WHITE PLAINS, N.Y. (Legal Newsline) - Unsecured creditors of bankrupt OxyContin manufacturer Purdue Pharma have objected to the Sackler family’s $225 million settlement with the U.S. government, saying the agreement as proposed could allow the feds to keep the money even if the Sacklers are forced into bankruptcy.
Under the settlement announced last week, Purdue would plead guilty to criminal charges and pay some $6 billion to the government in cash and claims against its bankruptcy estate. The Sackler family, who own Purdue through a network of partnerships, would pay an additional $225 million to settle some civil claims without admitting liability. The agreement includes language protecting that payment from future attacks as a so-called fraudulent transfer if a Sackler family member files for Chapter 11 bankruptcy protection.
“It goes without saying that taking $225 million of ill-gotten Purdue funds and placing it out of the reach of other creditors in favor of the DOJ is inappropriate for a number of reasons,” the Official Committee of Unsecured Creditors said in a filing Tuesday. “If enforced,” they complained, the clauses in the settlement “would improperly place the DOJ —despite its status as an unsecured creditor, and in exchange for nothing more than settling civil liability — ahead of all other unsecured creditors.”
The Sackler family pulled billions of dollars in cash dividends from Purdue over the years and are not known to be at any risk of insolvency, aside from the theoretical value of unproven claims against them in lawsuits over Purdue’s opioid business. Those lawsuits accuse various Sackler family members of engaging in fraud by aggressively marketing OxyContin and other drugs to physicians they knew or should have known were prescribing excess amounts of painkillers to patients or operating illegal “pill mills.” The tentative settlement with the Justice Dept. doesn’t include possible criminal complaints that would bring the threat of hefty fines as well.
In a hearing Oct. 28, U.S. Bankruptcy Judge Robert D. Drain heard arguments over the proposed settlement and postponed a decision until at least Nov. 17. The official committee of unsecured creditors represents thousands of entities and individuals who have filed claims against Purdue. It also claims to speak on behalf of a number of states that have also sued the company and Sackler family members. Under federal rules of bankruptcy, states cannot serve on official creditor committees.
The unsecured creditors committee said the Sackler family has received the benefit of an indefinite stay of litigation against them even though they aren’t in bankruptcy. It would be unfair to allow them to transfer hundreds of millions of dollars to the federal government that might be available to settle other claims, the committee said. The committee asked Judge Drain to require the Sacklers to guarantee any settlement money doesn’t come from “funds that were transferred directly or indirectly” from Purdue.
The committee also questioned a Sackler family declaration it was solvent at the time of the settlement, making it difficult to challenge payments to the government later as fraudulent transfers.
“This representation is startling to say the least, given the breadth and scope of lawsuits currently pending” against the family, the unsecured creditors say.
In an appendix to the tentative settlement, the Justice Dept. says Purdue’s board “approved billions in transfers of funds” to Sackler family entities between 2008 and 2018.
“Certain of these distributions and transfers were made with the intent to hinder future creditors and/or were otherwise avoidable as fraudulent transfers,” the government said.
Solvency is difficult to establish when there is pending litigation against a company or individuals, since the value of the claims is unknown until a plaintiff obtains a judgment. The Sacklers have offered to hand over ownership of Purdue and pay $3 billion in cash in a global settlement of opioid claims.
Obtaining more from them through lawsuits may be difficult. They own Purdue through Delaware trusts that are governed by a strict four-year statute of limitations on fraudulent conveyances, meaning creditors would have to prove the company was insolvent and the Sacklers knew it when it paid otherwise legal dividends in earlier years.
Purdue would be transferred into a “public benefit” corporation with profits flowing to creditors if the government settlement is approved. Despite claims it caused a public nuisance by distributing OxyContin, the company continues to sell some $150 million a month in addictive painkillers under the oversight of the federal bankruptcy court. The value of any settlement – and the extent of fees paid to private lawyers representing states and municipalities suing Purdue – would depend on continuing opioid sales.