States have credible claims that family members stole more than $10 billion from the company, drove it into bankruptcy, and then used a bankruptcy settlement to gain legal protections for themselves, according to Washington state Solicitor General Noah Purcell, who testified before U.S. District Judge Colleen McMahon.
“If that is not an abuse of the bankruptcy process,” Purcell said, “it’s unclear what would be.”
The plan, drafted largely by those with claims against Purdue and approved by a federal bankruptcy judge in September, calls for members of the Sackler family to contribute more than $4 billion in cash, as well as the company itself, to combat the opioid epidemic, which has been linked to more than 500,000 deaths in the United States over the last two decades, including deaths linked to both prescription and illicit drugs.
In exchange, family members will be shielded from lawsuits accusing them of causing the crisis. The lawsuits accuse the company and its executives of contributing to the overdose crisis by aggressively marketing OxyContin, a powerful opioid painkiller.
They would not be immune from criminal prosecution. They are not currently facing any charges, but a group of activists has been urging federal authorities to charge some members of the family, including some who were executives and board members at the company and others who had no involvement other than receiving money from it. Much of their wealth is held in offshore trusts, which may be difficult to access in US lawsuits.
Most state and local governments, as well as thousands of individual victims of the epidemic, agreed to the deal, albeit reluctantly. These organizations are now collaborating with Purdue and Sackler family members to defend the plan against appeals from an office of the United States Department of Justice, eight states, the District of Columbia, some Canadian local governments and Native American tribal groups, as well as some individual victims.
McMahon focused his testimony Tuesday in a New York City courtroom on the $10.4 billion in transfers from Purdue coffers to family trusts from 2008 to 2018. Almost half of that was used to pay earnings taxes.
The judge stated that by taking larger distributions in the decade preceding the company's bankruptcy filings, Sackler family members "made themselves necessary" in negotiations over how much money would be available for claimants.
Lawyers for the family claimed that distributions were increased because the company was making more money, and that there is no evidence that any of them attempted to game the bankruptcy system.
Those who opposed the plan argued that the protections granted to the Sacklers were more generous than what they would have received if they had filed for bankruptcy themselves. Bankruptcy would also shield the company from legal action.
They also claimed that approving the deal would limit states' ability to sue Sackler family members in order to hold them accountable.
"What confirmation of this plan does in this case is strip the states of police powers to protect the public from harm," Maryland Assistant Attorney General Brian Edmunds explained.
Purdue lawyer Marshall Huebner said the states were misrepresenting some details of the settlement plans, such as how U.S. Bankruptcy Judge Robert Drain insisted that Sackler family members would be protected from lawsuits involving only Purdue opioids.
He also mentioned that the overwhelming majority of governments agreed to the plan, which would funnel money to individual opioid crisis victims as well as efforts to combat the crisis.
McMahon interrupted him. "My concerns are about the legality of the releases," she explained. "I'm not interested in hearing about all the wonderful things it's going to do." I'm aware that it was approved by a supermajority."
Nonetheless, Huebner pointed out that without funds from Sackler family members, there would be far less money to work on the crisis. He stated that if they were sued and won, they might not have to pay the settlement. And if they lose additional lawsuits — of which they now face approximately 860 — they may not be able to afford to.
Kenneth Eckstein, a lawyer for a group of government entities supporting the settlement, stated that the Sackler family members should also be released.
If some states could sue the family, he said, the others would not accept a nine-year payment plan because there was a risk that the Sacklers' money would run out before the installments could be paid in full.
Mitchell Hurley, a lawyer for unsecured creditors seeking pieces of Purdue's assets, stated that if the majority of those groups had not agreed to a settlement, "the value of Purdue would have been wasted and go to lawyers" rather than addressing the opioid crisis.
He noted that the government and private creditors, with the exception of individual victims, have agreed to use all of the money they receive to combat opioids, which are claiming 200 lives in the United States every day. And, if allowed, that money could start flowing soon, he said.
"If it fails, if it blows up," Hurley told McMahon, "it will be the creditors who will bear the brunt of the consequences."
However, Maria Ecke, who lost her son Jonathan in 2015 to an addiction that began 17 years before when he was prescribed opioids after being injured in a car accident, said the settlement is painful.
On Tuesday, the Connecticut resident presented McMahon with a poster of photos of her son and pleaded that the settlement be rejected.
"The plaintiffs have suffered and continue to suffer physical and psychological injuries," she stated.
McMahon has stated that she hopes to rule by next week, but that a decision may take longer. Her decision will almost certainly not be the last word; whatever she decides will almost certainly be appealed to a higher court.