In September, when a U.S. bankruptcy court approved a $4.5 billion settlement to resolve claims against OxyContin maker Purdue Pharma, Connecticut’s attorney general called the U.S. bankruptcy system “broken” and vowed to appeal.
Three months later, a federal judge has agreed with the assessment of Connecticut AG William Tong, overturning (PDF) the controversial ruling which freed Purdue’s owners—the billionaire Sackler family—from liability in civil opioid-related cases.
In an exhaustive 142-page decision, U.S. Judge Colleen McMahon, of the Southern District of New York, explained that the bankruptcy judge who accepted the settlement didn’t have the authority to release the Sackler family from liability.
“This is a seismic victory for justice and accountability that will re-open the deeply flawed Purdue bankruptcy and force the Sackler family to confront the pain and devastation they have caused,” Tong said in a statement.
After the decision, Purdue said it would appeal while also continuing “efforts to forge yet further consensus” around the chapter 11 reorganization plan.
“[The decision] will delay, and perhaps end, the ability of creditors, communities and individuals to receive billions in value to abate the opioid crisis,” Purdue CEO Steve Miller said in a statement. “These funds are needed now more than ever as overdose rates hit record highs and we are confident we can successfully appeal this decision and deliver desperately needed funds to the communities and individuals suffering in the midst of this crisis.”
Facing thousands of lawsuits claiming Purdue aggressively marketed the painkiller OxyContin while minimizing its addictive power and contributing to an epidemic that killed more than 500,000 in the United States, the company filed for bankruptcy protection in 2019.
During the process, Purdue worked out a settlement in which the Sackler family would relinquish the company while being excused from liability.
In signing off on the deal in September, and explaining his regret that the Sackler family would keep much of the windfall it accumulated from the crisis, bankruptcy judge Robert Drain said: “This is a bitter result, B-I-T-T-E-R.”
In background for her decision, McMahon noted that the Sacklers withdrew $10.4 billion from the company between 2008 and 2017 and stashed into “spendthrift trusts that could not be reached in bankruptcy and offshore entities.”
“When the family fortune was secure, the Sackler family members withdrew from Purdue’s board and management. Bankruptcy discussions commenced the following year,” McMahon wrote. “As part of those pre-filing discussions, the Sacklers offered to contribute toward a settlement, but if—and only if—every member of the family could 'achieve global peace' from all civil (not criminal) litigation, including litigation by Purdue to claw back the money that had been taken out of the corporation.”
The family’s efforts to escape via bankruptcy created enough of an outcry that in March, Congress has proposed legislation called the “Sackler Act” to prevent the tactic unless owners file for bankruptcy themselves.