What Oklahoma’s Opioid Settlement Means for Other States, Cities and Counties Suing Purdue Pharma

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Yves here. Note that New York State is also going after the personal wealth of the Sacklers, arguing that the family both made illicit transfers from Purdue Pharma as well as illegally hiding money in foreign bank accounts. But that is an uphill battle.

By Andrew Pollis, Professor of Law, Case Western Reserve University. Originally published at The Conversation

Oklahoma Attorney General Mike Hunter recently announced that the state had reached a US$270 million settlement with Purdue Pharma, the largest manufacturer of prescription opioids. The settlement resolves the state’s claims against Purdue over costs incurred in addressing the opioid crisis and allows Purdue to avoid a trial that was scheduled for May.

So the natural question arises: What does this development mean for the 1,700 or so cases brought largely by city and county governments against Purdue and a swath of other pharmaceutical-industry defendants?

My advice for other plaintiffs and opioid victims, based on my nearly three decades studying and practicing civil litigation: Don’t get your hopes up.

Purdue’s Potential Bankruptcy

Most of the outstanding cases have been consolidated into so-called multidistrict litigation in Ohio. The court’s judge, Dan Polster, has pushed hard for a settlement.

So will these cases follow Oklahoma’s lead and reach a settlement?

Not so fast.

Rumors have swirled around Purdue’s possible plan to seek bankruptcy protection from creditors, including the plaintiffs in the opioid cases. That plan may make sense to Purdue given that the ongoing litigation could result in judgments in the tens of billions of dollars – presumably far in excess than the combined net worth of the family that owns the private company, the Sacklers.

But a bankruptcy filing would create havoc for any prospect of near-term settlement for the outstanding opioid cases. An automatic stay would be issued that would bring all pending U.S. litigation to a screeching halt – including the bellwether multidistrict trial, which is set for October.

A bankruptcy judge with no familiarity with the case would suddenly find herself responsible for resolving perhaps the largest mass litigation of its kind in history in terms of monetary size. That judge would have to approve any new settlement involving ongoing litigation in other jurisdictions and would likely require it to be global. That’s a herculean task – just ask Polster, who had hoped to settle the cases before him by now.

At the same time the alternative is also unthinkable in which all of the claims against Purdue would potentially relocate to the bankruptcy court where Purdue files. In other words, all 1,700 or so cases – including the multidistrict litigation and the state lawsuits – would be lumped together before the bankruptcy court to be resolved there.

That court could choose to send them back for trial to the courts where they originated but still would have ultimate authority to determine how much each creditor and plaintiff would end up with.

Oklahoma’s Settlement

A bankruptcy filing by Purdue could also pose problems for the settlement with Oklahoma.

Although Oklahoma claims that its settlement is secured against a possible bankruptcy filing – and Purdue reportedly committed to delay any filing – it’s likely the other plaintiffs would challenge it. Why should Oklahoma get a large settlement while all the other states with pending litigation are forced to accept the scraps following Purdue’s bankruptcy?

After all, there is nothing unique about Oklahoma’s case except that it was the first to come to trial. I don’t think a bankruptcy judge would feel warm and fuzzy about affirming a disproportionate settlement that would benefit one state to the detriment of all the other plaintiffs.

If the plaintiffs are crafty, they’ll try to force Purdue into bankruptcy by filing what is known as an involuntary bankruptcy petition. All it takes is three creditors with claims against a potentially insolvent company – such as three of the hundreds of states, counties or cities that are suing Purdue – to ask a bankruptcy court to assume control of its assets.

And in this case, the Oklahoma settlement could be deemed an attempt – legally called a “preference” – to benefit one creditor at the expense of others. Thus Oklahoma would lose whatever security interest it may have, as well as any money it received, within 90 days of such a bankruptcy petition. Those assets would return to the estate for division among all unsecured creditors.

What’s in it for Purdue

So why did Purdue settle with Oklahoma rather than file for immediate bankruptcy protection?

