A Delicate Balance: The Role of State and Local Governments in the Purdue Pharma Bankruptcy
The bankruptcy of Purdue Pharma is a saga with many twists and turns. Among the many interesting facets of the case is the role state and local governments have played within it. These governments were involved from the beginning of the case and will have a vital role to play whenever settlement funds are distributed. Throughout the case, these governments have been a critical part of negotiations.
Relying in part on assurances from pharmaceutical companies like Purdue that opioid pain relievers were not addictive, healthcare providers increasingly began prescribing them starting in the mid- to late 1990s. In 2017, the Department of Health and Human Services declared the opioid crisis to be a public health emergency and now refers to the crisis as an epidemic. As a crisis affecting millions of people in every U.S. state, both state and local governments have a significant role to play in combating it. Indeed, over 3,000 state and local governments have taken part in lawsuits, investigations, and settlements against opioid manufacturers and distributors.
Purdue Pharma made and marketed OxyContin, a highly addictive painkiller that Purdue falsely marketed as less addictive than other opioids. After thousands of lawsuits from governments and individuals asserting that Purdue and the wealthy family that owned it, the Sacklers, helped cause the opioid epidemic through this deceptive marketing, Purdue filed for bankruptcy in 2019. At the time Purdue filed, it already had an agreement to restructure with over 20 states and over 2,000 cities, counties, and tribal governments, although many others, of course, had not signed on.
Purdue faced off with many parties in bankruptcy negotiations, but state and local governments were key players in shaping the settlements that Purdue put on the table. Throughout the bankruptcy, many state attorneys general pressured Purdue to include more money in its plan of reorganization and pushed back against releases of liability for the Sackler family for their role in the crisis. Those who did this walked a fine line, balancing a desire to get more money to address the opioid crisis with a need to get that money into a place where it could do some good as quickly as possible. The longer negotiations dragged on, the longer it would take before Purdue would be in a position to make any sort of distribution under its bankruptcy plan.
At long last, Purdue did indeed reach a settlement with thousands of state, local, and tribal governments; however, eight states (along with individual objectors and the federal United States trustee) objected to the plan. These objectors argued that the bankruptcy judge did not have the power to release the Sackler family from liability for all opioid claims related to Purdue. The Sacklers themselves had not filed for bankruptcy, and they faced over 800 lawsuits in which they were personally named. Among other things, the objecting states argued that the bankruptcy judge could not eliminate states’ ability to sue the Sacklers under state consumer protection laws.
In late 2021, a U.S. district judge for the Southern District of New York agreed with the objectors that the bankruptcy plan could not be approved because of the litigation releases for the Sacklers. Although Purdue appealed this ruling to the Second Circuit Court of Appeals, in the meantime, it struck a deal with the remaining “holdout” states and the District of Columbia, meaning that all 50 states and D.C. are now on board with a Purdue settlement. Under the terms of this newest settlement, the Sacklers will provide more money and will leave the company in exchange for receiving a release of civil, but not criminal, liability.
Throughout the bankruptcy process, state and local governments have had to make some difficult decisions. On the one hand, allowing the Sacklers to avoid (civil) liability for their role in the opioid crisis is a missed opportunity, especially when the Sacklers themselves never filed for bankruptcy. The settlement also likely means that the question of whether the bankruptcy court can constitutionally force states to give up their right to sue non-debtor parties like the Sacklers will not get resolved, at least not in the context of this case. On the other hand, the longer it takes to get money out of Purdue and others responsible for the opioid crisis, the longer it will take to effectively address—and hopefully eventually resolve—the opioid crisis.
Whenever money does get distributed from Purdue, most of it ultimately will go to state and local governments, which must use the funds to address the opioid crisis through treatment and prevention efforts. States can even opt to compensate victims directly through the creation of their own funds. The exact contours of state and local government plans to use the money from the bankruptcy remain to be seen; however, it is clear that all eyes will continue to be on state and local governments even after the bankruptcy is over.