Mind and Body

“They aren’t bankrupt. They’re loaded. We fight on.”

RI AG Neronha applauds court decision nixing Purdue Pharma bankruptcy settlement

Photo by Richard Asinof [file photo]

R.I. Attorney General Peter Neronha was successful in appealing the bankruptcy plan for Purdue Pharma and the Sacklers.

By Richard Asinof
Posted 12/17/21
U.S. District Court Judge Colleen McMahon vacated the bankruptcy settlement approved by bankruptcy Judge Robert Drain in the Purdue Pharma case, ruling in favor of the appeal by nine state attorneys general, including R.I. Attorney General Peter Neronha.
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PROVIDENCE – On Thursday night, Dec. 16, U.S. District Court Judge Colleen McMahon vacated the federal Bankruptcy Court’s ruling in the Purdue Pharma bankruptcy case.

The 142-page written decision by Judge McMahon was applauded by R.I. Attorney General Peter Neronha; he was one of nine state attorneys general that had challenged the initial bankruptcy settlement.

No doubt the ruling by Judge McMahon will be appealed, as Judge McMahon herself said she expected to happen, in her written decision. But, for the moment, there is renewed hope being voiced by recovery community advocates that the Sackler family may finally be held accountable for its alleged grave misdeeds.

A succinct summary of the case, written by Judge McMahon in her decision, provides clarity around the legal reasoning behind her decision.

Judge McMahon wrote: “Purdue’s bankruptcy was occasioned by a health crisis that was, in significant part, of its own making: an explosion of opioid addiction in the United States over the past two decades, which can be traced largely to the over-prescription of highly addictive medications, including, specifically and principally, Purdue’s proprietary, OxyContin.

“Despite a 2007 Plea Agreement with the United States – in which Purdue admitted that it had falsely marketed OxyContin as non-addictive and had submitted false claims to the federal government for reimbursement of medically unnecessary opioid prescriptions [“2007 Plea Agreement”] – Purdue’s profits after 2007 were driven almost exclusively by its aggressive marketing of OxyContin. [See JX-2094.0047-88; JX-2481].

“But by 2019, Purdue was facing thousands of lawsuits brought by persons who had become addicted to OxyContin and by the estates of addicts who had overdosed – either on OxyContin itself or on the street drugs [heroin, fentanyl] for which Purdue’s product served as a feeder.

“It also faced new federal, state and local Medicare reimbursement claims and a number of new false marketing claims brought under various state consumer protection laws.

“Finally, in November 2020, Purdue pled guilty to a criminal Information filed by the Department of Justice [“DOJ”] in the United States District Court for the District of New Jersey; in its plea agreement, the company [though not the people through whom the company acted] admitted to substantial deliberate wrongful conduct [“2020 Plea Agreement”]. See USA v. Purdue Pharma L.P., No. 2:20-cr-01028.

“Engulfed in a veritable tsunami of litigation, Purdue filed for chapter 11 bankruptcy in September 2019. The intent was for a “Manville-style” bankruptcy that would resolve both existing and future claims against the company arising from the prescription of OxyContin. The automatic stay brought a stop to civil litigation against Purdue; and a court-ordered stay halted litigation…”

In terms of the actual rationale for vacating Judge Drain’s decision, Judge McMahon found fault with the legal reasoning underpinning Judge Drain’s ruling.

McMahon wrote: “[The] power to grant relief to a non-debtor from non-derivative third-party claims ‘can only be exercised within the confines of the Bankruptcy Code.’” McMahon continued: “Because the Bankruptcy Code confers no such authority, the order confirming the Plan must be vacated. Because the Advance Order is an adjunct of and follows from the Confirmation Order, it, too, must be vacated.” To quote Stan Lee, “Nuf said.”

Covering their rear ends
The major opposition to the bankruptcy plan approved by Judge Drain came from the eight states, including Rhode Island, the District of Columbia, and the city of Seattle. Their appeal had centered on the argument that the bankruptcy pursued by Purdue Pharma and the Sackler family appeared to have been a carefully scripted strategy to avoid future potential liability, by squirreling away some $10 billion in assets, beginning in 2007.

McMahon wrote: “All Appellants assign the same reason for their opposition: the Plan provides broad releases, not just of derivative, but of particularized or direct claims – including claims predicated on fraud, misrepresentation, and willful misconduct under various state consumer protection statutes – to the members of the Sackler family [none of whom is a debtor in the bankruptcy case] and to their affiliates and related entities.

“As the opioid crisis continued and worsened in the wake of Purdue’s 2007 Plea Agreement, the Sacklers – or at least those members of the family who were actively involved in the day to day management of Purdue – were well aware that they were exposed to personal liability over OxyContin.

“Concerned about how their personal financial situation might be affected, the family began what one member described as an “aggressive” program of withdrawing money from Purdue almost as soon as the ink was dry on the 2007 papers.

“The Sacklers upstreaming some $10.4 billion out of the company between 2008 and 2017, which, according to their own expert, substantially reduced Purdue’s ‘solvency cushion.’ Over half of that money was either invested in offshore companies owned by the Sacklers or deposited into spendthrift trusts that could not be reached in bankruptcy and off-shore entities…”

The response from Rhode Island
The decision by Judge McMahon to overturn and vacate the bankruptcy ruling was applauded by the R.I. Attorney General’s office.

