The legal battle over who’s at fault for the opioid crisis, which involves more than 1,600 lawsuits in federal and state courts, could get even more complicated soon, with OxyContin manufacturer Purdue Pharma reportedly considering filing for bankruptcy.
As first reported Monday by Reuters and confirmed by the Wall Street Journal, Purdue is weighing a bankruptcy filing in the face of the lawsuits, which allege the company misled doctors and the public about safety concerns as it promoted its opioid painkillers.
Any bankruptcy filing would freeze the lawsuits against the drug maker and likely result in the claims being shifted into bankruptcy court, according to legal experts. Such a process is meant to ensure that a company that declares bankruptcy can preserve its value while it gets more time to negotiate with every entity to which it owes money. It’s also meant to ensure that all those creditors — as plaintiffs awarded money are known in bankruptcy proceedings — get some piece of the company’s assets.
The Journal also reported that Purdue’s assets were limited in part because the billionaire Sackler family — which owns the Connecticut-based company through trusts — had taken the bulk of the company’s profits.
Purdue has denied the allegations in the lawsuits, which have been filed by hundreds of cities, counties, tribes, and states. While some of those cases are proceeding in various state courts, most have been consolidated in a federal court in Ohio in what’s known as a multi-district litigation, or MDL.
Plaintiffs’ attorneys have likened the ongoing case to the one against the tobacco industry that culminated in a $246 billion settlement two decades ago.
In a statement Monday, the privately held Purdue said that it does not comment on its financial or legal strategy. The statement continued: “We are, however, committed to ensuring that our business remains strong and sustainable. We have ample liquidity and remain committed to meeting our obligations to the patients who benefit from our medicines, our suppliers, and other business partners.”
On Monday, legal experts contacted by STAT outlined how a Purdue bankruptcy might play out. They cautioned that they didn’t know details of the Purdue lawsuits and that these proceedings can vary, particularly in complicated cases.
With that in mind, here is what could happen:
The freeze in litigation against a company that files for bankruptcy is called an automatic stay. Once plaintiffs’ claims are moved to bankruptcy court, they can negotiate or litigate over the amount they are meant to be paid.
(In certain cases, lawsuits against companies that have filed bankruptcy are allowed to proceed if they are close to being resolved or are serving as test cases — establishing, for example, how much one plaintiff’s claim might be worth.)
The litigation against opioid makers is complicated by the fact that Purdue is just one of the defendants in the MDL, along with other pharma companies, drug distributors, and others in the supply chain. While a bankruptcy judge could put the MDL as a whole on hold, it’s possible that the claims against Purdue would be segmented off in bankruptcy court, as the rest of the MDL continues.
Once a company files for bankruptcy, it has to detail for the court all of its assets and debts. The first creditors to get paid are the so-called secured creditors: a bank, for example, that provided a loan to a drug company so that it could start a manufacturing facility.
“Only assets that are leftover from that can go to everybody else,” explained Lindsey Simon, an assistant professor at the University of Georgia School of Law.
Typically, plaintiffs in lawsuits become what are known as unsecured creditors, which could also include vendors that sell a drug company chemicals, service providers like plumbers, and employees who are owed payment. The bankruptcy judge or an appointee generally decides how much each of those creditors is owed, and then all of those claims are tallied. The company’s remaining assets are divided up among them proportionately.
If, for example, a judge decides a particular creditor is owed $10, but the whole pot of unsecured creditors’ claims amounts to $100 and the debtor only has assets of $10, that creditor is going to get $1.
The idea is to produce a resolution in a faster, more focused manner than would be the case in civil court. And even if plaintiffs only receive a fraction of what they are owed, the aim is to get everyone a piece of the pie.
Otherwise, different plaintiffs might try to accelerate their own efforts so they can take the full amount owed to them, leaving little for other plaintiffs.
“If [a company] has to pay cases as they were finalized, the plaintiff that had reached a resolution in its case earlier might get paid in full, but there would be nothing left for anyone else,” said Jesse Fried, a professor at Harvard Law School.
Oklahoma’s case against Purdue and others in the drug industry is the first in line to make it to trial, with a state judge there setting a May trial date. The federal judge overseeing the MDL, Dan Polster, has scheduled some test trials for October to gauge the plaintiffs’ claims.
Purdue has taken steps in recent months that suggest a bankruptcy filing might be possible. In August, Reuters reported that the drug maker had hired the law firm Davis Polk & Wardwell LLP for restructuring advice. And in July, Steve Miller, a restructuring expert, became the company’s board chair.
In 2007, Purdue and company executives agreed to pay $634.5 million to settle federal allegations that the company had misbranded OxyContin. The company and three executives also pleaded guilty to criminal charges.