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Purdue, Sacklers Facing Fight Over Attempt to Evade Lawsuits

Purdue, Sacklers Seek to Use Bankruptcy as Shield From Suits

(Bloomberg) -- Purdue Pharma LP and its owners, the billionaire Sackler family, shouldn’t get to use bankruptcy to dodge litigation over the drug maker’s role in the U.S. opioid crisis, two dozen states told a judge.

The company’s request to block 2,600 lawsuits would trample the right of state and local authorities to pursue claims that it used deceptive marketing for years to expand sales of its addictive painkiller OxyContin, state attorneys general said in a filing Friday in U.S. Bankruptcy Court in New York.

Led by Massachusetts Attorney General Maura Healey, the states said they are particularly concerned that the Sacklers, who amassed a $13 billion fortune and aren’t bankrupt, are attempting to use Purdue’s Chapter 11 filing to escape lawsuits in which they’re listed as defendants.

“The Sacklers used the profits from their illegal scheme to become one of the richest families in the world -- far wealthier than the company they ran,” the states said in their filing. “Now, the Sacklers seek to leverage Purdue’s corporate bankruptcy to avoid their own individual accountability. This court should not lend its authority to that maneuver.”

It will be up to U.S. Bankruptcy Judge Robert Drain to decide whether to order a freeze on all the lawsuits. A hearing on the matter has been set for Oct. 11. The plaintiffs had until Friday to file their objections to the injunction request.

Purdue has said the injunction is a crucial element of a proposed grand settlement with plaintiffs, which the company valued at roughly $10 billion. Under the deal, which needs court approval, the Sacklers would give up ownership of Purdue and place it in a trust to be run for the benefit of plaintiffs. About half the states have agreed to the deal to ease the burden on taxpayers. The other half of the states oppose the settlement.

Josephine Martin, a Purdue spokeswoman, said the injunction won’t allow the company to evade responsibility.

“The notion that the path to justice must involve years of litigation and the destruction of billions of dollars in value could not be more wrong,” Martin said in a statement. “The U.S. Bankruptcy Code provides for stays of litigation to avoid this very kind of inequitable and value-destroying dynamic.”

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Daniel Connolly, an attorney representing the Raymond Sackler wing of the family, said it’s up to the court to decide whether the injunction is in the best interest of the bankruptcy estate. The family has agreed to contribute $3 billion to the proposed settlement to help fight the crisis, Connolly said.

“The stay, if granted, will allow parties to focus their efforts on this goal rather than on litigation that will waste resources and delay the deployment of solutions to communities in need,” Connolly said.

A representative of the Mortimer Sackler side of the family didn’t respond to requests for comment on the opposition filings.

On Thursday and Friday, hundreds of local governments from across the U.S., as well as Native American tribes, also challenged Purdue’s request for an injunction. About 85% of the opioid suits Purdue faces were filed by states or other government agencies.

A temporary stay on the lawsuits was automatically imposed when Purdue filed for protection, giving Purdue some measure of relief while Drain considers the injunction request.

While Purdue argues the lawsuits must be blocked for the settlement to work, the objecting states say there’s no guarantee of success for the proposed deal. With so much uncertainty and opposition, the settlement doesn’t meet the bar for halting state “police powers” in a bankruptcy, they said.

Temporary Relief

Judges routinely allow bankrupt companies to temporarily dodge litigation and often extend that to affiliated non-bankrupt third parties, like owners and top company officials.

“Courts seem to be increasingly willing to grant these kinds of stays, in the interest of resolving everything in one place,” David Skeel, a University of Pennsylvania law professor, said in an interview.

In their filing Friday, the states claim Purdue transferred $12 billion to $13 billion to the Sacklers over the years, citing testimony by a Purdue consultant. Massachusetts previously said the Sacklers had gotten about $4 billion from Purdue, though that was only from 2008 to 2016. OxyContin hit the market in 1996 and prescriptions peaked in 2003, before starting a steady decline.

Groups challenging the injunction appear to be focusing their argument on the deadly nature of the crisis and what they say is a lack of accountability after earlier failures.

“The Sacklers are living high off the profits of Purdue’s lies and deception,” William Tong, the attorney general of Purdue’s home state of Connecticut, said in an emailed statement. “They should not be allowed to shirk responsibility now for the pain and death of the opioid epidemic by hiding behind Purdue’s bankruptcy.”

Massachusetts Governor Charles Baker, whose state has one of the highest opioid death rates, said blocking litigation now would be egregious because Purdue continued to mislead the public about the risks of OxyContin after promising not to in 2007, when it settled related claims. The lawsuits also allege the Sacklers encouraged aggressive and deceptive marketing for years.

Allowing “Purdue and the Sacklers to avoid trials and escape accountability for a second time is not in the public interest,” Baker said in a letter to the judge this week. “I have met countless families whose lives have been ruined by the drug that the Sackler family made their a fortune on.”

To contact the reporters on this story: Erik Larson in New York at elarson4@bloomberg.net;Steven Church in Wilmington, Delaware at schurch3@bloomberg.net

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Steve Stroth

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