Toby Talbot / AP
In a surprise ruling Wednesday night, a New York federal judge authorized further work on the implementation of a controversial bankruptcy plan for Purdue Pharma, the maker of Oxycontin.
The US Department of Justice’s bankruptcy monitoring agency had urged Manhattan District Court Judge Colleen McMahon to put the brakes on the deal until it was reviewed on appeal.
At a hearing Tuesday, McMahon signaled his support for a suspension. But in her decision on Wednesday, she said work on the settlement, valued at $ 5 billion to $ 10 billion, can go ahead.
“Unless someone is lying to me, the only action taken… is preliminary and administrative,” McMahon wrote. “No action is taken that would initiate consumption of the plan itself.”
In the past, appellate courts have been reluctant to challenge federal bankruptcy settlements once they have been partially consumed – a procedural hurdle known as “fair discipline.”
In his ruling, McMahon acknowledged that theoretical fairness was a “serious concern” in this case. She ordered supporters of the Purdue Pharma plan to make written agreements that they would not try to block an appeal using the theoretical fairness argument.
Justice Department tries to block settlement
Purdue Pharma’s bankruptcy plan was confirmed by Federal Bankruptcy Judge Robert Drain last month. The DOJ quickly appealed, as did several states.
During Tuesday’s hearing, McMahon said she believes there are important legal issues raised by the complex settlement that warrant review by the Court of Appeals for the Second Circuit.
She specifically highlighted a provision in the agreement that would grant immunity from opioid lawsuits to members of the Sackler family who own the drug company.
In return, the Sacklers, who say they haven’t done anything wrong, have agreed to pay around $ 3.2 billion from their private estates and trusts. They will also relinquish control and ownership of Purdue Pharma.
DOJ lawyers argue that the deal violates the U.S. Constitution by denying people and governments the right to sue the Sacklers without due process.
“The central issue is Sackler’s release… whether it’s constitutional,” McMahon said.
Supporters of this bankruptcy plan say it will provide billions of dollars for drug and addiction treatment programs over the next decade.
Work will now continue to create a complex web of trusts and organizations that will eventually distribute this money.
Oxycontin marketing helped usher in the opioid crisis
This case has emerged as part of a larger legal review of the role of U.S. businesses in the opioid crisis that involved more than a dozen large corporations in U.S. courtrooms.
Public health experts believe that the aggressive and sometimes illegal marketing of Oxycontin by Purdue Pharma played a key role in triggering the opioid crisis that has killed hundreds of thousands of people.
The sale of the pain relievers generated approximately $ 10 billion in profits for the Sacklers. Family members who have served as officers and board members of Purdue Pharma say they haven’t done anything wrong.
Their private company has twice pleaded guilty to federal crimes related to the sale and marketing of opioids, most recently in 2020.
It’s unclear when the Second Circuit will deal with the Purdue Pharma bankruptcy. Another procedural hearing in the case is scheduled for Thursday in Federal Bankruptcy Court under Judge Robert Drain.