The Sackler family, R.I. Attorney General Peter Neronha tweeted on Dec. 16, following the ruling, “drove the opioid crisis, took billions of dollars out of Purdue Pharma, moved it into their family accounts offshore, and then put the company in bankruptcy. They aren’t entitled to bankruptcy protection. They aren’t bankrupt. They’re loaded. We fight on.”

In its appeal, as Judge McMahon cited in her written decision, Rhode Island had: “asserted six claims against Purdue and the eight individual members of the Sackler family for public nuisance, fraud and fraudulent misrepresentation, fraudulent and voidable transfers, violations of Rhode Island’s State False Claims Act [R.I. Gen. Laws §9-1.1-1 et seq.], negligence, and unjust enrichment. [Dkt. No. 91-9, at App.3175-94; JX-1648; JX-2214]. Rhode Island sought, inter alia, civil penalties, treble damages, disgorgement, and restitution.”

“It is a big day for Rhode Island, because we have a better chance than we did before yesterday of continuing to fight on against the Sacklers, and the Sackler family in particular, and really understanding how much money they have and how much money Rhode Islanders ought to be entitled to, to compensate them for the harm caused to them by this family and this company,” said R.I. Attorney General Peter Neronha, in an interview with ConvergenceRI the day after the decision was announced. [The full interview with Attorney General Neronha follows at the conclusion of this story.]

Attorney General William Tong from Connecticut, echoed A.G. Neronha’s response to Judge McMahon’s ruling. “This is a seismic victory for justice and accountability that will re-open the deeply flawed Purdue bankruptcy and force the Sackler family to confront the pain and devastation they have caused,” Tomg said, as reported by Jan Hoffman of the New York Times.

U.S. Attorney General Merrick Garland also weighed in, saying: “The bankruptcy court did not have the authority to deprive victims of the opioid crisis of their right to sue the Sackler family.” Moving forward, the question remains: Will the U.S. Department of Justice decide to open up a criminal probe of the Sackler family?

Here is the ConvergenceRI interview with R.I. Attorney General Peter Neronha, conducted on Friday, Dec. 17, following the ruling by Judge Colleen McMahon vacating the bankruptcy plan by Judge Robert Drain.

ConvergenceRI: Congratulations on your victory. Why is this decision by Judge McMahon important? What was the role that was played by Rhode Island?
NERONHA: If you go all the way back to the beginning, we filed a lawsuit against, among others, Purdue Pharma, Rhodes Pharma, and eight members of the Sackler family, to hold them to account for their role in the opioid crisis.

I say that as a starting point, because not every state did [file a lawsuit]. It is complicated, but you don’t mind diving into the weeds a bit. [Under] this multi-state process, you don’t actually have to file a complaint, you just let them know you are thinking of suing, and then you enter into these settlement negotiations.

I prefer to file a lawsuit – although my predecessor filed this one. But he did the right thing, because that gives you the maximum leverage: You are settling the lawsuit on your own terms, or you are going to trial.

In any event, we had that lawsuit pending, and when the Sacklers and Purdue sought bankruptcy protection, a stay of litigation was imposed.

As I remember, we were in the middle of deposing [the Sacklers], fighting over it, because they didn’t want to do it. We were fighting the individual Sacklers, and we had won that fight, when all of that came to a screeching halt, because of the bankruptcy filing, and Judge Drain halted the litigation.

ConvergenceRI: What happened next?
NERONHA: Purdue Pharma and the Sacklers were part of the same lawsuit as McKesson, Cardinal, AmerisourceBergen, and Teva, they were all part of the same litigation.

In any event, Judge Drain halted the litigation [against Purdue Pharma and the Sacklers].

In respect to the other [defendants], that case has continued, and it is scheduled for trial in the third week in January in Providence.

ConvergenceRI: What were your objections to the bankruptcy plan proposed by Judge Drain?
NERONHA: For me, from the very beginning, and I said it back then, there were a couple of fundamental problems. Number one was the Sacklers were not forthcoming about how much they were worth.

They were seeking bankruptcy protection, or relief from third-party claims, which is effectively bankruptcy protection, while not claiming that they were bankrupt.

[I wanted to know]: Well, how much money do you have?

If I don’t know how much money you have, I can’t accurately assess whether the amount I am willing to settle with you for reflects your role in the crisis, and frankly, imposes a penalty on you that you will really feel [the pain from].

If I don’t know how much money you have, whatever you are prepared to give me is meaningless in a settlement.

And, the money [proposed by the Sacklers] just wasn’t enough. It was $4.5 billion, which worked out for Rhode Island’s share to be a little over $20 million over 9 years, so it would be about $2.5 million per year. That is just not a lot of money.

I just wasn’t willing to accept [the plan] on their terms, or on Judge Drain’s terms, for that matter.

ConvergenceRI: And, so you appealed the ruling by Judge Drain…
NERONHA: And so, I along with a few of my colleagues, eight other AG colleagues, along with the U.S. Department of Justice, some tribes and the city of Seattle, objected.

And, as you know, the bankruptcy court overruled our objections, and entered the plan, and we appealed. And, the U.S. District Court yesterday ruled that our objections were well founded.

I thought the decision [by Judge McMahon] was very thoughtful, very well written.

Let’s assume that that decision was to stand. What the implications would be I am not entirely certain. The best case for Rhode Island is that we have an opportunity to litigate our claims against, at a minimum, the Sackler individuals, here in Rhode Island, which is what we have attempted to do all along.

All that said, from what I have read in the press reports, Purdue Pharma and the Sacklers intend to appeal yesterday’s decision, so we will have to see how it plays out at the next level, which would be the Second Circuit Court of Appeals.

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