A federal judge in Manhattan overturned a roughly $4.5 billion settlement between OxyContin maker Purdue Pharma LP and members of the Sackler family who own the drugmaker, a surprising decision that raises questions about the future of the company and its owners, who have been accused of fueling the nation’s opioid crisis.

Judge Colleen McMahon of the Southern District of New York ruled late Thursday that legal releases that would shield members of the Sackler family from civil opioid lawsuits are not permitted under the bankruptcy code.
A handful of state attorneys general and the Justice Department’s bankruptcy watchdog challenged the releases, which would have extinguished the states’ potential legal claims against the Sacklers even though they didn’t support the deal. Such settlements have been used in other large corporate bankruptcies, though Congressional Democrats introduced a bill earlier this year in response to the Purdue settlement that would ban these types of releases.
The decision is likely to result in further appeals from Purdue, the Sacklers and groups representing opioid victims and other company creditors who supported the settlement and broader reorganization plan.
Judge McMahon said prior legal rulings from the Second U.S. Circuit Court of Appeals that Purdue and other bankrupt companies have relied on in advancing the types of legal releases the Sacklers would receive haven’t properly analyzed the issue. She said her ruling Thursday won’t be the last word on the issue.
“It must be put to rest sometime; at least in this Circuit, it should be put to rest now,” Judge McMahon said.
The family settlement was the centerpiece of a larger financial restructuring of Purdue designed to fund programs to fight the opioid crisis and compensate people harmed by OxyContin. State attorneys general from Washington, Connecticut, Maryland and other states had objected to the settlement, arguing the Sacklers’ contribution was insufficient to deter other corporate wrongdoing.
Those states’ claims against the Sacklers were extinguished under the bankruptcy plan, even though family members didn’t file bankruptcy themselves.
“This is a seismic victory for justice and accountability that will re-open the deeply flawed Purdue bankruptcy and force the Sackler family to confront the pain and devastation they have caused,” Connecticut Attorney General William Tong
said.
The Sacklers have denied wrongdoing and said when the bankruptcy court approved the deal that they hoped settlement funds would provide assistance to people and communities in need. Purdue and most of its creditors have said the bankruptcy deal extracted as much as possible from the Sacklers, while reflecting the obstacles to winning and collecting on judgments against family members, much of whose wealth is housed in hard-to-reach offshore trusts.
Judge McMahon is the second federal judge to review the Sacklers’ settlement, which was approved in September by the bankruptcy court where Purdue sought court protection in 2019. The chapter 11 filing was meant to resolve an onslaught of lawsuits accusing Purdue and its family owners of fueling the opioid crisis, an allegation the family denies.
Purdue and major creditor groups have defended the family settlement, saying it has received broad support and mirrors similar bankruptcy deals that have resolved lawsuits arising from dangerous or defective products.
The states’ appeals appeared to gain traction last month when Judge McMahon questioned if the more than $10 billion Purdue distributed to the Sacklers before the company filed chapter 11 represents a larger abuse of the bankruptcy system.
She asked if family members took so much from the company that it had to accept their $4.5 billion settlement offer, in exchange for a broad grant of legal protection from lawsuits.
Judge McMahon said Thursday that about half of the distributions were either invested in offshore companies owned by members of the Sackler family or deposited in trusts “that could not be reached in bankruptcy.”
“When the family fortune was secure, the Sackler family members withdrew from Purdue’s board and management,” Judge McMahon said. “Bankruptcy discussions commenced the following year.”
In response to the judge’s questions, a creditors committee that investigated the Sacklers said their distributions were part of “a deliberate scheme” by the company and its owners to hinder future judgments over opioids. However, the committee still urged Judge McMahon to uphold the settlement because creditors were “unwilling to gamble” that litigation against the Sacklers would yield any more funding than they have already agreed to.
Family members denied they abused the bankruptcy process and said they didn’t anticipate the wave of opioid lawsuits that ultimately drove Purdue into bankruptcy. They said the company’s distributions coincided with a reinstatement of a patent in 2008 protecting OxyContin from generic competition. About half of the company’s transfers to its shareholders went to pay taxes or was reinvested in the business, court papers show.
Purdue told Judge McMahon that the company could be liquidated if its restructuring plan falls apart, saying that would result in an outcome “in which billions of dollars for abatement and victim compensation will be irretrievably lost.”
Purdue pleaded guilty last year to three federal felonies related to the marketing and sale of OxyContin, admitting it pushed the opioid painkiller on dozens of doctors it knew were diverting the drug for improper uses and then failed to report those healthcare providers to the Drug Enforcement Administration. A federal judge in New Jersey is expected to sentence Purdue next year.
Family members who served on Purdue’s board testified in bankruptcy court they weren’t responsible for driving opioid addiction. Former Purdue director David Sackler said on the witness stand his family has a “moral responsibility” to address the opioid epidemic but denied any legal obligation to do so.
Dr. Richard Sackler denied that he, his family or the company are responsible for the opioid crisis. Former Purdue director Mortimer D.A. Sackler said he was “shocked and disappointed” by Purdue’s guilty plea and that management had assured the board it was complying with relevant laws.
“A forced apology is not really an apology, so we will have to live without one,” Judge Robert Drain of the U.S. Bankruptcy Court in White Plains, N.Y., said in his ruling approving the chapter 11 plan.
Lawsuits over Purdue’s role in the opioid crisis have unraveled the Sacklers’ standing in philanthropic, academic and financial circles. Last week, the Metropolitan Museum of Art and the descendants of company co-founders Mortimer and Raymond Sackler announced they would remove the family’s name from seven museum exhibition spaces.
Under the bankruptcy plan, the Sacklers won’t have any involvement in Purdue when it emerges from chapter 11 under the new name Knoa Pharma. The company has said its decision to file bankruptcy and settle with its owners came from a special committee of directors, free from family influence. A court-appointed examiner agreed the committee acted independently from the family after Purdue’s bankruptcy filing.
The company and its major creditor groups have said the settlement funds are urgently needed in communities grappling with opioid addiction that has been exacerbated by the Covid-19 pandemic. U.S. drug-overdose deaths surged nearly 30% in 2020, driven by the proliferation of fentanyl, a powerful synthetic opioid.

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