Federal judge overturns Purdue Pharma bankruptcy deal over Sackler family liability shield

A federal judge in New York late Thursday threw out Purdue Pharma's bankruptcy settlement, ruling that federal bankruptcy law does not allow for the provision that shielded members of the Sackler family, who own Perdue but are not declaring bankruptcy themselves, from all lawsuits tied to their opioid drug OxyContin. The ruling by U.S. District Judge Colleen McMahon upends the complicated bankruptcy deal and raises new doubts about the future of Perdue, the Sacklers, and the funds from the deal that were earmarked for communities grappling with the opioid epidemic.

U.S. Bankruptcy Court Judge Robert D. Drain had approved the settlement in September, with buy-in from most of Purdue's creditors but opposed by nine states, the Justice Department's Bankruptcy Trustees office, and other critics. McMahon ruled Thursday that U.S. bankruptcy law does not allow Drain to release the Sacklers from current and future opioid lawsuits.

U.S. Attorney General Merrick Garland applauded McMahon's decision to invalidate Perdue's bankruptcy plan, agreeing that "the bankruptcy court did not have the authority to deprive victims of the opioid crisis of their right to sue the Sackler family." Connecticut Attorney General William Tong, one of the state attorneys general to oppose the deal, called the ruling "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."

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Perdue said it will appeal the decision. Steve Miller, chairman of the Purdue board of directors, said the ruling "will delay, and perhaps end, the ability of creditors, communities, and individuals to receive billions in value to abate the opioid crisis."

Purdue filed for Chapter 11 bankruptcy protection in 2019 in the face of thousands of lawsuits over OxyContin, which played a major role in starting the opioid crisis, linked to half a million U.S. deaths. The company pleaded guilty last year to three federal felonies related to OxyContin marketing and sales.

Under the deal Drain approved, the Sackler family would give up ownership of Purdue and contribute $4.5 billion toward opioid mitigation. In the decade before Purdue filed for bankruptcy, the Sackler family transferred $10.4 billion from the company, and McMahon noted in a hearing last month that about half of that money was either invested offshore in companies owned by Sackler family members or placed in trusts "that could not be reached in bankruptcy."