Clearly, in my view, it’s not ready to file – but didn’t want the Oklahoma trial to start either. A cynic might wonder whether Purdue’s owners received profit distributions within the last year and are waiting to file for bankruptcy after the so-called lookback period expires. During the lookback period, creditors can claw back certain types of payments made within the year before the filing. For insiders like the Sackler family, the lookback period is a full year rather than 90 days – as it is for Oklahoma.

In any event, the Oklahoma settlement proceeds may well end up much lower than the settlement agreement provides. So the Oklahoma attorney general may have scored a political victory in announcing the settlement, but it remains to be seen whether his constituents will actually see the money – and, if so, how much and when.

Knowing that, it’s hard to imagine any significant further settlement activity, at least until another case gets within a month or two of trial. And, if Purdue does file for bankruptcy, the opioid cases may never get that close to a trial again.

And that, of course, means that the various states and local governments that have brought lawsuits will have to continue to bear the cost of opioid-related treatment and services for the foreseeable future.

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30 comments

  1. divadab

    For this kind of profiteering – creating addicts and making their lives a misery – to end, there must be personal penalties. Jail time for drug pushers! These Sackler people need to be punished and punished hard.

    Reply
    1. Louis Fyne

      China-style public execution
      Or at least a Singapore caning.

      I know that’s not very humanist of me. maybe Hammurabi was on to something

      Reply
    2. sailor1031

      how exactly did Purdue/the Sacklers create all these addicts? Has it been shown that Purdue sold directly to the public? has it been shown that all opioid addicts are addicted by and to specifically and only Purdue products? Does no-one else have any responsibility – prescribing doctors, street dealers, other pharma companies, chinese illicit drug makers, chinese licit drugmakers, illegal bulk importers (used to be called ‘drug runners’)?

      Reply
      1. tegnost

        They’re called “pushers”, they want sales, don’t care about collateral damage

        https://www.statnews.com/2019/01/15/massachusetts-purdue-lawsuit-new-details/

        FTA…”Richard Sackler, who was named president of the company in 1999 before becoming co-chairman in 2003, is singled out in the complaint as particularly domineering as he demanded greater sales. In 2011, he decided to shadow sales reps for a week “to make sure his orders were followed,” the complaint states.”

        Reply
        1. Harry

          Quite! A question. How come we have never come across a section of the NY Met named after a famous black drug dealer? Answer? Scaling is tough.

          Reply
      2. Joe Well

        You ask a bunch of rhetorical questions that would be easily answered by any news article on the subject.

        TLDR (because you obviously can’t be bothered): Purdue lied to doctors, telling them the drug was much less addictive than it actually was; looked the other way as to pill mill pharmacies when they knew very well what a normal order looked like; and the Sacklers are alleged to have personally pressured their employees to do all this.

        So yes, the Sacklers are the kingpins here, though there have been criminal proceedings against individual pill mill pharmacies and countless dealers who illegally resold pills.

        Sorry for the rude tone, but this is just typical of corporate apologia, pretending that facts in evidence aren’t really in evidence even when everyone is talking about them.

        Reply
        1. Arizona Slim

          Correct me if I am wrong, but didn’t Purdue also ship millions of pills to sparsely populated areas of West Virginia?

          Reply
      3. Stephen Gardner

        So, because Pablo Escobar didn’t do retail he should have been subject to civil penalties only? Am I missing something here? Why are people so willing to give the wealthy a pass on their crimes? How can anyone sympathize with the Sackler family? Why is RICO not applicable here? What about forfeiture? Is this just for the criminals that aren’t in tight with other movers and shakers? I just don’t understand apologists for well connected criminals.

        Reply
      4. Brianthal James

        If you would like to bring “Chinese illicit drug makers” in as party to the suit you are absolutely welcome to try to recover those damages or whatever the parlance is

        Reply
    3. Summer

      Yep, one famous precedent is Charles Manson. He was put on trial for murders that he masterminded. He sent out others to do the dirty work.
      Not exactly the same, but you get the drift.

