Under Mounting Legal Pressure, Purdue Pharmaceuticals Files For Bankruptcy Protection
On September 16, the Board of Directors of Purdue Pharmaceuticals approved a settlement that the company negotiated last week with 24 states, all five federal territories, and about 2,000 municipal governments. The company then filed for bankruptcy protection under Chapter 11 of the United States Bankruptcy Code at a federal court in New York.
Purdue Pharmaceuticals, the owner of OxyContin, faces about 2,600 lawsuits for contributing to the opioid epidemic. The parties who filed claims against the company include almost every state and thousands of counties, cities, hospitals, and Native American tribes. Many claimants oppose the settlement and intend to prevent it from taking effect.
What Is Bankruptcy Protection?
Bankruptcy protection is a legal process by which a company surrenders its operations to a board of trustees. The board is then responsible for reorganizing the company and managing its payments to its creditors. In this case, Purdue Pharmaceuticals would be indebted to the plaintiffs whom it agreed to pay in the settlement. Bankruptcy protection allows a company to remain solvent and fulfill its obligations, so Purdue Pharmaceuticals will continue to exist and sell OxyContin, but the Sackler family will relinquish control of the company and any profits that the company earns will accrue to the plaintiffs. In other words, Purdue Pharmaceuticals would become a for-profit public trust.
Bankruptcy protection would prevent Purdue Pharmaceuticals from facing trial next month in Cleveland, Ohio. On October 21, a federal judge in Cleveland is scheduled to consider thousands of lawsuits against multiple opioid manufacturers and distributors. If Purdue did face trial, the judge could order Purdue and the Sacklers to pay damages which would be crippling even for a multinational corporation and a family of billionaires.
The Background Of The Case
In 1996, Purdue Pharmaceuticals began selling OxyContin, a prescription painkiller. Its primary ingredient is oxycodone, an addictive opioid. By 2001, OxyContin was the most commonly-prescribed medication in America for pain relief, and the Sackler family, which owns Purdue Pharmaceuticals, became one of the wealthiest families in the country.
However, from 1999 to 2017, there was a surge in opioid overdoses which claimed the lives of about 400,000 Americans. Many blame Purdue Pharmaceuticals and the Sackler family for deceptively advertising OxyContin to doctors and patients as less dangerous and addictive than it truly is. For this reason, state and local governments throughout America have sued Purdue Pharmaceuticals for damages to fund addiction treatment services for their residents.
The Sacklers and their company deny responsibility for contributing to the opioid epidemic. They insist that they provided medications which doctors wanted to prescribe, patients wanted to use, and the FDA had approved, and that the addiction and overdose crisis is a “tragic public health situation” that the company could not have foreseen.
The Terms Of The Settlement
Last Wednesday, the Sackler family agreed to pay $3 billion to plaintiffs over several years and eventually pay them billions of dollars more from the sale of Mundipharma, a Purdue subsidiary. According to the Sacklers, the sale of Mundipharma will be worth at least $1.5 billion. Additionally, Purdue Pharmaceuticals agreed to donate over $4 billion worth of anti-addiction and anti-overdose medications over a period of ten years to areas of the country where the opioid epidemic continues to take lives. Overall, the Sackler family estimates the value of the settlement to be $12 billion.
According to Steve Miller, the chairman of Purdue Pharmaceutical’s Board of Directors, “this settlement framework avoids wasting hundreds of millions of dollars and years on protracted litigation, and instead will provide billions of dollars and critical resources to communities across the country trying to cope with the opioid crisis.” Neither the Sackler family nor the company admitted to any wrongdoing or criminal activity as part of the agreement.
For The Sacklers, There’s Still Trouble Ahead
The settlement and the petition for bankruptcy protection require the approval of a federal bankruptcy judge. Unfortunately for the Sacklers, 25 states oppose the arrangement and will attempt to convince the judge to reject it. Additionally, some states have threatened to sue the Sackler family for more damages in state court.
During the settlement negotiations, several states wanted the Sackler family to offer a cash payment of $4.5 billion, but they refused to offer more than $3 billion. This occurred even after Letitia James, the Attorney General of New York, alleged that the Sacklers had transferred $1 billion from the company to themselves through Swiss bank accounts, in her words, “to lowball victims and skirt a responsible settlement.”
In addition to New York, the states of Connecticut, California, Colorado, Delaware, Hawaii, Idaho, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, and Wisconsin have all demanded that the Sacklers pay more, and their chief law enforcement officers all vowed to “hold them accountable.” They question whether the settlement will actually be worth $12 billion in damages, as the Sacklers claim.
Purdue Pharmaceuticals is headquartered in Stamford, Connecticut. William Tong, the Attorney General of that state, asserted that “the scope and scale of the pain, death and destruction that Purdue and the Sacklers have caused far exceeds anything that has been offered thus far.” Josh Shapiro, the Attorney General of Pennsylvania, had an even-more ominous message for the Sacklers: “I won’t let them get away with their crimes. I will sue them personally, so that we can dig into their personal pocketbooks.”
[UPDATE: On October 7, Arizona reversed its support for the settlement and joined the 25 states that oppose it. In a court filing, Arizona accused Purdue Pharmaceuticals of attempting to “undermine material terms of the deal,” without offering details. Arizona’s decision follows allegations from several states that Purdue Pharmaceuticals has transferred up to $13 billion to the Sackler family.]