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Federal appeals court unanimously lets Sackler family off hook in opioid litigation, blames bankruptcy for ‘less-than-perfect outcomes’


Writer, director, and actor, Danny Strong, left, creator of the hulu miniseries “Dopesick” stands with Randy Anderson, as he speaks during a protest with advocates for opioid victims outside the Department of Justice, Friday, Dec. 3, 2021, in Washington. In the background is a banner made by artist Fernando Luis Alvarez with the image of Deputy Attorney General Lisa Monaco that reads “DON’T SHIELD THE SACKLER CARTEL!”. A federal judge has rejected OxyContin maker Purdue Pharma’s sweeping deal to settle thousands of lawsuits over the toll of opioids. U.S. District Court Judge Colleen McMahon in New York found flaws in the way the bankruptcy settlement protects members of the Sackler family who own the company from lawsuits. (AP Photo/Carolyn Kaster)

A federal appellate court handed full civil immunity for present and future opioid claims to members of the Sackler family Tuesday. As a result, the billionaire owners of now-dissolved Purdue Pharma will be shielded from paying out billions in damages to plaintiffs harmed by the opioid crisis. Unless the U.S. Supreme Court reverses the ruling, the Sacklers will remain off the hook for lawsuits related to their role in Purdue’s enormously lucrative OxyContin business.

In September 2021, a bankruptcy judge approved a settlement under which Purdue Pharma would file for bankruptcy, then be dissolved, and its owners would pay out $6 billion in restitution for the company’s role in creating and exacerbating the opioid crisis. A new company called Knoa Pharma would then be formed. Knoa would manufacture medications for addiction reversal and treatment, be overseen by a public board, and continue to contribute additional funds to the plaintiffs in the underlying lawsuit. Meanwhile, the Sacklers would be individually immune from the lawsuits and would not file for personal bankruptcy.

The 2021 settlement also permanently banned the Sackler family from engaging in the opioid business and removed their names from buildings, hospital wings, and museums.

Months later, however, U.S. District Judge Colleen McMahon from the Southern District of New York reversed the bankruptcy court and ruled that federal bankruptcy law did not permit the Sacklers to be released from liability.

That district court judge, in turn, was overruled by a unanimous three-judge panel of U.S. Court of Appeals for the Second Circuit  on Tuesday. The judges held that the Bankruptcy Code does indeed allow the Sacklers to be shielded from current or future lawsuits under the settlement.

U.S. Circuit Judge Eunice C. Lee, a Joe Biden appointee, wrote the majority opinion for the panel, which also included Senior Circuit Judges Jon O. Newman (a Jimmy Carter appointee) and Richard C. Wesley (a George W. Bush appointee).

Lee began with a kind of disclaimer, “Bankruptcy is inherently a creature of competing interests, compromises, and less-than-perfect outcomes. Because of these defining characteristics, total satisfaction of all that is owed—whether in money or in justice—rarely occurs.”

Lee wrote that while the litigation against the Sacklers raises “questions about fairness and accountability… for actions that cause great societal harm,” that court need not answer those questions to rule on the more narrow issues in the appeal. Rather, the court needed only to address whether bankruptcy law (which typically halts all lawsuits against the filling debtor) allows the Sacklers to receive the benefit of Purdue’s liability protection even though the Sacklers themselves did not file for bankruptcy.

The unanimous panel found that the bankruptcy court was empowered to approve the settlement as part of its power to discharge debts in bankruptcy and reinstated the approval of the settlement.

Lee said that the court was aware of the ruling’s “potential for abuse” and quoted from an unrelated 2019 case to articulate the the limits of the Sacklers’ release from liability. A release from liability is neither “a merit badge,” or a “participation trophy,” nor a “gold star for doing a good job,” wrote Lee.

Wesley wrote a concurrence to call attention to what he deemed an “extraordinarily powerful tool” for a court — bankruptcy or otherwise — to wield. Wesley cautioned that the bankruptcy court’s authority to extinguish claims against individuals who are not debtors in the bankruptcy proceeding should be codified in statute.

“At bottom, if Congress intended so extraordinary a grant of authority, it should say so,” Wesley suggested.

The Sacklers’ liability protection does not extend to any criminal prosecutions that could still be filed.

You can read Tuesday’s full ruling here.

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Elura is a columnist and trial analyst for Law & Crime. Elura is also a former civil prosecutor for NYC's Administration for Children's Services, the CEO of Lawyer Up, and the author of How To Talk To Your Lawyer and the Legalese-to-English series. Follow Elura on Twitter @elurananos