Purdue Pharma and the Sackler Family: Establishing Bankruptcy Precedent
Berit Schaus
Purdue Pharma is an American pharmaceutical company well known for its distribution of OxyContin and other opioids. In 2020, the company pled guilty to “one count of dual-object conspiracy to defraud the United States and to violate the Food, Drug, and Cosmetic Act, and two counts of conspiracy to violate the Federal Anti-Kickback Statute,” in connection to the marketing and prescription of OxyContin and other opioids manufactured by the company. [1] Purdue Pharma was ordered to pay $8.34 billion to settle both criminal fines and civil settlements. [2] However, the amount levied against Purdue Pharma forced the company to file for bankruptcy, which they were granted under the conditions that $2.8 billion in civil settlements be recovered and that the company begin to operate as a Public Benefit Company (PBC). [3] In addition, the owners of Purdue Pharma, the Sackler family, were designated as non-debtors in the bankruptcy case, absolving them of responsibility for the $8.34 billion claim. [4] Instead they paid $225 million of their personal fortune to “resolve [their] civil False Claims Act liability.” [5] Individual members of the family admitted to approving marketing tactics that led to healthcare professionals prescribing OxyContin in situations where it wasn’t necessary leading to “abuse and diversion” of OxyContin. [6]
Although this plea deal resolved the Justice Department’s criminal investigation into Purdue Pharma and the civil investigations into both Purdue Pharma and the Sackler family, the deal specifically excluded any criminal immunity for individuals associated with Purdue Pharma, and did not prevent states or individuals from pursuing civil claims against these individuals. [7] However, in a subsequent court decision, the Sackler family was granted a non-consensual third party release, which is when civil lawsuits are dismissed against non-debtors when a corporation or individual files for bankruptcy. [8] In this case, the release was granted in connection to Purdue Pharma’s bankruptcy settlement, and the family was granted immunity from future civil claims by a bankruptcy court where the settlement was reached. [9] On appeal to the United States Supreme Court, or SCOTUS, the court heard arguments in the case of Harrington v. Purdue Pharma L.P. [10] The case focuses on whether the Sackler family should be eligible for this immunity from further civil claims, including claims of fraud, in exchange for them contributing $6 billion of their personal fortune to the $8.34 billion owed by Purdue Pharma. [11]
There are conflicting legal opinions on whether bankruptcy courts have the power to grant such non-consensual third party releases. [12] The case of Harrington v. Purdue Pharma L.P. thus presents two main legal questions, neither of which had been discussed by SCOTUS until the hearing. The first is whether bankruptcy courts have the power to grant non-consensual third party releases. The second is if the Sackler family’s petition is legal, given the fact that it would grant them immunity from claims of fraud, which, by precedent, are handled separately from bankruptcy-related proceedings. [13]
The question of the legality of non-consensual third party releases is complicated and has yielded different answers from lower level courts over many years. However, it has yet to be brought before SCOTUS. There are examples of cases, such as Millennium Lab Holdings’ and Airadigm Communications’ petitions for bankruptcy, where courts have ruled that non-debtors can be released from liability, and these releases are not specifically prohibited anywhere in the bankruptcy code. [14] But there are other cases, like Pacific Lumber Company’s bankruptcy settlement, where there has been no such dismissal attached to the bankruptcy filing. [15] The bankruptcy code doesn’t explicitly allow non-consensual third party releases, with the exception of claims related to asbestos. [16] Those who argue against non-consensual third party releases argue that this power should be in the hands of district courts rather than bankruptcy courts, thus requiring an additional proceeding for blocking liable parties from further civil litigation. [17]
Proponents of granting the Sackler family release from civil liability argue that the $6 billion they would contribute would have a positive impact on the victims in the case. [18] The Sackler family, being non-debtors, have no legal obligation to contribute any of their personal fortune to bankruptcy payouts, and if the deal were to be rejected, the money would no longer be allocated to those who were affected by Purdue Pharma and the Sackler’s actions. On the contrary, those who oppose the plan cite the immense monetary value of pending civil claims against the Sackler family and argue that a release from all of these claims is effectively allowing the Sacklers to avoid any major responsibility. [19] Currently, the claims against Purdue Pharma hold a value of about $40 trillion, many of which are directed at both Purdue Pharma and the Sackler family. [20] [21] In the case that even a fraction of these civil lawsuits were decided against the Sackler family and Purdue Pharma, the payout would be significantly greater for the victims. However, as the opposition would note, there is no guarantee that any of these civil lawsuits would be decided in favor of the victims. [22]
