Sacklers Can Be Shielded From Opioid Liability, Appeals Court Rules

Members of the Sackler family, the billionaire owners of Purdue Pharma, will receive full immunity from all civil legal claims — current and future — over their role in the company’s prescription opioids business, a federal appeals court panel ruled on Tuesday.

The ruling gives the family the sweeping protection that it has been demanding for years, in exchange for payment of up to $6 billion of the family’s fortune to help address the ongoing ravages of the opioid crisis.

That money, plus the company’s initial outlay of $500 million, can now begin to be dispensed to states and communities for addiction treatment and prevention programs, needs that soared during an epidemic that has grown far beyond abuse of Purdue’s signature prescription painkiller drug, OxyContin.

Unless it is successfully appealed to the Supreme Court — an unlikely prospect, legal experts said — the new ruling will close the door on Purdue’s hotly contended bankruptcy restructuring, which began nearly four years ago. The bankruptcy is at the core of a plan intended to resolve thousands of opioid cases against the company nationwide, plus roughly 400 against individual Sackler family members.

According to the plan, Purdue would be restructured into a new entity called Knoa Pharma that will manufacture medications for addiction reversal and treatment as well as continue to produce other drugs, including OxyContin. It will be overseen by a public board. Over time, Knoa Pharma is expected to contribute at least many hundreds of millions dollars more to plaintiffs.

Some close observers of the Purdue case applauded the ruling, calling it a pragmatic reading that could now loosen up billions of dollars for states, local governments, tribes and individuals who sued Purdue for its early and aggressive role in marketing OxyContin as a nonaddictive pain treatment.

“It’s time to put this bankruptcy behind us. Victims have been waiting for too long to recover,” said Ryan Hampton, an advocate for opioid victims who served as the co-chairman of the Purdue creditor’s committee.

He added: “The system is far from perfect, but the true injustice will be if this victims’ settlement is held up any longer.”

But others said the Sacklers had received a significant pass. “Bankruptcy was not meant to be an alternative justice system for powerful corporations and their superrich owners. But that is the effect and perception when courts read the law to provide extraordinary protections well beyond what Congress authorized,” said Melissa B. Jacoby, a law professor at the University of North Carolina at Chapel Hill.

A bankruptcy filing typically puts a temporary halt on a company’s creditors, including on lawsuits. The major issue in this case was that even though Purdue had filed for bankruptcy, the Sacklers, as individuals, had not. As a result, plaintiffs who fought the plan contended, the Sacklers should not receive the benefit of their company’s liability protection.

The Sacklers stepped down from Purdue’s board of directors in 2018 and have had no direct involvement in the company since then.

Judge Eunice C. Lee of the United States Court of Appeals for the Second Circuit, who wrote Tuesday’s opinion for a three-judge panel, found that the bankruptcy code permits corporate owners who haven’t filed for personal bankruptcy to receive liability protection under certain circumstances.

“Bankruptcy is inherently a creature of competing interests, compromises, and less than perfect outcomes,” she wrote. “Because of these defining characteristics, total satisfaction of all that is owed — whether in money or in justice — rarely occurs.”

Quoting from a bankruptcy ruling in a 2019 case that did not involve Purdue, Judge Lee also stressed that the releases granted to the Sacklers “‘are not a merit badge that somebody gets in return for making a positive contribution to a restructuring,’ nor are they ‘a participation trophy’ or a ‘gold star for doing a good job.’”

The Sacklers’ liability protection does not extend to criminal prosecutions, should any ever be filed.

Purdue filed for bankruptcy in September 2019, as the rising opioid cases against the company turned into a torrent.

Tuesday’s ruling came more than a year after oral arguments before the Second Circuit panel. As months passed, thousands of litigants expressed growing frustration that the case remained unresolved, with promised payments held in abeyance even as the opioid epidemic itself, now marked by fentanyl use, continued to surge.

The ruling was a win for Purdue, which appealed a decision by a federal district judge who had overturned a settlement that had originally been approved by a bankruptcy court judge in 2021. But most of the parties that had appealed the 2021 plan eventually wound up dropping their objections, after the Sacklers increased their payout offer by roughly $1.73 billion.

The only objectors who remain include several Canadian municipalities, a few individuals and the U.S. Trustee, a Justice Department program that is the watchdog of the bankruptcy system. Ms. Jacoby, the North Carolina law professor, said that because the last objecting states had agreed to the Purdue plan, the U.S. Trustee’s argument for pursuing the case would not be robust.

The U.S. Trustee declined to comment on Tuesday’s ruling.

In a statement after the ruling was issued, Purdue called the decision “a victory for Purdue’s creditors, including the states, local governments and victims who overwhelmingly support the plan of reorganization.”

“Our focus going forward is to deliver billions of dollars of value for victim compensation, opioid crisis abatement and overdose rescue medicines,” the statement continued. “Our creditors understand the plan is the best option to help those who need it most, the most fair and expeditious way to resolve the litigation and the only way to deliver billions of dollars in value specifically to fund opioid crisis abatement efforts.”

The families of the two founding brothers of Purdue, Dr. Mortimer Sackler and Dr. Raymond Sackler, both deceased, said in a joint statement: “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.”