Sacklers win appeal that shields them from opioid lawsuits, clearing way for bankruptcy settlement

This post originally appeared on StatNews.

A federal appeals court ruled Tuesday Purdue Pharma can shield its owners — members of the wealthy Sackler family — from thousands of lawsuits over the role the company played in the opioid crisis in exchange for a contribution of up to $6 billion to a proposed bankruptcy settlement.

The Sackler family members insisted a bankruptcy deal would not be possible unless they were released from all future liability related to the harm caused by Purdue’s OxyContin painkiller. Their insistence became a sticking point, since unlike Purdue — which filed for bankruptcy protection — none of the Sackler family members and their many associates had taken the same step.


Several states balked but later agreed to the settlement. But the U.S. Trustee, whose office oversees the administration of bankruptcy cases for the Department of Justice, was a holdout. The Trustee objected over concern the immunity was too broad and raised constitutional issues concerning due process because it denied opioid victims an opportunity to be heard, among other things.

The U.S. Court of Appeals for Second Circuit, though, disagreed and ruled a U.S. bankruptcy court was correct in approving the immunity and, moreover, that it was “equitable and appropriate under the specific factual circumstances of this case.” The decision reverses a ruling made last December by a federal judge had sided with the U.S. Trustee.

The case now goes back to U.S. bankruptcy court to approve the settlement, although the U.S. Trustee could ask the U.S. Supreme Court to review the appeals court ruling.


A statement issued by the families of Mortimer Sackler and Raymond Sackler, both of whom are deceased, said “the Sackler families believe the long-awaited implementation of this resolution is critical to providing substantial resources for people and communities in need. We are pleased with the court’s decision to allow the agreement to move forward and look forward to it taking effect as soon as possible.”

Under the bankruptcy settlement, some members of the Sackler family would relinquish ownership of Purdue, which would become a new company called Knoa, and its profits would be used to combat the ongoing opioid crisis. They would contribute between $5.5 billion to $6 billion in cash over time. At least $750 million of those funds would go to individual victims of the opioid crisis and their survivors.

Purdue Pharma previously pleaded guilty to three felony criminal charges as part of an $8.3 billion settlement that also resolved civil charges against the company. At the time, the Department of Justice left the door open to pursuing criminal charges against individuals, a step that federal authorities had been urged to take since some Sackler family members tightly controlled the company.

In her ruling late last year, Judge Colleen McMahon of the U.S. District Court in New York tossed the proposed bankruptcy settlement and maintained the legal releases for the Sackler family members were not permitted by the bankruptcy code. She also questioned whether the settlement abused the bankruptcy system.

How so? Court documents revealed the extent to which some Sackler family members withdrew an estimated $10 billion from 2008 to 2017. More than half of that money was either invested in offshore companies owned by the Sacklers or deposited into trusts that could not be reached in bankruptcy and offshore locations. About $4.6 billion was used to pay pass-through taxes.

This raised a scenario suggesting the Sacklers withdrew so much money from the company that Purdue was left with little choice but to accept the settlement offer in exchange for immunity from opioid lawsuits. The Sackler family members consistently denied abusing the system, while Purdue and a creditor committee argued that victims would get less money if the litigation continued.

The settlement also requires the Sacklers to allow institutions to remove the family name from buildings, scholarships, and fellowships. This builds on the growing list of universities, museums, and other institutions have disassociated themselves from the family in response to OxyContin marketing that sullied the family name.

One legal expert suggested the appeals court ruling sets a precedent. Given that the court is located in New York City, the financial capital of the U.S., others who control companies may pursue a similar tactic when faced with product liability litigation, explained Carl Tobias, a professor at the University of Richmond School of Law, who specializes in product liability and mass torts litigation.

“From a public policy perspective, it essentially lets the Sacklers off the hook if they just pay enough money so they can insulate themselves,” from further liability, he said. “So what’s to keep others from doing the same thing or something similar? In that way, it can have implications for others who claim they have been hurt by a product.”

One advocate expressed dissatisfaction with the appeals court decision and argued Congress should change the bankruptcy code.

“The appeals court ruled that the Purdue bankruptcy is in line with the intent of Congress when they wrote the code, and that the third party releases are legal in this situation,” said Ryan Hampton, an activist who is recovering from opioid addiction and was co-chair of the unsecured creditors committee in the Purdue bankruptcy. He also published a book, called “Unsettled: How the Purdue Pharma Bankruptcy Failed the Victims of the American Overdose Crisis,” in which he took the court system to task.

“While there is no perfect solution to this matter because the bankruptcy laws are incredibly unjust, it would be an even greater injustice if the $750 million settlement for victims is delayed any further. People are hurting out here. Money is needed for the victims and the states. It’s time to put this bankruptcy nightmare behind us.”

This post was updated.

This post originally appeared on StatNews.