The second main legal question, whether the Sackler family’s arrangement is legal, begets another question that has not been considered in depth in any jurisdiction in the United States. In the past, debtors that have been granted protection from third-party civil suits as part of their bankruptcy settlements are still held accountable for certain criminal proceedings, most notably fraud and unlawful misconduct. [23] One important example of this was Enron’s bankruptcy settlement in which the company and its CEO, Kenneth Lay, were named as debtors after the settlement was granted. [24] Despite the fact that Enron and Lay could not be sued by individuals claiming damages, Lay was still charged with fraud by the U.S. Security and Exchange Commission and was set to serve time in prison, although he passed before he was sentenced. [25] According to legal precedent, the Sacklers have no claim to immunity from criminal proceedings in cases of fraud and willful misconduct. [26]
Supporters of this part of the filing argue that the financial payoff in this situation is more important than pursuing claims of fraud or willful misconduct against the Sacklers. [27] As argued by the representation for Purdue Pharma in Harrington v. Purdue Pharma L.P, Purdue and the Sackler family have become deeply intertwined in the minds of the public, to the point that “victims have filed identical claims against Purdue and the Sacklers for the same injuries based on the same conduct.” [28] The release itself applies only to the pursuit of claims against the Sackler family, and not Purdue Pharma, meaning that victims could still pursue wrongful death and personal injury claims against the company and receive compensation in those cases. [29] Thus, according to those in favor, the granting of the Sackler’s petition is both legally sound and beneficial for all parties involved.
Whether SCOTUS rules in favor of Harrington or Purdue Pharma, bankruptcy proceedings will be fundamentally altered. A decision in favor of Purdue Pharma signals that individual claims are outweighed by the potential for one big settlement in the interest of benefiting a larger range of people. A ruling against Purdue Pharma would denote a shift away from protecting the executives behind corporations that have the power to alter people’s course of life. Regardless of the Supreme Court’s ultimate ruling, their decision will have lasting impacts on the future of bankruptcy settlements in the United States.
“Justice Department Announces Global Resolution of Criminal and Civil Investigations with Opioid Manufacturer Purdue Pharma and Civil Settlement with Members of the Sackler Family.” U.S. Department of Justice, October 21, 2020. Office of Public Affairs. https://www.justice.gov/opa/pr/justice-department-announces-global-resolution-criminal-and-civil-investigations-opioid.
Ibid.
Ibid.
Stay Application in William K. Harrington v. Purdue Pharma L.P., et al., Supreme Court of the United States (The Supreme Court of the United States 2023).
“Justice Department Announces Global Resolution of Criminal and Civil Investigations with Opioid Manufacturer Purdue Pharma and Civil Settlement with Members of the Sackler Family.” U.S. Department of Justice.
Ibid.
Ibid.
Stay Application in William K. Harrington v. Purdue Pharma L.P., et al., Supreme Court of the United States.
Ibid.
Ibid.
Ibid.
Ibid.
Ibid.
Ibid.
Ibid.
Reply Brief for the Respondents Supporting Petitioner in William K. Harrington v. Purdue Pharma L.P., et al., Supreme Court of the United States (Supreme Court of the United States 2023).
Stay Application in William K. Harrington v. Purdue Pharma L.P., et al., Supreme Court of the United States.
Oral Arguments in William K. Harrington v. Purdue Pharma L.P., et al., Supreme Court of the United States (Supreme Court of the United States 2023).
Stay Application in William K. Harrington v. Purdue Pharma L.P., et al., Supreme Court of the United States.
Ibid.
Oral Arguments in William K. Harrington v. Purdue Pharma L.P., et al., Supreme Court of the United States.
Ibid.
Stay Application in William K. Harrington v. Purdue Pharma L.P., et al., Supreme Court of the United States.
In re Enron Corp., et al., New York Southern Bankruptcy Court (United States Bankruptcy Court Southern District of New York 2002).
“SEC Charges Kenneth L. Lay, Enron’s Former Chairman and Chief Executive Officer, with Fraud and Insider Trading.” U.S. Securities and Exchange Commission, July 8, 2004. U.S. Securities and Exchange Commission. https://www.sec.gov/news/press/2004-94.htm.
Oral Arguments in William K. Harrington v. Purdue Pharma L.P., et al., Supreme Court of the United States.
Ibid.
Ibid.
Stay Application in William K. Harrington v. Purdue Pharma L.P., et al., Supreme Court of the United States.