As published on Legal Newsline:

WHITE PLAINS, N.Y., Oct. 14, 2019 – The federal bankruptcy judge overseeing Purdue Pharma’s Chapter 11 bankruptcy reorganization granted the OxyContin manufacturer and its controlling Sackler family a two-week respite from opioid litigation to work on a settlement that appeases warring state attorneys general and a growing list of municipal and private plaintiffs.

During a sometimes-heated hearing Friday, U.S. Bankruptcy Judge Robert Drain admonished the lawyer for a 25-state coalition that was opposed to the litigation stay, telling them that holding trials to determine Purdue’s liability for the opioid crisis would be a waste of time and money. The same states had opposed, successfully, Purdue’s request to spend more than $30 million on bonuses and retention payments for its top executives, Judge Drain noted.

“You guys, legitimately, were raising issue about a $34 million bonus pool,” the judge said in a raised voice to Andrew Troop, a Pillsbury Winthrop partner representing the opposing states. “Why spend that money on a trial?”

At another point in the hearing, Judge Drain rejected Troop’s argument that trials against Purdue and the Sacklers were necessary to establish legal liability. Since the Sackler family has already agreed to hand over all of Purdue’s assets, he said, there is no practical need to prove the company was guilty of causing the opioid crisis.

“There are trials where people stand up and say `I did it,’ but that usually happens on Perry Mason only,” the judge said to a courtroom packed with more than 100 dark-suited lawyers in White Plains, N.Y. “Here, a trial would be an autopsy.”

Purdue had been seeking a 180-day stay, both for the company and the Sacklers. The judge seemed inclined to grant it through most of the hearing, several times expressing frustration with arguments the states and other plaintiffs should be allowed to proceed with separate lawsuits against Sackler family members, some of whom are accused of engaging in fraud, deceptive trade practices and other civil torts as executives and directors of Purdue.

“You can’t try those claims without bringing in Purdue,” an exasperated Judge Drain said.

Troop offered a hypothetical: “What if Purdue didn’t exist?”

“That’s a complete straw man!” the judge exploded. “That’s not where we are!”

In a proposed settlement reached after hours of negotiating the night before, the Sacklers agreed to effectively freeze all of their worldwide assets in addition to providing a previously stipulated $3 billion or more in cash toward the reorganization. In exchange they are seeking a stay of litigation against themselves and ultimately a release from claims, even though they aren’t in bankruptcy.

Non-debtor stays are granted infrequently – and not at all in some federal circuits – but are not unusual in the Second Circuit, where Judge Drain’s court is located.

The judge pushed back on the states opposed to a stay, especially when they said they needed to hold trials to “bring facts to light” about the company’s alleged misdeeds. They compared it to the tobacco litigation, where as part of the $260 billion settlement in 1997 the cigarette industry turned over millions of pages of internal documents to a public repository.

Judge Drain said he supported a similar provision in any Purdue reorganization and challenged Troop to explain why the states needed trials to accomplish what they could easily obtain in bankruptcy court.

“Any judge or competent litigator knows a trial is but a limited way to get at the truth,” the judge said. “It results in a ruling, not the truth.”

Troop tried to convince the judge the states had the power to continue their lawsuits under their police powers to protect citizens against illegal activity, and made a slightly different argument that they needed a trial to set precedent to guide future behavior by others. The judge mocked the idea a pending trial by the State of Washington would serve that purpose, noting the laws are different in every state so a Washington precedent would be useless elsewhere.

Even the opposing states were talking about a minimum of three or four trials to establish liability under different legal theories, including racketeering.

“What do you want?” he asked. At another time, he referred to a scene in the movie “Dr. Strangelove” in which George C. Scott, playing an American general, wants his own doomsday device after learning the Russians have one. No responsible state AG would sit back and watch another state sue Purdue to a verdict without launching their own suit, he said.

“You’d have a litigation festival,” he said.

At the end of the day, the judge moved considerably from his position through most of the hearing, however, and granted Purdue and the Sacklers a brief stay ending Nov. 6, with the possibility of extending it. And attached to the order was a voluntary injunction prohibiting Purdue from engaging in a wide range of activities, including promoting opioids, supporting outside groups to promote them or paying speakers or “key opinion leaders” to advocate their use.

The judge said he is concerned not only that Purdue’s assets will be squandered in litigation but that they will not be used to address the opioid crisis. Sounding much like U.S. District Judge Dan Polster in Ohio, who is overseeing multidistrict litigation against the opioid industry and has pushed hard for a global settlement, Judge Drain said “the states can do what they want.”

“But it is important that they address the public health crisis that it is asserted, with some credibility, the debtor helped start,” he said. “That can happen with bankruptcy, because the plan is binding.”

Purdue’s bankruptcy has created multiple groups of creditors with competing interests. Half-a-dozen states have allied with municipal plaintiffs represented by Motley Rice and other private lawyers in favor of a proposed settlement under which Purdue would be placed into a public trust, with its earnings going toward public health. The Sacklers would contribute $3 billion in cash as well as a significant percentage of any money they receive from the sale of several foreign companies they own.

The opposing states say that agreement is too generous to the Sacklers and some state AGs are concerned the foreign companies are engaged in the same practices they consider illegal in the U.S. Without directly saying so, Troop, the lawyer for opposing states, created the impression the AGs are worried they will effectively receive tainted money unless they are allowed to investigate the foreign businesses.

The politics of accepting money from Purdue’s continuing sale of opioids also could concern some state AGs.

Thousands more claimants are expected to join the fray now that Purdue is in bankruptcy, seeking money for children born to drug-addicted women, health districts, Indian tribes and even consumers alleging they paid excessive health insurance premiums because of opioid abuse. Under the best of circumstances, Judge Drain said, they will receive “pennies on the dollar.”