongoing. Final amendments must be submitted seven days before the voting deadline.

But ultimately, he added: “People have a decision to make for the people of their states. ‘Do I take the risk of taking nothing or a lot less, or do I go along with the settlement?’”

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