Connecticut Appeal Overturns Purdue Pharma Bankruptcy Ruling

Purdue Pharma - Federal Bankruptcy Court Case

A federal bankruptcy settlement dissolving Purdue Pharma would have left the victims of the opioid epidemic without anyone to sue for their injuries. The Connecticut Attorney General was among the parties who appealed the settlement as unconstitutional and unfair. Did the Sackler family abuse the bankruptcy process? Or should business owners be allowed to shield themselves from liability caused by their company’s actions?

Purdue Pharma Bankruptcy to Resolve Opioid Epidemic Lawsuits

In September 2019, Purdue Pharma, the company responsible for inventing and distributing OxyContin, filed for bankruptcy. The company was trying to protect itself from more than 2,600 lawsuits alleging that the company misbranded and recklessly marketed the opioid painkiller. These lawsuits sought to hold Purdue Pharma and its owners, the Sackler family, responsible for trillions of dollars in personal damages and clean-up costs related to the nationwide opioid crisis. In filing for bankruptcy for their business, the Sacklers said all those legal costs were more than the company could bear.

Two years later, in September 2021, the Purdue Pharma bankruptcy reached a settlement. The business owners and attorneys general from several states agreed to a plan that would end the lawsuits and partially fund state and local opioid response programs. Purdue Pharma itself would be dissolved and the Sacklers would pay $4.5 billion over the course of nine years. (The family’s net worth is many times that amount.) A new, as yet unnamed company, would be formed with no ties to the family, and the profits from that company would mainly pay for ongoing addiction treatment and prevention programs nationwide.

Connecticut Attorney General Says Bankruptcy Settlement is Unfair

Many, including an attorney for the individual plaintiffs and the bankruptcy judge himself, were disappointed in the outcome. Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, New York approved the settlement, despite wishing and expecting the amount would have been higher. In entering his ruling on the record, the Judge said:

“This is a bitter result, B-I-T-T-E-R.”

He expressed frustration that money the Sacklers held in foreign accounts were not included in the negotiations, or the eventual settlement.

The most controversial part of the Purdue Pharma Bankruptcy extended civil immunity for all opioid-related lawsuits to the Sackler family, who were business owners and board members of the bankrupt company. It is common for businesses to reorganize under bankruptcy to avoid liability. However, that same protection does not usually extend to third-party business owners. The federal Department of Justice said that this aspect of the settlement is unconstitutional. It deprives victims and state governments of the right to sue the Sacklers for their role in the opioid crisis without due process.

Connecticut Attorney General William Tong agreed, and joined a lawsuit to appeal the bankruptcy decision. In a press release, Tong said:

“The Sacklers are not bankrupt. We cannot allow our bankruptcy laws to be abused and misused as a loophole for the rich and powerful to avoid justice and accountability. This decision was an unprecedented and unacceptable overreach by the bankruptcy court. Connecticut has filed notice that we will appeal and will continue to fight on behalf of the victims and families of the opioid epidemic until we see justice.”

When are Business Owners Liable After a Connecticut Bankruptcy?

The values and the issues in the Purdue Pharma bankruptcy may seem large and out of reach for many small business owners. However, the questions raised in the settlement and the appeal apply on a smaller scale. Specifically:

  • How much of their own money should the Sacklers have to pay toward their business’s liabilities?
  • Should the business owners remain liable after the business is disbanded?
  • Did the Sacklers abuse the bankruptcy process by removing funds from the company before filing for bankruptcy?

When business owners pursue bankruptcy it can raise complicated questions about which funds are theirs, and which belong to the business. The reason most business owners incorporate is to shield their personal assets from collections if their business efforts fail. However, sometimes a business owner’s actions may require them to do more than dissolve the company and distribute the liquidated assets in bankruptcy.

Now, it appears the Sacklers may have crossed that line. On November 30, 2021, U.S. District Judge Colleen McMahan, reviewed the appeal filed by Connecticut and other attorneys general. She said she was considering sending the settlement back for additional findings. According to her, it appears that the family may have improperly removed more than $10 billion from Purdue Pharma in the decade leading up to the bankruptcy. This left the company with insufficient funds to defend the opioid lawsuits and drove it to file for bankruptcy, extinguishing the plaintiffs’ claims.

Federal Judge Overturns Bankruptcy Settlement Over Third-Party Release

Then on Thursday, December 16, 2021, Judge McMahon said that the settlement could not go forward. She found that the U.S. Bankruptcy Code did not explicitly permit a judge to grant a release to third parties not themselves filing for bankruptcy. Her opinion said that legal questions over these third-party releases have “split the federal circuits for decades” and “hovered over bankruptcy law for thirty-five years.”

Purdue Pharma has already promised to appeal Judge McMahon’s ruling. Given the fact that federal circuit courts have treated the law differently for years, it could end up before the United States Supreme Court. At the same time, members of Congress have proposed a bill called “The Sackler Act” that would prevent business owners from receiving litigation protection unless they file for bankruptcy themselves.

Help for Business Owners Facing Bankruptcy in Connecticut

At Lawrence & Jurkiewicz, our bankruptcy attorneys understand the complexities involved when a business owner files for bankruptcy. With offices in Torrington, Connecticut, we help individuals and businesses throughout the greater Hartford area and the Litchfield County area by providing them thoughtful and effective representation throughout the bankruptcy process. If your business is facing litigation you cannot afford, or if you are concerned a bankruptcy could affect your personal assets, contact us today to schedule a free consultation.

Categories: Bankruptcy