An Appeals Court Gave the Sacklers Legal Immunity. Here’s What the Ruling Means.

On Tuesday, a federal appeals court granted members of the billionaire Sackler family a legal golden key that they had been seeking for nearly four years: The Sacklers will be shielded from all civil opioid claims related to their company, Purdue Pharma, the maker of the prescription painkiller OxyContin. In exchange, they have agreed to make payments of up to $6 billion to thousands of plaintiffs in now-suspended lawsuits.

The ruling was part of a court review of a bankruptcy restructuring plan for Purdue, which filed for Chapter 11 protection in September 2019. Companies in bankruptcy customarily get protection from legal claims; owners who have not filed for personal bankruptcy usually do not.

When the company filed for bankruptcy, the Sacklers faced about 400 lawsuits over their role in Purdue’s opioid business. They have long insisted that the company’s liability shield should extend to them. Without such protection, they said, they would have no incentive to pay billions to settle all of the opioid cases and help their company resolve its bankruptcy.

Legal experts say that the ruling, by the United States Court of Appeals for the Second Circuit, has implications for the Purdue case specifically and for owners of companies seeking bankruptcy generally.

So is the case over?

Not yet. The ruling resolves a major hurdle on what has been a tortuous road. But before any money can be disbursed to states, communities, tribes and individuals, the latest version of the bankruptcy plan must go back to a federal district court judge, who will apply the appellate court’s instructions. The plan, now in its 12th amended version, will then return to the U.S. Bankruptcy Court in White Plains, N.Y., for final approval and administration.

Given that every stage in the Purdue bankruptcy case has blown up any forecast of timing, it would be unwise to estimate how long it will be before the first check is in the mail.

What does this mean for the Sacklers?

The family has been off the Purdue board since 2018. When the bankruptcy takes effect, they will no longer be owners of the company and will receive no compensation. But they will still be very wealthy.

Some estimates have put the total Sackler fortunes at $11 billion, with a substantial amount in offshore accounts. The bulk of the payments will be disbursed over nine years, largely from proceeds on their investments, bolstered by eventual sales of their international opioid businesses.

The Sacklers have long been philanthropists, with the family name emblazoned on countless buildings, though many institutions have removed the Sackler name from public view in recent years. In the bankruptcy settlement plan, they have agreed to let American academic, medical and cultural institutions remove the Sackler name from their physical facilities, so long as the programs agree not to disparage the Sacklers.

What does this mean for Purdue?

Purdue Pharma, which aggressively marketed OxyContin as a nonaddictive, extended-release painkiller after introducing it in the 1990s, will cease to exist, and its assets will be transferred to a newly created company, to be called Knoa. It will manufacture opioid addiction treatment and opioid reversal medicines at no profit while continuing to make existing drugs like OxyContin, with those profits helping to seed settlement funds. To lower the risk that any products will be illegally diverted, Knoa will be supervised by an independent monitor.

What does it mean for states, counties, cities and towns?

Over time, they will received a combined $6 billion in cash plus more from insurance settlements. Each state has its own formula for distributing the Purdue funds, but the overarching mission is for the funds to be used largely on measures to abate the opioid crisis, such as treatment and prevention programs.

What does this mean for tribes?

Each of the 574 federally recognized Native American tribes is eligible for payouts from a tribal trust set up under the settlement for about $161 million, even though not all of them sued Purdue.

What about individual victims?

A fund of between $700 million and $750 million will be distributed to individual victims and families of people who became addicted to OxyContin or died from overdoses. About 138,000 filed claims; payments are expected to range from about $3,500 to $48,000. Guardians of about 6,550 children with a history of neonatal abstinence syndrome may each receive about $7,000. Though the payouts are relatively small, this is one of the very few opioid settlements negotiated by pharmaceutical companies that sets aside money for individuals.

Will the ruling be appealed?

Not necessarily. Many states dropped their objections to the plan and the Sacklers’ insistence on immunity when, after months of furious mediation, the Sacklers increased their offer by about $1.73 billion to the current estimate of $5.5 billion to $6 billion.

The strongest candidate to keep attacking Sacklers’ legal shields — the underpinning of the settlement itself — is the U.S. Trustee Program, an office within the Department of Justice that serves as a watchdog over bankruptcy proceedings. The office has not commented publicly on Tuesday’s ruling.

The larger issue at the heart of the case is whether a bankruptcy judge has the authority to permanently bar plaintiffs from suing company owners who haven’t sought personal bankruptcy protection. The U.S. Trustee Program has long argued that doing so would deprive plaintiffs of basic due process rights.

Federal appeals courts are in conflict. The Ninth, Tenth and Fifth Circuits are among those that bar the practice in bankruptcy cases filed in their domains.

But the Sixth and Seventh Circuits have ruled that owners who contribute substantially to resolving their companies’ bankruptcy restructuring can benefit from the permanent block on lawsuits against them.

The Second Circuit’s bankruptcy rulings govern those cases filed in Connecticut, Vermont and, notably, New York, where the Southern District is a popular site for large bankruptcies. The Second Circuit’s earlier opinions on the question have been mixed.

Now its decision in the Purdue case, which favors the Sacklers, more firmly grounds its position: The practice can continue when certain criteria have been met.

Given that the federal circuits are in disagreement, would the U.S. Trustee Program still persist in bringing the issue before the Supreme Court?

Lindsey Simon, an expert on the bankruptcy system at the University of Georgia School of Law, wouldn’t rule out that possibility but was skeptical. While a lot of people hate the Sacklers and this result, she said, “states and other claimants want their money.”

She added, “I don’t think it’s beneficial for anyone to push for this case to get unwound.”