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Sunday, December 15, 2019

Fee-fight emerges in Purdue Pharma bankruptcy over paying plaintiffs firms

Attorneys & Judges

By Daniel Fisher | Nov 13, 2019


WHITE PLAINS, N.Y. (Legal Newsline) - Fighting has erupted among creditors in the multibillion-dollar Purdue Pharma bankruptcy, as attorneys representing individual claimants and other creditors object to paying millions of dollars in fees to private lawyers representing governmental claimants - including thousands of municipalities with federal lawsuits against the opioid industry.

In a filing yesterday, lawyers for the Official Committee of Unsecured Creditors objected to Purdue’s proposal to pay monthly fees and expenses to four law firms associated with the Ad Hoc Committee, dominated by the powerful Plaintiffs Executive Committee of lawyers at the head of the federal opioid MDL in Ohio. 

The Ad Hoc Committee has proposed a settlement under which Purdue’s controlling Sackler family would turn over the company’s assets along with $3 billion of their own cash in exchange for a global release from litigation.

That proposal is opposed by at least 24 states and even its proponents acknowledge it faces tough odds of being approved in its present form. The filing by the UCC explains one increasingly contentious reason why: Governmental plaintiffs may only represent 30% of the claims against Purdue, as potentially millions of individual plaintiffs as well as healthcare systems, insurers, ratepayers and others seek their share of the company’s assets and future earnings.

“Governmental units constitute but one class out of many” in the litigation, the UCC said, citing a recent study estimating 70% of the cost of the opioid crisis has been born by individuals and non-government entities. That undermines Purdue’s claim it is essential to pay the private lawyers when they represent a category of creditors amounting to “less than one-third of the outstanding claims by value,” the UCC said.

Purdue is paying Akin Gump, the lead lawyers for the UCC. Other committees and the objecting states are paying their own lawyers, the UCC said, and it wouldn’t be proper to use Purdue’s assets to pay one class of lawyers who are negotiating against other creditors for a share of the estate. 

Purdue has asked to pay the fees of Brown Rudnick, Gilbert LLP, Kramer Levin and Otterbourg PC as they negotiate a global settlement the company considers essential to emerging from bankruptcy. In the Oct. 10 filing, Purdue said the Ad Hoc Committee is necessary to “efficiently negotiate with, and gain the support of governmental units” it needs to sign off on any plan of reorganization. 

The fee request didn’t mention any dollar amounts, although the UCC, in its filing, said representatives of the Ad Hoc Committee said fees could exceed $30 million in the first year.

Governmental plaintiffs formed the Ad Hoc Committee because the U.S. Trustee in charge of Purdue’s bankruptcy determined governmental entities coundn’t legally serve on the official committee of unsecured creditors. The UCC said it has a fiduciary duty to represent all unsecured creditors regardless of whether they sit on the actual committee, although it later added Maryland and representatives of communities and Indian tribes on an ex officio basis.

Brown Rudnick represents Indian tribes, Gilbert LLP represents Delaware and the other two firms still have individual clients, the UCC said. Paying these lawyers would be particularly problematic because as long as they represent their own clients it is “unclear whether as a practical matter they really can represent” the larger Ad Hoc Committee “with undivided loyalty,” the committee said.

Requests for comment from the lead lawyers representing the CAHC weren’t immediately returned. 

The fee fight illustrates a larger rift emerging in the Purdue bankruptcy and opioid litigation more generally. Plaintiff lawyers with long experience in mass torts immediately took control of the MDL and have tried to negotiate a global settlement that would include billions of dollars in fees for themselves. As part of that process, plaintiff lawyers typically promise they will deliver the agreement of their clients to whatever terms they negotiate, sometimes using coercive tactics that scholar Elizabeth Burch of the University of Georgia Law School has described as benefitting themselves at the expense of clients.

Opioid litigation is proving tougher for the plaintiff lawyers to control, however, as the states aren’t subject to the jurisdiction of the federal court overseeing the MDL and governmental plaintiffs in some states have decided to opt out of the federal litigation and sue in more favorable state courts. Purdue’s bankruptcy has now opened the door to millions of additional claimants. 

Soon after Purdue filed for bankruptcy on Sept. 15 the Ad Hoc Committee filed a “term sheet” for a proposed settlement that would include the 2,300 or so municipal plaintiffs in the federal MDL and 24 states. The proposed agreement was unsigned, however, and the only document that was signed was an agreement with Purdue to pay the legal fees of law firms associated with the committee.

A few days later the “Non-Consenting Ad Hoc Committee” of 24 states plus the District of Columbia filed a statement opposing the tentative deal. They have since been joined by committees representing private plaintiffs and children born to addicted mothers.

Lawyers for official committees are generally the only ones who can pull their fees from a bankruptcy estate because they are fiduciaries for all creditors, while creditors like the MDL plaintiffs in the CAHC “generally owe duties to no one but themselves,” the UCC said. In a footnote, the committee observes “it is interesting to note that the CAHC and its members did not choose an independent firm to represent them.” 

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