      Reply
    4. DHG

      I dont agree the Sacklers sold out a long time ago this isnt their problem and anyone believing an opiate isnt addictive is well……

      Reply
  2. notabanker

    Not an Attorney, so would be interested to hear from some. Wouldn’t naming the executives and directors in the suits overcome the bankruptcy strategy? Isn’t that what NY State did?

    Where are the criminal charges? No Prosecutor in the country can build a case against them?

    Reply
  3. run75441

    The Biden sponsored Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) Secured Creditors will be first in line after the bankruptcy and would establish who gets paid first beyond the attorneys. I suspect if the state does not have a lien against the company, they would come after the attorneys and banks. Equivalent to a sharp stick in the eye.

    Reply
  4. The Rev Kev

    I was wondering if the fact that Purdue settled with Oklahoma was more about preventing the process of discovery more than anything else. Who knows what are in their files but I bet that there is a lot there that Purdue is determined never see the light of day – that is, if they have not been deleted or shredded by now.

    Reply
  5. JEHR

    Further to Purdue’s part in creating opiods and selling them as “non-addictive,” the company is also, apparently, developing naloxone for treatment of opiod overdoses. I hope this is not true:

    Purdue Pharma Canada, the privately held maker of OxyContin, the world’s top selling prescription opioid painkiller, is developing its own version of naloxone and hoping to market it in Canada. Purdue Pharma Canada is a separate legal entity from the company’s U.S. operations.

    See also here.

    Reply
    1. ChiGal in Carolina

      So they want to profit on a fix for a problem they jacked up for profit?

      They should be required to distribute Narcan or whatever version they manufacture at no cost to every state where Oxycontin was sold.

      Reply
  6. Synoia

    And that, of course, means that the various states and local governments that have brought lawsuits will have to continue to bear the cost of opioid-related treatment and services for the foreseeable future

    Pardon me for being dense, but how can Purdue settle the Opioid case in any manner? Does it have large revenues separate from it’s Opioid business?

    Reply
  7. Another Amateur Economist

    From about 2004 to 2012, prescription opioids were involved in about three to four times the number of deaths as heroin. And the most they will lose is money? Money their customers will end up paying for them anyway?

    As far as I am concerned stuff like this shows the wealthy have escaped the rule of law. They need fear no government. They are the libertarians libertarians want the world to become. Free of all restraint, nor any responsibility toward others, the little people especially.

    The fines they will pay are just another expense, to be figured into the bill.

    Reply
  8. barrisj

    Reposted for relevance:

    New York Sues Sackler Family Members and Drug Distributors

    As investigators closed in on Purdue Pharma, the maker of the opioid painkiller OxyContin, more than a decade ago, members of the family that owns the company began shifting hundreds of millions of dollars from the business to themselves through offshore entities, the state of New York alleged in a lawsuit on Thursday.
    […]
    The suit, filed in New York State Supreme Court in Suffolk County, names eight Sacklers: Richard, Jonathan, Mortimer, Kathe, David, Beverly and Theresa Sackler, as well as Ilene Sackler Lefcourt. It seeks to claw back funds that it alleges were transferred from Purdue Pharma to private or offshore accounts held by family members in an effort to shield the assets from litigation; to order the Sacklers to return any transferred assets; and to restrain them from disposing of any property.
    […]
    It further charges that in 2007, while Purdue was being investigated by federal prosecutors, the family created a new company to sell opioids, called Rhodes, which a former Purdue official said was specifically set up as a “landing pad” for the Sacklers because of the crisis surrounding OxyContin, according to the lawsuit.
    […]
    By 2014, fearing that Purdue could face catastrophic financial judgments, the Sacklers directed Purdue to pay family members hundreds of millions of dollars a year in distributions, sending money to offshore companies, the lawsuit claims, an act of clear “bad faith.”
    […]
    https://www.nytimes.com/2019/03/28/health/new-york-lawsuit-opioids-sacklers-distributors.html?smid=nytcore-ios-share

    The Sacklers’ criminality approaches that of our First Family, and makes “pharma bro” Martin Shkreli look like Albert Schweitzer. Just exactly how much of their collective family fortune will go toward lawsuit settlements remains in doubt, given the cleverness in hiding their money. Dunking stools for the lot, say all of us!

