Opioid Victims Wait as Second Circuit Mulls Purdue Pharma Deal

Opioid victims, their family members, and some bankruptcy experts have grown anxious as the wait for a powerful appeals court to rule on Purdue Pharma LP‘s bankruptcy settlement reaches the one-year mark.

There’s a lot riding on the highly anticipated decision out of the US Court of Appeals for the Second Circuit, especially for those in line to receive settlement funds, which won’t be distributed until after the court rules and the agreement clears bankruptcy court. That includes victims’ families who have spent their life savings on treatments for loved ones and government programs aimed at abating a crisis that’s killed more than 500,000 Americans since 2000.

“We hope and pray every day that this is going to get resolved and the money is going to go to the victims,” said Kay Scarpone, whose son, Joseph, was a Marine who served in Afghanistan and died of an overdose. Advocates like Scarpone believe the hundreds of millions of dollars slated to go to state and local governments to address the ongoing crisis will save lives.

At the same time, the Second Circuit has the potential to rattle the corporate bankruptcy community as it grapples with the weight of precedent on the issue of liability releases, as well as a likely appeal to the Supreme Court if Purdue loses.

It’s been more than a year since the Second Circuit agreed to consider whether Purdue’s proposed plan can include liability releases for the Sackler family members who own the company. That issue is a core part of a $6 billion settlement between Purdue, the Sacklers, opioid victims, cities, and states. An earlier proposal was approved by a bankruptcy court before being struck down by US District Judge Colleen McMahon in December 2021.

Purdue said it was “eager” to hear the Second Circuit’s decision. “We have increased our operational efficiency so that we will be well positioned to fund the opioid trusts with hundreds of millions of dollars of cash from the company, and we have operated the business consistent with the our commitment to not promote opioids,” it said in a statement.

McMahon sent Purdue’s appeal to the Second Circuit with a request that it be heard on an expedited basis. The Second Circuit heard oral arguments last April.

Precedential Concerns

The liability releases at the center of the appeal are a hot topic in bankruptcy, and circuit courts have split on their legality. The Second Circuit, regarded as a top venue for commercial law, must consider the impact its decision will have on companies filing for bankruptcy in the future, lawyers said.

Questions over liability releases are at the heart of bankruptcies initiated by 3M Co. and Johnson & Johnson, both of which have set up subsidiaries to answer to claims while seeking to shield themselves from liability.

“We’re all waiting,” said David Kuney, an adjunct professor at Georgetown Law and retired Sidley Austin partner who now runs his own pro bono practice. “This is going to be a major event in bankruptcy history.”

A group of states initially appealed the bankruptcy plan to the district court, arguing that the Sacklers’ liability releases are illegal. But shortly after the district court shot down the plan, Purdue, the Sacklers, and several government entities announced the $6 billion agreement—up from $4.3 billion in an earlier agreement. The states dropped their opposition.

That left the Department of Justice’s bankruptcy watchdog, the US Trustee, to pick up the reins when Purdue appealed McMahon’s ruling. The trustee, and some bankruptcy law experts, argue that the Sacklers shouldn’t be protected against future opioid-related litigation because they didn’t file for bankruptcy themselves—only Purdue did.

If Purdue loses on appeal, it’s likely to take the case to the Supreme Court, Kuney said. That may be part of why the court is taking a while to make a decision.

“Judges are sensitive to critical comments by higher courts and they like not to be criticized,” he said. “You might think its part of the job, but they take it personally.”

The 14 months that’s elapsed since the court agreed to take the case is slightly more than the median time of 13 months it typically takes the Second Circuit to resolve a case, according to data tracked by the federal courts.

In the meantime, victims—many of whom struggled to accept that Purdue’s offer was the best they would get—are frustrated by the complexities of a legal system that has produced numerous delays since Purdue filed for bankruptcy in 2019.

Bruce Markell, a former bankruptcy judge, said the appeals court is aware of victims’ desire for a quick resolution but must prioritize making a sound decision.

“The burden of precedent is heavy,” Markell said.

“I’m not surprised it’s taken time,” he added. “I become a little bit more surprised every day it goes on.”

States Want to Save Lives

Most of the $6 billion, which still requires bankruptcy court approval, will be steered to states for opioid abatement programs, including efforts to expand addiction treatment and overdose emergency care.

Opioid-related overdoses are the leading cause of accidental death in Pierce County, Washington, outpacing car accidents and gun deaths. The county’s largest city, Tacoma, could use settlement funds to expand treatment options for residents and add another crisis response team to the city’s fire department, Jacques Colon, Tacoma’s chief strategy officer, said.

“If you’re able to scale that up by even one unit and a couple of staff people, that’s potentially dozens of folks that you’re able to help,” he said.

Nationwide, governments have won about $50 billion against companies involved in the opioid crisis, Connecticut Attorney General William Tong said. Officials say they’re already spending settlement money to address the opioid crisis, and the Sackler money would be one of multiple resources they have.

Tong said he understands the frustration of victims, and that states have a responsibility to extract the largest settlement possible.

“We’re always impatient on this issue, because people are dying every day,” Tong said.

“So has it dragged on too long? Yes,” he said. “Are we frustrated? Absolutely.”

Victims Wait for Payouts

DeDe Yoder’s son, Chris, died of an overdose when he was 21. In the years leading up to his death, Yoder said she spent $150,000 of retirement savings on treatments for her son. Eight different rehab centers made up the bulk of that cost, but fees for doctors and psychiatrists also added up, she said.

“You try to do anything you can to help your only child, and that’s what I did,” she said.

Yoder, who lives in Connecticut, filed a claim to be compensated by Purdue. The bankruptcy plan sets aside up to $750 million for individual victims. Each victim can receive up to $48,000, depending on various factors, if the settlement is approved.

The money is far less than victims had hoped to receive. But many say it’s better than nothing.

Stephanie Lubinski isn’t optimistic she’ll ever receive a payout for her husband, Troy, who committed suicide in 2020 after an addiction to OxyContin. She said her family, which spent thousands on his treatment, was forced to foreclose on their home.

In the throes of her husband’s addiction, Lubinski was diagnosed with cancer in 2017. She now lives “month to month,” she said.

The resolution of the Purdue case would bring some closure, allowing her to enjoy the time she has left with her family. She had to declare bankruptcy after incurring a six-figure debt to pay for cancer treatment.

“It was a good ten years of pretty much hell,” Lubinski said.

The case is In Re: Purdue Pharma L.P., 2d Cir., No. 22-00110.