A federal judge rejected OxyContin maker Purdue Pharma's bankruptcy settlement of thousands of lawsuits over the opioid epidemic Thursday because of a provision that would protect members of the Sackler family from facing litigation of their own.
U.S. District Judge Colleen McMahon in New York found that federal bankruptcy law does not give the bankruptcy judge who had accepted the plan the authority to grant that kind of release for people who are not declaring bankruptcy themselves.
"The great unsettled question in this case is whether the bankruptcy court -- or any court -- is statutorily authorized to grant such releases," McMahon wrote.
In a statement Thursday night, the company said that it would appeal the ruling and at the same time try to forge another plan that its creditors will agree to.
Purdue said the ruling will not hurt the company's operations, but it will make it harder for company and Sackler money to be used to fight the opioid crisis as the legal battle continues.
"It will delay, and perhaps end, the ability of creditors, communities, and individuals to receive billions in value to abate the opioid crisis," said Steve Miller, chairman of the Purdue board of directors. "These funds are needed now more than ever as overdose rates hit record highs, and we are confident that we can successfully appeal this decision and deliver desperately needed funds to the communities and individuals suffering in the midst of this crisis."
In September, U.S. Bankruptcy Judge Robert Drain signed off on the deal after a lengthy trial.
Connecticut Attorney General William Tong, who was among a handful of state officials seeking to have the deal undone, called the ruling "a seismic victory for justice and accountability." Tong said the ruling will "reopen the deeply flawed Purdue bankruptcy and force the Sackler family to confront the pain and devastation they have caused."
Purdue sought bankruptcy protection in 2019 as it faced thousands of lawsuits claiming the company pushed doctors to prescribe OxyContin, helping spark an opioid crisis that has been linked to more than 500,000 deaths in the U.S. over the past two decades.
Through the bankruptcy court, it worked out a deal with its creditors. Members of the Sackler family would give up ownership of the company, which would transform into a different kind of entity that would still sell opioids -- but with profits being used to fight the crisis. It would also develop new anti-addiction and anti-overdose drugs and provide them at little or no cost.
Sackler family members also would contribute $4.5 billion in cash and charitable assets as part of an overall deal that could be worth $10 billion, including the value of the new drugs, if they're brought to market.
Government entities and businesses agreed to use any money they receive fighting the opioid epidemic. The deal also calls for millions of company documents, including communications with lawyers, to be made public.
In return, members of the wealthy family would get protection from lawsuits over their role in the opioid crisis -- both the 860 already filed and any others in the future.
Most state and local governments, American Indian tribes, individual opioid victims and others who voted said the plan worked out in the bankruptcy court should be accepted.
New York Attorney General Letitia James, like several others, sued Sackler family members and opposed the settlement before eventually agreeing to it this year. She said in a statement that if the deal doesn't hold up, she's ready to resume the civil lawsuit: "Purdue Pharma and the Sackler family remain named defendants in our ongoing litigation and we will hold them accountable for their unlawful behavior, one way or another."
The U.S. bankruptcy trustee's office, eight state attorneys general and some other entities have been fighting the deal. They argue that it does not properly hold members of the Sackler family accountable and that it usurps states' ability to try to do so.
The main issue on the appeal was the lawfulness of the measures that would extend legal protections to family members.
Such "third-party releases" are not used in most bankruptcy cases, but they are common in cases such as Purdue's, in which the companies involved are burdened with lawsuits and have relatively little value -- but their wealthy owners could contribute.
The Purdue deal would not protect family members from any criminal charges. But so far none have been filed, and there are no signs that any are forthcoming, though some activists are calling for charges.
In a hearing, McMahon focused in on how Sackler family members transferred $10.4 billion from the privately held Stamford, Conn.-based company over the decade before the bankruptcy. McMahon wanted to know whether the money was moved in part to ensure a role for the Sacklers in bankruptcy negotiations.
But in her ruling Thursday, McMahon focused on whether the bankruptcy law allows releases for third parties when some creditors in the bankruptcy disagree. She also noted that other courts will weigh in on the case.
"This opinion will not be the last word on the subject, nor should it be. This issue has hovered over bankruptcy law for thirty-five years," she said.
Information for this article was contributed by Geoff Mulvihill of The Associated Press, Jan Hoffman of The New York Times and Jeremy Hill of Bloomberg News (TNS).
FILE - In this Aug. 9, 2021, file photo, fake pill bottles with messages about OxyContin maker Purdue Pharma are displayed during a protest outside the courthouse where the bankruptcy of the company is taking place in White Plains, N.Y. A federal judge on Thursday, Dec. 16, 2021, has rejected OxyContin maker Purdue Pharma’s bankruptcy settlement of thousands of lawsuits over the opioid epidemic because of a provision that would protect members of the Sackler family from facing litigation of their own. (AP Photo/Seth Wenig, File)