Bankruptcy Court: Purdue Pharma

Buchalter & Pelphrey Attorneys At Law

Welcome to Bankruptcy Court, a series where we explore newsworthy bankruptcy cases and how they work. For this installment, Buchalter & Pelphrey Attorneys At Law will be covering the Purdue Pharma case.

All About Oxy

If you haven't heard of Purdue Pharma or the Sackler family, you might have heard of a painkiller called OxyContin. Introduced to the drug market in the late 1990s, OxyContin was by all accounts a "miracle" drug that delivered extended pain relief equivalent to the maximum dose of a traditional pain killer.

Researchers at Purdue Pharma ran human trials and found that 82% of all participants had a negative reaction to the drug, whether it was a side effect or signs of addiction. Despite these findings, the Sackler family pushed for release and FDA approval.

Using an aggressive ad campaign, the company sent sales representatives to hospitals and medical practices around the country to spread the word about this new drug. By 2001, Purdue Pharma faced growing concerns from physicians and researchers on the increase in illegal use and possible addiction in their communities.

A lawsuit from Kentucky in 2013 would be the last straw for the Sackler family. The evidence collected in the suit and additional investigations later showed that despite knowing their medication was highly addictive, Purdue Pharma sent sales reps to areas with high percentages of addiction to pressure doctors to continue prescribing OxyContin. Now, the company is facing millions of dollars in settlements.

Their harmful actions have led to the deaths of thousands and devastated communities across the United States. However, despite a long history of false advertising and alleged manipulation, a federal judge has approved a bankruptcy settlement that will remove any responsibility from the Sackler family.

Chapter 11 and Reorganization

The Sacklers filed for Chapter 11 bankruptcy in 2019 in light of thousands of lawsuits related to OxyContin. Typically, Chapter 11 allows the debtor to reorganize their business, assets, and settlements through a reorganization plan. Reorganization plans are step-by-step guides for how the debtor plans on paying off their debt over time.

Generally, Chapter 11 is used by companies and businesses because it allows the business operations to continue, which helps generate funds that can go toward paying off debt. Creditors are more likely to cooperate in these cases because they will get their money back in addition to possible interest payments.

Most businesses who file for Chapter 11 are larger, more profitable companies. This is because Chapter 11 is expensive, and sometimes, businesses pay more than what they owe.

Interference from the DOJ

Federal Judge Robert Drain approved a settlement that would result in the Sackler family being released from liability on the condition that they pay $4.3 billion. The family will no longer be the owners of Purdue Pharma, but instead, they will be the faces of a new effort to remedy the effects of the opioid crisis.

While settlements in bankruptcy cases aren't unusual, this specific case raises some important questions.

  1. Was the decision an abuse of justice?
  2. What about due process?
  3. Is this a real punishment or a slap on the wrist?

Advocates and the Department of Justice are asking these same questions. In fact, the first two questions are what's prompting the DOJ to look into an investigation.

During the trial, Department of Justice officials urged the judge to take a harsher stance that would properly chastise the Sackler family. DOJ attorney Paul Schwartzberg stated during the trial,

"Due process requires that those with litigation claims have reasonable opportunity to be heard."

Attorneys representing the Sacklers and Purdue Pharma say that allowing the thousands of lawsuits to stand against the family would be chaotic and unproductive, and Judge Drain agreed. There have also been reports that Purdue Pharma will attempt to convince the DOJ not to challenge the verdict.

What Happens Now?

Purdue Pharma will continue to operate and sell opioids, along with the promise that the proceeds will go toward relief efforts in areas where addiction was the worst. This is not a typical conclusion to a Chapter 11 case, but continuing business operations is one of the many benefits of filing for this type of bankruptcy.

Bankruptcy judges sometimes have to deviate from the norm to ensure that the case is settled properly when there is so much at stake. This may not be satisfactory to the millions of people affected by the opioid crisis, but then again, there have been few cases of this magnitude. Whether the DOJ launches an investigation or not, this case could set a strong example for future Chapter 11 cases of this scale.

Buchalter & Pelphrey Attorneys At Law will continue to follow this case as it develops.

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