Purdue Pharma’s bankruptcy judge extended an injunction on litigation against the Sackler families and other parties associated with the bankrupt opioid manufacturer for another month, giving Purdue more time to attempt to finalize a Chapter 11 plan that depends on a multibillion-dollar contribution from the Sacklers.
Judge Robert Drain of the US Bankruptcy Court for the Southern District of New York also heard evidence on media companies’ requests to unseal the names of investment managers who work for the Sackler families, but he did not immediately rule on that dispute.
The injunction, which has been in place since November 2019, prohibits the commencement and continuation of litigation against related non-debtor parties, including the company’s owners, the Sackler family. It has been extended several times during the case, and Purdue attorney Marshall Huebner of Davis Polk argued that scrapping it before confirmation of a Chapter 11 plan would “destroy 18 months of progress in these cases.” Judge Drain extended the injunction until 21 April, as requested by Purdue.
The injunction extension was opposed by three groups, a coalition of “non-consenting” state attorneys general, a group called the “ad hoc committee on accountability” and a group of Tennessee local government plaintiffs. Their objections largely revolved around the Sackler families’ role in the cases. The non-consenting states are California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Idaho, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, and Wisconsin.
Efforts to extract increased contributions from the Sacklers
The non-consenting states argued that the injunction should be lifted to allow states to fulfill their oversight and enforcement responsibilities, saying that the Sacklers could be pressured into additional disclosure related to their assets and potentially a larger settlement if states are allowed to investigate fully. An attorney for the states, Andrew Troop of Pilsbury Winthrop, said that the Sacklers are worth “multiples” of the USD 4.5bn they agreed to pay into the Purdue estate, and they should not be allowed to obtain litigation releases for a settlement reached behind closed doors.
Judge Drain interrupted after Troop pressed for more disclosure.
“I continue to be baffled by the argument that [state attorneys general] are somehow lacking in information when it appears to me that more information has been provided with respect to this plan than I have ever seen,” Judge Drain said. “To say that your constituents have been left in the dark seems to me to be simply a lie. Why don’t we move on?”
Judge Drain asked the Sacklers’ attorney, Gerard Uzzi of Milbank, to respond to the states’ claim that the Sacklers are worth “multiples” of the settlement amount.
“We don’t disagree with that statement,” Uzzi said.
Purdue has said in its disclosure statement that the Sackler families have transferred approximately USD 10.34bn from Purdue between 1 January, 2008 and 30 September, 2019, including USD 4.1bn in cash, USD 4.68bn in tax distributions, and USD 1.55bn in distributions to other Sackler entities.
Huebner, representing Purdue, said that it would not be easy to recover anything close to the USD 10bn number, even though the company believes that “there is more money that could go toward abatement.” The Sackler families consist of about 10 “family pods,” and they have several defenses against efforts to recoup money, including arguments that they relied on expert advice and are protected by statutes of limitations, Huebner said.
“It is not one person who got USD 10bn and still has it,” Huebner said. “It is something like 10 family pods all over the world, many of which were never on the board, and were never officers of the company, and got their money a while ago.”
The settlement was “not about protecting the Sacklers” and Purdue and the governmental entities that have signed on were not acting “cavalierly and stupidly” when negotiating it, Huebner added.
The unsecured creditors committee spoke up in support of the injunction. Although it does not support Purdue’s current Chapter 11 plan, the UCC said that it does not believe any plan could succeed without the shareholder settlement that is enabled by the injunction.
Sealed documents dispute
Judge Drain also heard extensive witness testimony on media companies’ efforts to unseal documents filed by the Sackler families in the case, which list investment managers and other business partners of the Sacklers. The Sackler families have argued that the information is protected as “confidential commercial information,” and that revealing the information would cause those investment managers to walk away from the relationships and harm the Sacklers’ ability to pay the estate settlement.
The Sackler families presented two witnesses, including one investment manager for the Sackler family office, Kokino LLC, who testified that hedge fund managers have previously severed ties to the Sacklers after the relationships were disclosed.
Judge Drain said that he needed more time to consider whether the Sacklers had met their “heavy burden” to keep the information secret. Courts have previously concluded that “mere harm isn’t enough” to show that the information is protected commercial information, he said.
Judge Drain also expressed some skepticism over the media companies’ position, however, even if he accepted their narrower legal definition of confidential commercial information. The media companies argued that the Bankruptcy Code only protects information that, if disclosed, would put the Sacklers at a competitive disadvantage, but Judge Drain said that the Sacklers could plausibly argue that their family offices are competing for investment opportunities.
The judge also questioned whether disclosure would be in the public interest.
“It does appear to me that sole purpose for getting that disclosure is basically to see what would happen, poking that pin to see if these people would leave or not, which I don’t believe is a good thing for this case,” Judge Drain said. “But I’ve said it before, the burden of proof is a heavy one.”
The media intervenors said they do not intend to harm the Sacklers financially or drive away their investment managers, simply to obtain public access to the fullest extent possible.
The non-consenting states backed up the media companies during argument over the investment manager disclosure, arguing that more information is always helpful to enforcement and oversight goals of the attorneys general.
Purdue has filed a disclosure statement and reorganization plan centered on the contribution of USD 4.5bn from the Sackler family and the dissolution of the company, with future non-opioid businesses owned by two opioid abatement trusts. The company estimates that a total of USD 5bn in value would be provided to the trusts, plus another USD 700m-USD 750m to make payments directly to qualified personal injury claimants.
Purdue is currently scheduled to seek approval for its disclosure statement at a 21 April hearing.