24 States Mount Legal Fight To Block Sackler Bid For Opioid Immunity

May 3, 2021
Originally published on May 4, 2021 8:06 pm

For months, members of the Sackler family that owns Purdue Pharma, the maker of Oxycontin, have portrayed their bid for immunity from future opioid lawsuits as a kind of fait accompli, a take-it-or-leave-it fix to a legal morass.

In exchange for what amounts to a legal firewall for the Sacklers and their remaining empire, members of the family have offered to forfeit control of their bankrupt drug company and pay $4.2 billion from their private fortunes.

Judge Robert Drain, who is presiding over the case in White Plains, N.Y., has suggested that such a deal may be desirable and achievable along these broad lines.

A negotiated settlement could preempt years of costly litigation — the Sacklers deny any wrongdoing — and might accelerate financial aid to communities struggling to recover from an opioid epidemic that has already cost more than 450,000 lives.

But a growing group of public officials and activists is mounting a last-ditch effort to derail the plan, describing it in legal briefs as an unethical, and possibly unlawful, use of the bankruptcy court's power.

Late last week, 24 state attorneys general as well as the attorney general for Washington, D.C., filed a new brief describing the proposed settlement as "unprecedented," "unjust" and "unconfirmable as a matter of law."

"The bankruptcy system should not be allowed to shield non-bankrupt billionaires," said Massachusetts Attorney General Maura Healey in an interview with NPR.

"It would set a terrible precedent. If the Sacklers are allowed to use bankruptcy to escape the consequences of their actions, it would be a roadmap for other powerful bad actors."

State AGs aren't alone in objecting to the deal. In recent weeks, attorneys representing local and state governments, native tribes and opioid activists filed briefs raising legal and ethical concerns about the plan.

A division of the Justice Department that oversees bankruptcy cases also filed a brief questioning whether the bankruptcy court has the "authority and jurisdiction" to approve such a plan.

Seeking bankruptcy-like protection without filing for bankruptcy

The Purdue Pharma case is dauntingly complex, involving what may be the nation's worst man-made public health crisis, but the central legal dispute now hinges on a simple fact: The Sacklers are seeking bankruptcy-like protections from the court without actually filing for bankruptcy.

Here's how this would work.

One piece of the family's private empire, Purdue Pharma, sought Chapter 11 protection in 2019, exposing the firm to a rigorous accounting by creditors.

But the rest of the Sacklers' vast holdings — cash, art, real estate, companies and trusts valued at roughly $11 billion — aren't part of that process.

Yet the Sacklers are negotiating to use a rare and controversial bankruptcy procedure known as "non-consensual third-party releases" that would protect them and their assets from lawsuits linked to the opioid crisis.

"They will be shielded from any further scrutiny because the release and injunction that's being contemplated means they can never be sued," said Jonathan Lipson, a bankruptcy expert at Temple University.

In recent weeks, a growing number of local, state and federal governments have filed briefs raising alarm about this provision of the deal.

"The current plan impermissibly allows the Sacklers to escape scrutiny while availing themselves of the 'fresh start' benefits of bankruptcy by free-riding on the Purdue Pharma bankruptcy," attorneys representing a coalition of school districts suing Purdue Pharma wrote in an April 23 legal filing.

"If the Sacklers wish to obtain the benefits of bankruptcy-like insulation from the consequences of their conduct, then Sackler family members and related entities should be required to file their own individual bankruptcy proceedings," the school districts argued.

Experts say some federal appellate courts have agreed, prohibiting outright the kind of third-party releases the Sacklers are seeking. In other parts of the country such deals have been approved but only with strict limitations.

"There's a split among the U.S. courts of appeal on both whether they're permissible at all and ... how do we decide when it's OK and when it's not?" Lipson said.

Can a federal bankruptcy court halt a state investigation?

In their brief filed Thursday, state attorneys general and the attorney general for the District of Columbia argued that this case doesn't involve the "specific" and "exceptional" circumstances that would allow the Sacklers to benefit from such releases.

They note that the bankruptcy court would not only be halting private lawsuits against the Sacklers, but the deal would also force states to suspend efforts to investigate members of the family and hold them accountable.

"The court should not, through third-party non-consensual releases of non-debtors, strip the public of the protections of state-by-state police and regulatory powers," the AG brief argued.

In an earlier brief, the states noted that the Justice Department has taken a position that "the non-consensual release of government claims against non-debtors such as the Sacklers is never lawful."

