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Purdue Pharma bankruptcy trial begins with opponents eyeing Sackler shields

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A bottle of prescription painkiller OxyContin, 40mg pills, made by Purdue Pharma L.D. sit on a counter at a local pharmacy, in Provo, Utah, U.S., April 25, 2017. REUTERS/George Frey - RC1D92248F10

  • Trial to tackle issue of legal protections for Sacklers
  • Nine states, bankruptcy watchdog say judge should reject deal
  • Vast majority of creditor votes support Purdue plan

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OxyContin maker Purdue Pharma on Thursday will kick off its long-awaited bankruptcy trial over its plan to resolve thousands of claims accusing it and its wealthy Sackler family owners of fueling the U.S. opioid crisis.

The trial, expected to last up to 11 days, will address the adequacy of Purdue’s reorganization plan, which rests on a settlement that the company says is worth more than $10 billion. The deal, backed by a wide range of states, municipalities, hospitals and individuals also protects the Sackler family members that own Purdue from future opioid-related litigation in exchange for a $4.5 billion contribution.

Purdue and its Sackler family owners have denied wrongdoing in connection with the lawsuits.

More than 500,000 Americans have died since 1999 from opioid overdoses, according to the Centers for Disease Control and Prevention.

U.S. Bankruptcy Judge Robert Drain in White Plains, New York, will oversee the trial and ultimately determine whether the plan can be approved, which would allow Purdue to exit Chapter 11.

The settlement funds would be put toward state and local opioid abatement programs. Additionally, the deal would dissolve the existing company and shift its assets into trusts that will steer profits toward plaintiffs who accused Purdue and its owners of aggressively marketing OxyContin and playing down its abuse risks.

Prior to the trial, creditors voted on Purdue's reorganization plan. Though around 95% of the 120,000 votes cast were in favor of the plan Purdue still faces opposition from nine U.S. states, the U.S. Department of Justice’s bankruptcy watchdog, the U.S. Trustee and some individuals. Many have written letters directly to the court describing how opioid addictions have impacted their lives.

One letter filed on Aug. 9 by an individual who identified himself as a former police officer said opioids "destroyed my career[,] my family and an excellent reputation that I have had for years."

The key legal dispute to be argued during the trial is over so-called “third-party releases,” which would shield the Sackler family owners from future opioid-related litigation, even though they did not personally file for bankruptcy protection. The releases, which are often included in Chapter 11 plans for a bankrupt company’s owners or advisors, typically face opposition from the U.S. Trustee and have recently been the subject of legislation in the U.S. House and Senate.

U.S. Trustee William Harrington has argued in court papers that the releases are “nothing less than an illegal, court-ordered discharge of a potentially limitless group of non-debtors.” Connecticut Attorney General William Tong, representing one of the few remaining states that oppose the settlement, says the bankruptcy court does not have the authority to prevent attorneys general from suing the Sacklers.

Stamford, Connecticut-based Purdue, represented by Davis Polk & Wardwell, filed for bankruptcy in September 2019. Since then, it has struck deals with the Justice Department to pay $225 million toward a $2 billion criminal forfeiture.

The Justice Department agreed to forgo the rest if the company developed a reorganization plan that would establish a public benefit company or similar entity that would dedicate the remaining $1.775 billion to U.S. communities battling the opioid crisis.

The Sackler family owners, who have not been accused of criminal wrongdoing, also agreed to pay $225 million to settle a civil investigation by the Justice Department.

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

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