California to appeal Purdue Pharma settlement

California Attorney General Rob Bonta plans to appeal Purdue Pharma’s $4.5 billion bankruptcy reorganization plan that gives the company’s founders immunity from thousands of opioid-related lawsuits.

“[T]he Sackler family must be held accountable for its role in creating and fueling the devastating opioid crisis,” Bonta said in a statement Friday.

“Too many California communities have unfairly paid the price for their willful misconduct, and this bankruptcy plan falls short of the accountability that families impacted by this epidemic deserve,” Bonta’s statement said.

Earlier this month, Bankruptcy Judge Robert D. Drain of White Plains, New York, approved the wide-ranging bankruptcy settlement that would require the owners of Purdue Pharma LP, the Sackler family, to pay approximately $4.5 billion to address the opioid crisis many accuse the company of fueling in some 3,000 lawsuits nationwide. In exchange for the money, the Sacklers would admit no liability, and not only be shielded from existing lawsuits but from future ones as well.

Under the novel reorganization deal, Purdue, the makers of opioids such as OxyContin, would emerge as a public benefit corporation run by trustees approved by Drain.

Fifteen states, including Massachusetts, have agreed to the deal. Massachusetts Attorney General Maura Healey praised the settlement in a statement in July.

“While I know this resolution does not bring back loved ones or undo the evil of what the Sacklers did, forcing them to turn over their secrets by providing all the documents, forcing them to repay billions, forcing the Sacklers out of the opioid business, and shutting down Purdue will help stop anything like this from ever happening again,” she wrote.

However California, joined by eight other states and the District of Columbia, opposed the deal. Connecticut Attorney General William Tong was especially opposed to provisions in the agreement that allow the Sackler family, while giving up control of the company, to retain at least half of its $11 billion value.

“While some progress has been made … this plan is far from justice. Purdue and the Sacklers have misused this bankruptcy to protect their vast wealth and evade consequences for their callous misconduct,” Tong wrote in a July statement.

In 2019, the California attorney general’s office sued Purdue and the Sackler family alleging unlawful practices in the promotion and sale of opioids. The lawsuit stated that Purdue’s marketing and sales practices, which the Sackler family approved, downplayed the risk of opioid addiction and was a major contributor to the nationwide opioid crisis.

“After Purdue and a number of its executives pleaded guilty to felony misbranding of OxyContin, the company continued selling and marketing the drug,” Bonta’s statement read. “Their revenues amounted to $3 billion in 2010, and as much as $1.8 billion in 2017.

Opioids have been the main driver of drug overdose deaths in the U.S. with over 5,000 opioid related deaths in California in 2020, according to the California Department of Public Health.

Bankruptcy expert Brian Davidoff of Greenberg Glusker Fields Claman & Machtinger LLP, said he expects Bonta’s appeal to challenge the constitutionality of the plan’s nonconsensual third-party release of the Sackler family. In approving the settlement, Drain allowed the Sacklers to gain protections typically given to companies that emerge from bankruptcy, “but not necessarily to third parties who, like the Sacklers, did not themselves file for bankruptcy,” Davidoff wrote in a recent column.

“Circuit Courts of Appeal have gone different ways on these third party injunctions,” Davidoff said. “The Ninth Circuit and Tenth Circuit are part of the minority of courts that have held that third party injunctions are not permissible under any circumstances in a bankruptcy case unless the party in whose favor the injunction is given has filed a bankruptcy as well.

“However, the Second Circuit, where the Purdue case is pending, and also importantly, the Third Circuit Court of Appeal, have been much more open to allowing injunctions under certain circumstances. The Third Circuit has not wholeheartedly endorsed [third party releases] but they haven’t rejected them either...The various appeals of the Purdue plan are likely going to land up in the United States Supreme Court, because of the circuit split and the notoriety of the Purdue case.”