Editor’s Note: On June 27, 2024, the Supreme Court ruled in Harrington v. Purdue Pharma that the nonconsensual nondebtor releases included in the company’s plan of reorganization were impermissible under the Bankruptcy Code. These nonconsensual nondebtor releases would have immunized members of the Sackler family, who owned and controlled Purdue and never themselves filed for bankruptcy, from liability in connection with their ownership and management of the company and the company’s role in the opioid crisis. These releases were part of a complex set of interlocking settlements pursuant to which the Sacklers would have provided around $6 billion in value to thousands of claimants, including individuals and governments. The decision in Harrington means that the parties in Purdue’s bankruptcy will return to mediation to determine what will happen next to the company, the Sacklers, and claimants. It also has profound implications for the future of corporate bankruptcy practice and the use of bankruptcy for the resolution of mass torts. The Bankruptcy Roundtable has provided extensive coverage of Purdue’s bankruptcy and has hosted numerous original scholarly contributions on all aspects of the case, which can be seen here. Over this week, we are excited to bring you more original and timely content in the wake of the Supreme Court’s decision.
By: Michael Quinn (Eisenberg & Baum, LLP)
Editor’s Note: The author represented both an individual claimant, Ellen Isaacs, at the U.S. Supreme Court and served as the Attorney for the Ad Hoc Committee on Accountability at the Bankruptcy Court (SDNY)
It is disappointing that Purdue paid bankruptcy professionals nearly a billion dollars for a plan that violated the law. The Committee on Accountability warned this would happen.[1] Back when the plan was being written in 2021, we warned that Purdue’s proposal would be struck down by the Supreme Court in 2024.[2] Now that the illegal attempt to protect the Sacklers is over, it’s time to do what should have been done before: liquidate Purdue.
Ellen Isaacs spoke for many when she raised this point in the Supreme Court.[3] From the start of the bankruptcy until the Justices shut them down, lawyers paid by Purdue said that protecting the Sacklers was necessary to preserve the drug company. But the opposite was true: the reason they ever tried to preserve Purdue Pharma was as a prop to protect the Sacklers. Non-consensual non-debtor releases were available only if a company was in Chapter 11, so Purdue had to be kept in business to enable the charade. Now that the Court has enforced the law that bankruptcy protection is limited to those who are bankrupt, there’s no need to reorganize Purdue in Chapter 11, and we should shut it down instead.
In 1977, Congress enacted a law requiring that doctors who commit healthcare crimes must be excluded from Medicare and Medicaid.[4] In 1981, Congress expanded the law to ban criminal corporations from our government healthcare programs.[5] In addition to federal law, many states ban criminal companies from their healthcare programs too.[6] These policies exist to deter drug companies from committing dangerous crimes, and to shut them down if they do.
On the day that Purdue filed for bankruptcy, the company was dead and deserved to be. But back then, under the strategy hatched by Purdue’s lawyers, the company was needed to justify the Sackler releases, so hundreds of millions of dollars have been spent to keep the zombie company going. The latest report reveals that Purdue paid its own corporate insiders more than $200 million during bankruptcy.[7] Even on top of their salaries, Purdue still pays its executives millions of dollars of bonuses – while admitting to felonies and while bankrupt. Meanwhile, courts ruled that Purdue’s patents were invalid,[8] Purdue sold off business lines,[9] and any real need for Purdue to exist is gone.
Hard facts confirm that the tail (Sackler releases) wagged the dog (keeping Purdue in business) in this case. Purdue’s latest motion for executive bonuses says Purdue employs about 450 people, and so far the fees paid by Purdue in this bankruptcy have been $838 million.[10] A Chapter 11 system with a rational interest in saving jobs would not pay bankruptcy professionals $1.86 million (so far and still increasing!) for each job saved. Instead, the system admits that some companies – especially criminal enterprises – should die. Purdue’s latest report claims a cumulative loss of $99 million during nearly five years operating in bankruptcy.[11] For rational people, it would’ve been far better to put the company’s $1.4 billion bank balance (when it filed for bankruptcy in 2019) in a money market fund, which would pay far better and safer returns and not implicate Purdue’s victims in selling OxyContin to the next generation. Why didn’t they liquidate already? Because they needed Purdue in business to get the Sackler releases. So, as this case moves to the next stage, with non-consensual releases gone forever, expect parties interested in common sense and justice to turn to the logical task of liquidating Purdue.
What’s interesting is that the Sacklers planted one last booby trap for anyone trying to shut down their company. Just before DOJ changed hands at the end of 2020, Purdue signed a criminal plea agreement with a special provision to protect itself from liquidation. The company promised to take $2 billion away from the money slated for victims and treatment if it was liquidated. Purdue even got the power to revoke its criminal guilty plea if creditors and the courts did not approve its preferred bankruptcy plan.[12] That’s right; that really happened. Purdue leveraged its own criminal liability to lock victims into its no-accountability bankruptcy plan.
The Committee on Accountability warned in real time in 2020 that the special bankruptcy plea deal was “improper, corrosive to public faith in government, and offensive to the tens of thousands of families who have been harmed.”[13]
We were not alone. Fifteen Senators warned the Attorney General of the United States that the creepy plea agreement “originated with Purdue and its owners, the Sackler family,” and objected that the special deal was “an inappropriate use of federal authority” that failed to serve “the interests of the public.”[14] The same day, forty-six Members of the House of Representatives wrote to “strenuously object” to the plea deal. They pointed out that “never in American history have federal courts used the bankruptcy process” to let criminals control their own prosecution like this.[15] We rejected Purdue’s ploy to re-designate itself as a “public benefit” company named Knoa Pharma; the Senators called that a “rebranding opportunity” for the Sacklers, and the House called it “a dangerous precedent.”
