In September of 2019, Purdue Pharma LP filed for Chapter 11 protection after facing a wave of lawsuits over its opioid painkiller drug, OxyContin. The Sackler family, who own the pharmaceutical company, have attempted to use a controversial tactic to get bankruptcy-like protections to without filing for bankruptcy in order to protect their personal assets and holdings. On Wednesday, June 15th, according to Bloomberg, “U.S. Bankruptcy Judge Robert Drain approved an investigation into whether the drugmaker’s owners, members of the billionaire Sackler family, have had undue influence on an independent committee of Purdue board members,” a win for the advocacy group of parents whose children died as a result of opioid abuse. Professor Jonathan Lipson, Harold E. Kohn Chair and Professor of Law at Temple Law School, was of counsel to the movant. His colleague, Professor Melissa Jacoby, Graham Kenan Professor of Law at the University of North Carolina at Chapel Hill, put the ruling into context.
Temple Law School: In in the June 15th ruling, Judge Drain approved an investigation, which will give an examiner selected by the U.S. Trustee’s Office a $200,000 budget. Why was this ruling important?
Professor Melissa Jacoby: To address that question, we need to take a step back and look at the origins of the Purdue Pharma bankruptcy. We generally think of bankruptcy as a legal response to the problem of overindebtedness, but Purdue had little debt and lots of money in the bank when it filed its chapter 11 case in 2019. Purdue Pharma and its owners, the Sackler family, faced many types of lawsuits stemming from their role in fueling and perpetuating this country’s devastating opioid crisis, coupled with evidence that members of the Sackler family were pulling money and resources out of Purdue Pharma to line their own pockets and making their company more judgment proof. Purdue and the Sackler family wanted a global settlement of all of the lawsuits. While that sounds mighty ambitious, they got about half of the country’s state attorneys general and the Trump-era Department of Justice to support it. But that left about half of the country’s state attorneys general opposed (including Pennsylvania’s AG Josh Shapiro), along with many others affected by the crisis. Filing for bankruptcy increased Purdue’s leverage over the opposition to achieve the settlement and offered a path for implementing it over the objections of those who continued to believe it was a bad idea. While the Sacklers remain the owners of this company for now, Purdue Pharma has emphasized that the Sacklers no longer are on its board of directors, and that those making key decisions for the company are doing so for the best interest of the bankruptcy estate as a whole (which includes seeking to maximize recovery to all holding claims and, per a deal with the attorneys general, to fund opioid abatement programs). Because the settlement demands a permanent release of all opioid-related liability of the Sackler family, some plaintiffs and members of the public wondered, among other things, why the Sacklers should be entitled to the benefits of bankruptcy without the burden of filing for bankruptcy themselves, and whether the Sacklers should be offering more money, and on a faster timeline. Given the history of this company’s aggressive marketing of the most powerful opioid products, and the role of the Sacklers in that history, it should come as no surprise that some claimants fear that the structure of this deal was unduly influenced by the Sacklers’ demands. They are not from the world of bankruptcy law or lawyers and distrust runs deep. That’s where the examiner comes in.
TLS: What role would an examiner play here?
PMJ: The Bankruptcy Code sets the parameters of what an examiner might do, but the court order provides the specifics, so it varies depending on the case and circumstances. Here, an examiner will investigate whether Purdue Pharma’s board acted independently, and not under the influence of the Sackler family, when considering and negotiating the fundamental structure of the settlement that would provide a legal release to members of the Sackler family.
TLS: What can law students take from the ruling?
PMJ: It is a good reminder that areas of the law that may appear narrow and hyper-specialized at first glance can have very broad effects. Bankruptcy law ends up intersecting with virtually everything and that comes in handy in a variety of other specialties. One path to becoming a highly valued member of a legal team is to take a bankruptcy course!
Also, following this case teaches us that lawyering is a very creative profession, for better or worse. Lawyers sometimes use laws for purposes that a legislature may never have contemplated; the question is whether that system has the tools to manage such novel uses. This ruling illustrates that the bankruptcy system does have some flexible tools that can promote integrity, although that does not mean that bankruptcy should become the Swiss Army Knife of the legal system to be used for any and all things.
A final thought for students is that every legal case, in any field, affects what comes next even if it is not strictly precedential. There are no one-offs. Even those who perceive Purdue Pharma as an exceptional bankruptcy case must recognize that, depending on how it gets resolved, it won’t be exceptional for long.
Melissa B. Jacoby is the Graham Kenan Professor of Law at the University of North Carolina at Chapel Hill, where she teaches bankruptcy law, contract law, and commercial law, including and especially secured transactions. From 2000 to 2004, Professor Jacoby taught at Temple Law School.