Q&A: Settlement grants immunity to Sackler family from opioid lawsuits

Key takeaways:

• A court ruling protects the Sackler family from opioid lawsuits in exchange for a $6 billion contribution to Purdue Pharma’s bankruptcy plan.
• Healio spoke with an expert about what the decision means.

There has been a landscape of litigation to hold responsible parties accountable for their part in the opioid crisis.

Purdue Pharma, LLP, owned and operated by the Sackler family, manufactured OxyContin with misleading marketing claiming that the drug was less addictive, Jennifer D. Oliva, JD, a professor of law at the University of California Hastings College of Law, told Healio.

In 2020, Purdue Pharma pleaded guilty to federal criminal charges for its role in the opioid crisis. The Sacklers agreed to settle mass tort lawsuits in exchange for the company filing for bankruptcy and the Sacklers contributing billions of dollars to that bankruptcy. However, the bankruptcy plan was later overturned in a December 2021 ruling.

On May 30, a New York court of appeals reversed the December 2021 decision and ruled that members of the Sackler family will be protected from lawsuits over their role in the opioid epidemic.

Healio spoke with Oliva to learn more about the ruling and what it means for future litigation as well as victims of the opioid epidemic.

Healio: A New York court of appeals reversed a December 2021 ruling that rejected immunity to the Sackler family. Can you discuss the decision behind the December 2021 ruling?

Oliva: In 1995, the FDA approved a slow-release oxycodone analgesic, OxyContin, for distribution, marketing, and sale in the United States. The drug’s manufacturer, Purdue Pharma, LLP, was owned and operated by the Sackler family. Subsequently, numerous commentators and public health officials contended that Purdue Pharma’s misleading mass marketing of OxyContin as less addictive and less susceptible to misuse than other opioid analgesics contributed to the country’s escalating drug overdose crisis. Consequently, myriad claimants filed lawsuits against Purdue Pharma and the Sacklers. Ultimately, Purdue and the Sacklers agreed that they would settle these mass tort suits in exchange for Purdue filing for bankruptcy. The Sacklers further agreed to contribute billions of dollars to that bankruptcy in exchange for release from their pending legal claims. The Sacklers themselves did not file for bankruptcy and, therefore, were non-debtors in the bankruptcy proceedings. As such, one of the key issues before the bankruptcy court was whether American bankruptcy law permitted the nonconsensual release of civil tort claims against the non-debtor Sacklers.

The bankruptcy court ultimately approved a bankruptcy plan that released the Sacklers from all claims that directly affected Purdue’s estate and for which Purdue’s conduct was a legal cause or a legally relevant factor. At the time that Purdue filed for bankruptcy, the claims against the company and the Sacklers were estimated to exceed $40 trillion.

In December 2021, a federal district court judge sitting on the United States District Court for the Southern District of New York issued an opinion that reversed the bankruptcy court and vacated its order on the grounds that American bankruptcy law did not permit the nonconsensual release of the claims against the non-debtor Sacklers.

On May 30, the United States Court of Appeals for the Second Circuit reversed the federal district court and affirmed the bankruptcy court’s approval of the plan. The Second Circuit ruled that American bankruptcy law permits the nonconsensual release of non-debtor claims in particular circumstances and that those circumstances were satisfied in the instant case.

Healio: The court of appeals ruling shields the owners of Purdue Pharma from lawsuits over the company’s role in the opioid crisis. Can you discuss the significance of this ruling? What does it mean for the company and its owners?

Oliva: On the one hand, the general public may view this decision as inequitable insofar as it permits the release of third-party claims against a non-debtor (here, the Sacklers) who have been accused of widespread harm against the American public. It certainly appears on face value that the Sacklers used the Purdue bankruptcy proceeding to avoid maximum accountability for the behavior for which they are accused in myriad lawsuits. On the other hand, it likely goes too far to contend that the Second Circuit “shielded” the Sacklers from accountability. First, and perhaps most obviously, the Sacklers, whose contended net worth is $11 billion, are required to contribute approximately $6 billion to the bankruptcy plan. Second, the plan does not protect the Sacklers from criminal charges. Third, as both the bankruptcy court and the Second Circuit explain, it was highly unlikely that the third-party claimants would ever be made whole to the tune of $40 trillion even assuming that an American court would have had jurisdiction over the Sacklers (many of whom live overseas) and their fortune (much of which is tied up in spendthrift trusts in overseas financial institutions) and even after protracted and incredibly expensive litigation. As the Second Circuit notes in its opinion, “bankruptcy is inherently a creature of competing interests, compromises, and less-than-perfect outcomes. Because of these defining characteristics, total satisfaction of all that is owed — whether in money or in justice — rarely occurs.” In sum, there were many unique circumstances, competing factors and equities that the courts had to consider here that left them to choose among less-than-perfect solutions.

Healio: The ruling clears the way for a bankruptcy deal. What does the deal entail?

Oliva: Under the latest plan, the Sacklers forfeit any remaining ownership rights to Purdue Pharma, refrain from any ongoing manufacture or marketing of opioids and contribute approximately $6 billion to the bankruptcy settlement plan. Purdue Pharma will be restructured as a nonprofit entity aimed at combating the U.S. drug overdose crisis and the Sacklers will be released from civil claims related to their alleged conduct regarding the manufacture, distribution and marketing of opioid analgesics. Purdue and the Sacklers have also agreed to publicly produce a repository of previously undisclosed litigation documents related to Purdue Pharma’s manufacture and marketing of opioid analgesics.

Healio: How will all this affect victims of the opioid crisis?

Oliva: Given that there are very few objectors left to the bankruptcy plan, it seems that the overwhelming majority of the third parties that were litigating against Purdue believe that the bankruptcy plan is the best path forward. The government entities that originally sued Purdue have agreed to the settlement. The small remaining group of objectors include local Canadian governments and First Nations; two mothers of sons who died of opioid overdoses; and the Office of the U.S. Bankruptcy Trustee, which falls under the federal Department of Justice (DOJ). Moreover, in excess of 1,000 families who lost loved ones to overdoses have written to the [Department of Justice] urging the agency to approve the bankruptcy settlement. The new bankruptcy plan sets aside $750 million for individual claims to victims.

Healio: What are the next legal steps in this case?

Oliva: The parties now head back to bankruptcy court to get the latest version of their settlement agreement approved.

Healio: What are the implications for future cases where patients claim they have been harmed by a product?

Oliva: The public is right to be wary of the potential unfairness going forward that parties that have not filed for bankruptcy and, therefore, have not forfeited their assets may nonetheless be shielded from liability through the bankruptcy process of a corporate entity. That stated and as already noted, the Sacklers are not walking away free and clear here. They are on the hook for approximately $6 billion and remain exposed to criminal liability. Just like most of the mass tort opioid lawsuits, most mass torts lawsuits settle, and each side makes concession to avoid protracted and expensive litigation as well as litigation uncertainty.

Reference:

• Court of appeals decision. http://freepdfhosting.com/1e57577ad5.pdf. Published May 30, 2023. Accessed June 5, 2023.