    Reply
  9. rob

    when congress investigated the oxy contin manufacturers about 6 years ago,or maybe 10?…..
    Back then there was discussion about how the companies knew they were over producing product by a factor of ten…. or something. The congress should already know, that companies were selling enough of this product to “leak” to all the non prescription use that was/is everywhere…. and making billions of dollars doing it.

    fast forward a decade

    the legal defense the company will surely make that theirs is a LEGAL and approved product. The distribution is carried out by legal and approved intermediaries,all following existing legislation. Even florida, with their seeming abandon letting people come across state lines and getting hundreds of pills at a time….are LEGAL and approved… … duhh.. so what’s everyone’s problem?

    The sacklers own the purdue companies and other companies who also sell opiods… They make billions of dollars, knowing that their product is used for reasons good and bad…
    Whether money they have already stashed “off-shore” .. will ever be part of a penalty…. seems very unlikely. If they file bankruptcy and abandon the shareholders and maybe even the company…. what do they care? their stash is surely already enough to support generations in style….
    they frequent charity galas and hoity toity venues…. and will probably just morph into whatever is the next morally ambiguous aspiration

    But in north carolina,
    People who supplied someone with an opiod, can be charged with manslaughter if that person dies… even if they didn’t know it….
    Because JUSTICE….. means tough laws for poor people….. and chardonnay for the wealthy
    Another example of the drug war in action….
    Police and prosecutors harassing street level nobodies, and never even think it is their place to go after the real king pins

    Reply
  10. fnx

    No matter what happens with the lawsuits and possible bankruptcy claims, the people who were actually hurt by everyone involved from the Sacklers on down to the pill mill doctors – and those who wrote prescriptions because their patient asked for it – will see no money or other relief! A court judgment won’t bring back those who overdosed or committed suicide due to their addiction; nor will it ever compensate those who are still addicted or who have managed to beat their addiction but have lost so much in the way of family, friends and the ability to make a salary for the many years and decades that were wasted due to the heinous and callous attitudes involved by the guilty parties. And just like with the big tobacco settlements, the states will take any money received and promptly choose to spend it on things other than intended or stated.

    Reply
  11. ShamanicFallout

    I’m not an attorney either, but on what basis would they/can they file for bankruptcy protection? If there has only been one judgment for $270 million, and this is well within their ability to pay, how bankruptcy? Seems like another scam

    Reply
  12. Fred1

    Sorry. Can’t manage the link function to link to the article. In 2007 Purdue Pharma and three executives pleaded guilty to criminal charges in Federal Court in the Western District of Virginia. Purdue was fined $600m and the three executives were fined a total of $34.5m. I practice before this judge regularly and can’t imagine that every penny of the fines have not been paid.

    As to the BK issue in this article, BK is inevitable or some private arrangement like the ones created in the asbestos litigation. Without BK or a private arrangement, it would take decades to try every case and the order in which the cases are tried will be arbitrary. Multi-district litigation will speed things up, but it is a very cumbersome process. The problem is that any amounts recovered will be so far in the future there will be no meaningful connection between the compensation and the individual victims. Receiving a check for X dollars 30 years in the future is not justice. Many will be dead and many won’t even understand why they’re receiving it.

    Reply
  13. Knute Rife

    So what is Oklahoma’s “security”? No one says, and the state apparently hasn’t filed a security interest of record anywhere. As for the agreement not to file bankruptcy, that looks like an unenforceable ipso facto clause.

    Reply

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