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Thursday, November 21, 2019

Purdue Pharma gets six-month reprieve from lawsuits as legal fees explode

Attorneys & Judges

Nov 9, 2019

Purduepharma

WHITE PLAINS, N.Y. (Legal Newsline) - The judge overseeing Purdue Pharma’s bankruptcy granted the OxyContin maker and its controlling Sackler family a six-month stay of opioid litigation as they try to negotiate a $10 billion-plus settlement of all outstanding claims.

The stay had been opposed by about half of U.S. states and some plaintiff lawyers who said there was no reason to delay trials or give the Sacklers the protection of bankruptcy reorganization while they remain solvent. But in a filing earlier this week, even the holdout states said they were willing to extend the stay of litigation until Dec. 19 so they can proceed with talks.

In the meantime, Purdue filed a flurry of motions asking U.S. Bankruptcy Judge Robert Drain to authorize millions of dollars in payments to the company’s lawyers and outside consultants, some of whom already billed tens of millions of dollars in the runup to Purdue’s Sept. 15 Chapter 11 filing. 

The motions illustrate how expensive bankruptcy will be for everyone trying to obtain value from Purdue’s estate, and how lucrative it will be for the professionals involved in the process. Purdue listed more than 100 law firms as vendors - from big international firms like Dechert and Davis Polk & Wardell down to small boutique firms specializing in areas like intellectual property.

Topping the list may be Davis Polk, which was paid $37 million in the 12 months leading up to the bankruptcy filing, including $9 million this year. The law firm sought to bill as much as $1,645 an hour for partners. Dechert said it billed $25.8 million from June to the September filing and bills $895-$1,425 an hour for partners and as much as $890 for associates. 

Other vendors seeking court approval to bill during the reorganization include Alix Partners, which asked for a $1.75 million retainer on top of $8.3 million it was paid prepetition; and PJT, consultants who are seeking a retainer of $225,000 a month while they try to sell some of Purdue’s assets to raise cash. They also want a 2% commission on the sale of any Purdue units except for a minimum of $3 million for the sale of its Lemborexant and Adhansia businesses.

About half the states and lawyers representing thousands of cities and counties in federal multidistrict litigation have signed off on a tentative settlement under which the Sacklers would hand over ownership of Purdue plus at least $3 billion in cash in exchange for a global release of claims. Dissenting states - including New York, Massachusetts and California - say their attorneys general should be allowed to pursue separate litigation against the Sacklers for more money. They say the family pulled at least $12 billion out of Purdue since the late 1990s. 

The family owns Purdue through Delaware trusts that are governed by a strict four-year statute of limitations on fraudulent conveyances, however. So their opening offer of $3 billion might represent the dividends they received inside that time window. Getting more money might require lengthy and expensive litigation and private plaintiff lawyers, in particular, have a strong economic incentive to settle as quickly as possible to recoup their investment in the litigation so far.

Purdue’s bankruptcy filings list more than 600 private law firms with a stake in the company’s bankruptcy. Thousands of additional claimants may emerge, as lawyers file on behalf of infants born addicted to opiates as well as adults who suffered harms from opioid misuse. 

Federal bankruptcy law authorizes judges to enforce a stay on all litigation as the debtor company works out a reorganization plan to pay all claimants as much as possible. Arizona is trying to get around the stay with the unusual tactic of suing Purdue and the Sacklers in the U.S. Supreme Court, which has original jurisdiction to hear lawsuits by states against private entities.

While the high court has jurisdiction to hear such cases, it has repeatedly ruled it can decline to take them up. In n Oct. 30 letter to Judge Drain, the federal government said he should carve Arizona’s Supreme Court petition out from the stay until that court has decided whether it will hear the state’s case. “If the Supreme Court declines to consider Arizona’s case, the constitutional questions in this Court will be moot,” the government said.

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