Purdue, Sacklers Seek to Use Bankruptcy as Shield From Suits

The first big fight in Purdue Pharma LP’s bankruptcy case is taking shape as states and cities across the U.S. challenge a request by the drug maker and its billionaire owners, the Sackler family, for an injunction to block lawsuits tied to the opioid crisis.

Purdue says halting the litigation will bring order to the process and protect assets needed to fund a proposed settlement with communities across the country. Opponents say the company is trying to evade responsibility for a public-health crisis that’s killed more than 400,000 people. They have until Friday to oppose the injunction.

While such requests aren’t unusual in bankruptcy cases and are often granted, dozens of cities and states have already filed objections this week, saying their “police powers” can’t be blocked by bankruptcy law. The Sacklers, which amassed a $13 billion fortune from drug sales, also wants to be shielded. A temporary stay on the lawsuits was automatically imposed when Purdue filed for protection.

Massachusetts Governor Charles Baker, whose state has one of the highest opioid death rates, said blocking litigation would be egregious because Purdue continued to mislead the public about the addiction risks of OxyContin after promising not to in 2007, when it settled related claims. The lawsuits also allege the Sacklers encouraged aggressive and deceptive marketing for years.

Allowing “Purdue and the Sacklers to avoid trials and escape accountability for a second time is not in the public interest,” Baker said in a letter to the bankruptcy judge this week. “I have met countless families whose lives have been ruined by the drug that the Sackler family made their a fortune on.”

It will be up to U.S. Bankruptcy Judge Robert Drain in New York to decide whether to order a nationwide freeze on all the lawsuits. About 85% of the 2,600 opioid suits Purdue faces were filed by states or other government agencies. So far, 24 states have agreed to a framework that would settle the cases with billions paid by the Sacklers, while three groups representing hundreds of local governments as well as Native American tribes have filed objections.

The divided support for the settlement makes the outcome of Purdue’s bankruptcy “uncertain,” one group, representing government entities from several states, wrote in a filing late Thursday. “This is yet another reason why no injunction protecting the Sacklers should be issued at this time.”

Purdue spokeswoman Josephine Martin said it’s incorrect to claim an injunction would let the company evade responsibility. The entire company will be handed over to the plaintiffs under the proposed settlement without the need for any trials, she said.

“The notion that the path to justice must involve years of litigation and the destruction of billions of dollars in value could not be more wrong,” Martin said in a statement. “The U.S. Bankruptcy Code provides for stays of litigation to avoid this very kind of inequitable and value-destroying dynamic.”

Purdue argued last month that thousands of lawsuits would create a haphazard process and damage prospects for a grand settlement that Purdue claims would provide about $10 billion toward combating the opioid epidemic. The Sackler family also supports an injunction.

“The Sacklers have agreed to relinquish their equity in Purdue and to contribute at least an additional $3 billion to the fight against the opioid crisis,” Daniel Connolly, an attorney representing the Raymond Sackler wing of the family, said in a statement Thursday. “The stay, if granted, will allow parties to focus their efforts on this goal rather than on litigation that will waste resources and delay the deployment of solutions to communities in need.”

A representative of the Mortimer Sackler side of the family didn’t respond to a request for comment on the opposition filings.

Temporary Relief

Judges routinely allow bankrupt companies to temporarily dodge litigation and often extend that to affiliated non-bankrupt third parties, like owners and top company officials.

“Courts seem to be increasingly willing to grant these kinds of stays, in the interest of resolving everything in one place,” David Skeel, a University of Pennsylvania law professor, said in an interview.

Still, plaintiffs asked why the family should benefit from any litigation ban.

Freeing the Sacklers from the lawsuits would be “wholly inappropriate” because they could shield their assets even after a “well-documented pattern” of hiding money from creditors, a consortium of Massachusetts towns said in a court filing.

The Sacklers encouraged aggressive marketing of opioids and “enjoyed billions of dollars in profits from the sale of OxyContin,” a group of Nevada plaintiffs said. “As a result of these actions, counties and municipalities were flooded with billions of opioid pills, and the epidemic raged on.”