Purdue Pharma filed for bankruptcy. What does it mean for lawsuits against the opioid manufacturer?

An earlier version of this story was originally published on March 4, 2019. It has been updated to reflect Purdue’s Chapter 11 bankruptcy filing.

Purdue Pharma on Sunday filed for Chapter 11 bankruptcy, part of a deal to settle thousands of lawsuits alleging the company misled doctors and the public as it promoted its opioid painkillers, including its blockbuster OxyContin, and helped ignite the opioid epidemic.

So what happens now?

A bankruptcy filing should 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.

But some state attorneys general — who are among those who have sued the company — oppose the deal. They’ve stressed they will continue to seek additional damages from the company and members of the Sackler family, who control Purdue and who have reaped billions from the sale of opioid painkillers. Some of the lawsuits have named individual Sacklers as defendants.

The lawsuits from state attorneys general are in various state courts, while the majority of the more than 2,000 cases from local governments, tribes, and others have been consolidated together in a federal case in Ohio in a so-called multidistrict litigation, or MDL. The bankruptcy deal is supported by roughly half the states suing the company and the lead plaintiffs attorneys in the MDL, who said in a statement Monday that “the bankruptcy filing will not prevent us from finalizing an agreement with Purdue to bring opioid recovery resources into the communities we represent.”

The bankruptcy deal should remove Purdue from test trials scheduled for next month meant to gauge the plaintiffs’ allegations. Aside from Purdue, defendants in the MDL include other opioid manufacturers, drug distributors, and pharmacies. Purdue, the Sacklers, and the other defendants have generally denied the allegations.

Legal experts previously outlined to STAT how a Purdue bankruptcy might play out. They cautioned 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. 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.

States that have opposed the bankruptcy deal have said that it would not extract enough from members of the Sackler family.

They’ve argued that Purdue’s assets are limited because the family has absorbed the bulk of the company’s profits, and so should be on the hook for more than the deal outlines. On Friday, the New York attorney general’s office said it had uncovered $1 billion in wire transfers by the Sacklers, alleging the family was trying to hide its assets.

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.

In March, Purdue and the Sacklers agreed to pay $270 million to settle a case brought by the state of Oklahoma.

Plaintiffs’ attorneys have likened the ongoing case to the one against the tobacco industry that culminated in a $246 billion settlement two decades ago.