The plea deal has aged poorly. It has sat dormant on the District of New Jersey docket since Thanksgiving 2020.[16] Not a single Purdue executive has seen a jail cell, or a jury, or even been identified by federal prosecutors for committing the crimes. Meanwhile, families that were torn apart by the Sacklers’ drugs experienced a very different justice system, where thousands of ordinary people were convicted and jailed. Richard Sackler mocked the victims and called them “criminals.”[17]
Purdue and the Sacklers called the shots for far too long. Not anymore. It will be another step toward accountability when their plea deal is nullified and their company is shut down for good.
[1] The Ad Hoc Committee on Accountability is one of the twelve committees in the Purdue bankruptcy. The Committee filed seventeen objections, including to: the injunction protecting the Sacklers, Purdue’s plea deal, bonuses for Purdue executives, Purdue’s co-defendants serving on the creditors committee, expedited approval of the Sacklers’ DOJ settlement, and the disclosure statement for Purdue’s unlawful bankruptcy plan. The Committee is a group of grieving parents and victims who suffered through the tragic history of Purdue’s crimes. Member Emily Walden, for example, lost her twenty-one year old son T.J., a member of the Kentucky National Guard, to a prescription opioid overdose. The other original members are Nan Goldin, Ed Bisch, Barbara Van Rooyan, and Cynthia Munger. Verified Statement, In re: Purdue Pharma (Bankr. Ct. Doc. 1186) (filed May 28, 2020).
[2] Limited Objection of the Ad Hoc Committee on Accountability To Debtor’s Motion To Extend The Preliminary Injunction, Purdue Pharma L.P. v. Commonwealth of Mass., Adv. Pro. No. 19-08289 (Bankr. Ct. Doc. 248) (filed on April 16, 2021) at 20-21.
[3] Brief for Respondent Ellen Isaacs, Harrington v. Purdue Pharma L.P., No. 23-124 (filed Dec. 10, 2023) at 11, available at http://www.supremecourt.gov/DocketPDF/23/23-124/279977/20230920125132213_23-124%20Harrington%20v%20Purdue%20Pharma%20Respondents%20Brief%20for%20Ellen%20Isaacs.pdf.
[4] Pub. L. 95-142 (1977), Medicare-Medicaid Anti-Fraud and Abuse Amendments.
[5] Pub. L. 97-35 (1981), Civil Monetary Penalties Law.
[6] Cal. Welf. & Inst. Code § 14043.61; 130 Mass. Code Regs. 450.224; Miss. Code Ann. § 43-13-121(7); N.Y. Comp. Codes R. & Regs. Tit. 18, §§ 504.5, 504.7; 55 Pa. Code § 1101.76; Ohio Admin. Code § 5160-1-17.6(F); S.C. Code Ann. Regs. 126-400; 1 Tex. Admin. Code § 371.1705(a); Wash. Admin. Code 182-502-0030.
[7] Monthly Operating Report, In re: Purdue Pharma, (Bankr. Ct. Doc. 6492) (filed June 25, 2024) at 22.
[8] See Monthly Operating Report (Bankr. Ct. Doc. 5838) (filed Aug. 23, 2023) at 17-18.
[9] See Dietrich Knauth, Purdue Pharma To Sell Consumer Business for $397 Million, Reuters, May 23, 2023 (“U.S. Bankruptcy Judge Sean Lane approved Purdue’s sale of Avrio Health at a hearing in White Plains, New York, allowing Purdue to begin liquidating its assets …”).
[10] See Motion to Authorize Bonuses (Bankr. Ct. Doc. 6279) (filed March 27, 2024) at ¶ 37; Monthly Operating Report (Bankr. Ct. Doc. 6492) (filed June 25, 2024) at 23.
[11] Monthly Operating Report (Bankr. Ct. Doc. 6492) (filed June 25, 2024) at 4 (bottom line loss of $12.162B, adjusted to remove settlement expense of $12.336B and net gain on sale of Avrio Health for $273M).
[12] United States v. Purdue Pharma Inc., Criminal Plea Agreement (D.N.J. 2020), at 5 (“Purdue may withdraw its pleas of guilty if … the Bankruptcy Court rejects, or otherwise declines to confirm, a Plan of Reorganization proposed by Purdue”).
[13] The Ad Hoc Committee on Accountability’s Objection To Purdue’s Motion To Authorize And Approve Settlements Between Purdue and the United States (Bankr. Ct. Doc. 1911) (filed Nov. 10, 2020) at 2.
[14] Nov. 10, 2020 Letter from fifteen U.S. Senators to Attorney General William Barr, available at https://www.baldwin.senate.gov/imo/media/doc/2020.11.10%20Senators%20to%20Barr%20re%20Purdue%20FINAL%20(001).pdf.
[15] Nov. 10, 2020 Letter from forty-six U.S. Representatives to Attorney General William Barr, available at https://katherineclark.house.gov/_cache/files/2/d/2dcd9718-3c10-4b98-ad40-782844eff102/1EF22593BD913787CB832BF8A3339A47.11.10.20-letter-to-ag-barr-on-sweetheart-provision-in-purdue-settlement-final.pdf.
[16] See United States v. Purdue Pharma L.P., No. 2:20-cr-01028 (D.N.J. Nov. 24, 2020) (Plea Agreement).
[17] Aaron Katersky, Former Purdue Pharma CEO called opioid addicts ‘victimizers’ in 2001 email, ABC News, May 7, 2019, at https://abcnews.go.com/US/purdue-pharma-ceo-allegedly-called-opioid-addicts-victimizers/story?id=62879816.
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