In September, Bloomberg reported that there was a plan to resolve the "thousands of opioid lawsuits that drove" Perdue Pharma, Inc. to bankruptcy. The story notes that the "Sackler family made billions of dollars on" an opioid product, OxyContin, that was approved by the Food and Drug Administration in the 1990s. Back then, we were repeatedly told that opioids were the answer to all of our problems.
We were assured that there were no addiction concerns. Forbes notes that Oxycontin "quickly became a company bestseller thanks to aggressive marketing tactics — including claims that the drug was fairly non-addictive." Therefore, there was "a surge of doctors widely prescribing it for all kinds of pain, from the severe to the very minor. I knew a drug representative whose entire job was marketing Oxycontin to physicians. He described the task as "shooting fish in a barrel," and claimed to make a substantial living from minimal effort.
The anecdotal stories of patients receiving many opioid doses following routine medical procedures are repeated often at conferences. One speaker related a family member receiving over 100 doses following wisdom tooth removal. And, many workers' compensation patients received prescriptions for opioids. Some patients received ever-increasing doses as time wore on and pain was not mitigated. Some now say that opioids themselves result in pain and lead to increasing dosage. There is some suggestion that a population of patients became opioid-dependent or even addicted.
The plan approved by a bankruptcy judge in September 2021 was specific to the bankruptcy of Perdue Pharma, Incorporated. Many people may be unaware that corporations in the United States are entities much like people in some regards. That is, they have an existence that is separate from corporate owners or managers. Those individuals may come and go over time, but the corporation has a "perpetual" existence. Perpetual, that is, unless the corporation is dissolved voluntarily or in some involuntary manner, such as some form of bankruptcy.
The bankruptcy plan as to Perdue was not a dissolution but would result in marked changes in the business. Notable among those is the divorce of the Sackler family from the company; they would "sell their pharmaceutical holdings and forfeit their equity in Purdue." Furthermore, future Perdue earnings will be devoted to some extent to the treatment of drug addiction.
As part of the deal Judge Drain approved, "the Sacklers . . . agreed to contribute about $4.5 billion," of their personal assets to the company's coffers for distribution in the bankruptcy. And, in exchange, the Sacklers were each to "receive lifetime immunity from civil liability over their role in the opioid crisis." This is potentially important because some of the family members have apparently been sued over the role of Perdue in the opioid distribution and marketing processes, while they were at the helm.
It is important to note that corporate directors or officers are generally not held responsible for decisions regarding how a company is run. This is called the "business judgement rule," and shields those individuals from the effects of their mistakes. In short, corporate leadership is not expected or required to be prescient or perfect but to exercise rational and reasonable judgment. Successfully suing such leadership can be a daunting task.
Similarly, successfully suing the shareholders of a company can be as challenging. The owners, or shareholders, are generally shielded from liability for a company's debts or actions. To reach the assets of owners (Sackler family members), a lawyer must demonstrate grounds to "pierce the corporate veil." That can be challenging under the best of circumstances and is probably more challenging when the company in question is an entity with the legal acumen and sophistication that is required of pharmaceutical manufacturers. Therefore, it is worth noting that even without the bargained-for immunity, it may well be impossible for the family members to ever face financial liability for the marketing of Oxycontin.
The bankruptcy deal was not without dissent. The U.S. Department of Justice was "staunchly opposed the deal," as were some of the others involved, including "the District of Columbia," and "nine states." They essentially accuse Perdue of "push(ing) doctors to overprescribe opioids," and contributing to the supply or opioids.
An appeal was filed, founded in some part upon the immunity from lawsuits for the Sacklers. One attorney general complained at the time that the family's $4.5 billion contribution, paid over a period of time" could be funded from "average investment returns,” which was characterized as "outrageous" and "unjust." The suggestion here is that payment of this $4.5 billion would not decrease or diminish the worth of the family's current assets (see below), but instead would diminish for a number of years the income and gain the family enjoys from their worth and assets.
According to Forbes, the bankruptcy itself came through litigation. It describes that many states sued both the company and the Sackler family members, leading to a settlement involving dozens of plaintiffs and "include(d) $3 billion in cash from the Sackler family over seven years and that Purdue Pharma would file for bankruptcy and be transformed into a public benefit corporation."
In October 2021, "Purdue Pharma . . . plead guilty to criminal charges around its marketing of OxyContin." In conjunction with that plea agreement, "five members of the Sackler family would pay another $225 million in civil penalties." Forbes notes that these payments have diminished the Sackler family holdings. Estimated to be about $13 billion in 2016, their worth is now estimated at only $10.8 billion ($10,800,000,000).
The Bloomberg story notes that about $11 billion was "shifted" from Perdue and invested "into a wide array of ventures" over about a decade beginning in 2008. It was noted that the "multi-generational fortune" of the family includes "more than a hundred trusts and a web of holding companies, partnerships, legal jurisdictions and strategies." Note the mention above of sophistication and acumen. In short, the deal would have the family "give up billions of dollars worth of assets in the Purdue Pharma bankruptcy settlement, but . . . still control a huge fortune"; in excess of $10 billion perhaps.
The week before Christmas 2021, according to BioSpace.com, a "federal judge . . . delivered a lump of coal to Purdue Pharma and the Sackler family." The bankruptcy plan was rejected by a judge who "overturned the bankruptcy agreement," at the urging of the U.S. government and "several state governments." In doing so, the Judge concluded that the Bankruptcy Judge did not have "the authority to stipulate protections against the Sacklers."
That is not the end of the story. This was an appeal from a Bankruptcy Judge decision to a District Court Judge. Though the District Court is generally a trial court, it exercises appellate jurisdiction over such bankruptcy decisions in some instances. In some geographic areas, the Circuit Court of Appeal considers such challenges directly, using Bankruptcy Appellate Panels, or BAPs. The parties in this matter have vowed to appeal the District Court decision to the Circuit Court of Appeal, where a three-judge panel will then review this matter.
Proponents of the plan worked out in September argue that "the bankruptcy plan that would see funds used to abate opioid-related debt accumulated by state and local governments battling addiction issues," and that "more than 95% of Purdue’s over 120,000 voting creditors, including 43 states and territories,” support the plan. They argue that the District Court decision and further appeal "will delay, and perhaps end, the ability of creditors, communities, and individuals to receive billions in value to abate the opioid crisis.”
The news is, assuredly, that the legal process has not concluded. In several months, we will learn what the Circuit Court concludes regarding the authority of Bankruptcy Judges, and whether they can convey civil immunity to stockholders of corporations through the bankruptcy process. That opinion will be anticipated and should provide some interesting reading.
