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Purdue Pharma bankruptcy judge OKs examiner but condemns Sackler-related attacks

4 minute read

A pharmacist holds a bottle OxyContin made by Purdue Pharma at a pharmacy in Provo, Utah. REUTERS/George Frey

  • Examiner to probe independence of Purdue special committee
  • Judge lambastes 'baseless' allegations of impropriety
  • Purdue's march toward bankruptcy exit continues

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(Reuters) - The judge overseeing Purdue Pharma LP’s bankruptcy said he will appoint an examiner to probe the independence of a special committee that negotiated a deal with the Sackler family members that own the OxyContin maker, but only after railing against what he says were misleading accusations of impropriety surrounding the agreement.

U.S. Bankruptcy Judge Robert Drain in White Plains, New York spent about an hour issuing an oral ruling on the request for an examiner during a virtual hearing on Wednesday in Purdue’s bankruptcy, which aims to resolve thousands of lawsuits accusing the company of fueling the opioid crisis through deceptive marketing. Despite concluding that there is no evidence to suggest that the special committee of Purdue’s board was influenced in any way by the Sackler family members in negotiating a deal that forms the basis of the company’s bankruptcy exit plan, the judge said his fear of misleading press reports swayed his decision to bring an examiner in anyway.

“I am concerned that if I don’t appoint an examiner, the next press release will be ‘Court refuses to appoint examiner to show process was fair’ but not add ‘because there was no evidence,’” Drain said. “So my inclination is to appoint an examiner to look at one issue: whether the (Purdue) board, and more specifically the special committee, in directing that the Chapter 11 plan before me be filed and pursued, was acting independently and not under direction or influence of the Sacklers.”

Purdue declined to comment on the ruling. In court, the company's lawyer Marshall Huebner of Davis Polk & Wardwell, took umbrage at the suggestion that the deal was not negotiated fairly. Representatives for the Sackler family members who own the company did not immediately respond to a request for comment.

The request for an examiner came from Peter Jackson, the founder of an advocacy group of parents whose children died as a result of opioid abuse. Jackson asked the judge to appoint an examiner to investigate whether Purdue was still under the influence of the Sacklers when it negotiated the settlement that protects them against future opioid litigation – suggesting that the deal was not fairly negotiated. The Sacklers have agreed to contribute $4.275 billion to the settlement.

Drain spent a large part of Wednesday’s hearing denouncing the request and accusing Jonathan Lipson, a professor at Temple University Beasley School of Law, who presented it to the judge, of making baseless allegations of impropriety about the process that led to the deal. The judge also appeared to take personal offense at what he viewed as the motion’s questioning of his own integrity.

Lipson said he was not attempting to insult the judge, who throughout the hearing, cut off and yelled at the professor and accused him of slandering members of the special committee. Drain also accused Lipson of intentionally writing the examiner motion in a way that would encourage misleading press coverage suggesting that the Sacklers, who have not been criminally charged, are getting away with crimes – an issue that is not in the purview of the bankruptcy court.

"That is a different topic, as a law professor should understand," Drain said.

However, he ultimately said he would allow an examiner to investigate the independence of the special committee with a $200,000 budget. The branch of the U.S. Department of Justice that serves as a bankruptcy watchdog, the U.S. Trustee’s Office, will select the examiner.

The judge said he does not expect the examiner's investigation to interfere with Purdue's ongoing restructuring process.

Lipson said in an interview with Reuters following the hearing that he was pleasantly surprised by the judge’s ultimate ruling.

“It was obviously less than we had hoped for but radically more than I would have expected. So I am grateful that he ultimately agreed with Mr. Jackson,” Lipson said.

The motion was made as Purdue continues mediation in an effort to bring in more support for its proposed reorganization plan, which includes a settlement that steers funds toward opioid abatement programs.

The case is In re Purdue Pharma LP, U.S. Bankruptcy Court, Southern District of New York, No. 19-bk-23649.

For Purdue: Marshall Huebner, Benjamin Kaminetzky, Timothy Graulich, Eli Vonnegut and James McClammy of Davis Polk & Wardwell

For Peter Jackson: Jonathan Lipson of Temple University Beasley School of Law

Read more:

Lawmakers debate bill to amend bankruptcy laws protecting Purdue owners

Purdue Pharma readies vote process for proposed restructuring deal

Purdue Pharma to use public trusts, Sackler cash to settle opioid litigation

Reporting by Maria Chutchian

Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.

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