DOJ objects to Purdue bankruptcy settlement

The Justice Department is condemning a proposed bankruptcy settlement for OxyContin manufacturer Purdue Pharma, saying it would inappropriately shield members of the Sackler family from future opioid-related claims.

In court filings late Monday, two Department of Justice (DOJ) divisions issued objections to the proposed $4.5 billion settlement.

The DOJ’s U.S. Trustee Program, which oversees the administration of bankruptcy cases, said the provision granting release to the Sacklers is illegal because it prevents “all persons” from future claims, even if they are not creditors or interested parties attached to the lawsuit. 

Separately, the acting U.S. Attorney for the Southern District of New York said the government has “fundamental concerns” with the plan.

Even though it doesn’t apply to the United States itself, the DOJ said the plan violated the “constitutional right to due process” for those with potential opioid claims.

The provision in the deal sheltering members of the Sackler family, called a “third party release,” has been controversial since it was first proposed, but more states in recent weeks have dropped their objections in favor of a sure payout that could help abate the opioid crisis.

Acting U.S. Attorney Audrey Strauss said the “third party release” was overly broad.

“To be sure, many individual creditors in the Purdue bankruptcy have agreed to give this release in exchange for the payments and other benefits they will receive under the plan, and presumably find this to be a fair deal. But many others, including states who have voted against or objected to the plan, have not agreed,” Strauss wrote.

Purdue, the maker of OxyContin, filed for bankruptcy in 2019 in an attempt to settle about 3,000 lawsuits from states, tribes and other local entities related to its aggressive opioid marketing, which they argue contributed to the opioid crisis that killed nearly 500,000 people over the past 20 years.

The settlement plan would shield members of the Sackler family and a long list of their associates from future opioid lawsuits. 

They would admit no wrongdoing, and would retain much of the fortune they made from Purdue. In return, they would give up ownership of the company and pay more than $4 billion in cash and charitable assets. 

But in the filing, U.S. Trustee William K. Harrington said the release was impermissible, because the Sacklers are not filing for bankruptcy, only the company is.

“The principal argument …  for imposing this extraordinary relief against opioid victims is that the Sackler Family members will tie up victims in litigation for years before they will part with more of their wealth,” Harrington wrote. 

“Victims must involuntarily ‘settle’ for what the disclosure statement estimates may be as little as $3,500 in compensation for a life upended due to opioids because the Sackler Family says so.”