A new appeals court ruling overturns objections to Purdue Pharma’s reorganization plan, shielding Sackler family members from individual opioid lawsuits.
A federal appeals court eliminated Tuesday the main barrier to Purdue Pharma’s bankruptcy reorganization plan that shields members of the Sackler family from future lawsuits related to the opioid crisis.
The ruling by the 2nd Circuit U.S. Court of Appeals in Manhattan upended objections by the U.S. Bankruptcy Trustee’s Office, the Justice Department arm that has resisted the company’s reorganization plan.
It reverses the December 2021 ruling of Manhattan Federal Judge Colleen McMahon, who found that the bankruptcy judge who had accepted the plan the previous September lacked the authority to shield people who have not declared bankruptcy.
The pharmaceutical company is being reorganized in bankruptcy court, but the individual family members have not filed. The Sacklers have been holding back on approval of the multibillion-dollar settlement that would funnel money to victims and fund measures to mitigate the opioid crisis that has killed more than half a million people in the U.S. in the past 20 years.
Sackler family members own the Stamford, Conn.-based company, though under the reorganization, they will relinquish the business. It will then become a new company named Knoa Pharma, profits of which would fund addiction prevention and treatment.
The family members would also contribute $5.5 billion to $6 billion in cash, at least $750 million of which will go to individual victims of the opioid crisis and their survivors in payments of $3,500 to $48,000.
The appeals court had spent a year on the case and concluded, as Judge Eunice Lee wrote in her majority opinion, that the protection was necessary to ensure that the money was distributed fairly. Judge Richard Wesley filed a separate opinion in which he expressed reluctance, saying that such deals are not explicitly allowed for under bankruptcy law, even though courts have been known to allow them.
The case could still go before the U.S. Supreme Court. The Bankruptcy Trustee’s Office had not weighed in by Tuesday afternoon on whether it would push the case to the next level.
Purdue Pharma and the Sacklers involved in the company praised the ruling.
Purdue called it a “victory” for creditors and noted that the overwhelming majority of parties up for remuneration, “including all 50 states, local governments and victims,” support the reorganization plan.
“Our focus going forward is to emerge from bankruptcy and deliver billions of dollars of value for victim compensation, opioid crisis abatement and overdose rescue medicines,” board Chairman Steve Miller said in a statement.
“The Sackler families believe the long-awaited implementation of this resolution is critical to providing substantial resources for people and communities in need,” the Sackler family members said in a separate statement. “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.”