Purdue Pharma, which has pleaded guilty twice to criminal conduct for its opioid practices, most recently last year, hasn't responded to these objections and a company spokesman declined comment.

The Sacklers who served on the company's board of directors have denied any wrongdoing and have never faced criminal charges. Spokespeople for branches of the Sackler family didn't respond to a request for interviews or comment.

If the deal proposed by the Sacklers is finalized — the next court hearing was planned for Monday but has been delayed until May 12 — critics say it could set a dangerous new precedent that extends beyond the opioid crisis.

A legal brief filed in April by a group of opioid activists argued that such a settlement would open the floodgates to other wealthy people accused of serious wrongdoing who might use bankruptcy courts to limit their exposure to lawsuits without being required to file for bankruptcy.

"If the American judiciary is available to compel settlements to give billionaires peace because they want it, then billionaires will of course demand it," the brief said.

Correction: 5/04/21

A previous version of this story said that 25 state attorneys general filed the brief. It has been corrected to 24 state attorneys general and the attorney general of the District of Columbia filed it, since D.C. is not a state.

Copyright 2021 NPR. To see more, visit https://www.npr.org.

NOEL KING, HOST:

Should members of the Sackler family who own Purdue Pharma be protected from opioid-related lawsuits? Many states are suing the company, and some of them say the family is partly responsible for the opioid epidemic, too. But the family is negotiating a deal right now in federal bankruptcy court that would put a legal firewall around their billions of dollars. NPR addiction correspondent Brian Mann is following this story. Good morning, Brian.

BRIAN MANN, BYLINE: Good morning.

KING: What are the Sacklers offering in exchange for protection from lawsuits?

MANN: Members of the family have offered to pay roughly $4.2 billion out of their private holdings, and the Sacklers say that's a fair amount, in part because they maintain they did nothing wrong here. But critics say because the Sacklers themselves aren't in bankruptcy and don't have to open their books in the way bankruptcy courts normally require, no one really knows if this is a good deal. We don't know exactly what role they might have played in the opioid epidemic or how liable they might be for all the harm.

KING: How on Earth can the Sacklers use bankruptcy to protect themselves from lawsuits if they have not actually filed for bankruptcy?

MANN: Yeah, this is super complicated, so I'm going to use a chess metaphor. Imagine you're playing chess and you decide to sacrifice one piece in a strategic way that helps you keep all your other pieces. That's sort of what members of the Sackler family have done here. They put Purdue Pharma, their private company that makes OxyContin, into bankruptcy. But the Sacklers still have a lot of other pieces, right? They have other companies, real estate, art and cash, all these profits from OxyContin sales, all of that worth roughly $11 billion. And none of that stuff is in bankruptcy. So what the Sacklers are negotiating to do here - and this is the controversial part - is have the bankruptcy court extend legal protections out from their one bankrupt company, Purdue Pharma, to cover all those other assets. By sacrificing one piece, they win a kind of checkmate. I spoke about this with Jonathan Lipson. He's an expert on bankruptcy law at Temple University.

JONATHAN LIPSON: After that, you know, if that settlement is approved, they will leave with whatever other money they retain, which, you know, some people think is billions of dollars, not only keeping their money, but they will be shielded from any further scrutiny because the release and injunction that's contemplated means that they can never be sued.

MANN: And one mystery here is we don't actually know who might be sheltered by these releases from opioid lawsuits. That's still being negotiated, and that's happening behind closed doors.

KING: And I imagine that is why 25 state attorneys general are calling this plan unjust. That's the word they're using. What's the extended argument that they are making?

MANN: So these state AGs say if the Sacklers are able to use this bankruptcy maneuver to shelter themselves from civil lawsuits, it would set a really dangerous precedent. And that's because it wouldn't just stop individuals from suing the Sacklers. It would also stop state governments from holding them accountable. Here's Massachusetts Attorney General Maura Healey.

MAURA HEALEY: The bankruptcy system should not be used to shield non-bankrupt billionaires. It would set a terrible precedent. If the Sacklers are allowed to use bankruptcy to escape the consequences of their actions, it will be a roadmap for other powerful, bad actors.

MANN: And I should say the Justice Department also filed a brief last week questioning whether the bankruptcy court has the authority to do this. So opposition to this deal appears to be growing. And this is all expected to get hashed out in court hearings and negotiations over the next few weeks. NPR did reach out to Purdue Pharma and the Sacklers. They declined to comment.

KING: Brian Mann covers addiction and opioid litigation for NPR. Brian, thanks for this.

MANN: Thank you. Transcript provided by NPR, Copyright NPR.