Purdue Pharma LP’s multi-billion dollar opioid settlement was dealt a surprising blow on Thursday when a federal judge reversed a bankruptcy court’s earlier approval of the deal.
U.S. District Judge Colleen McMahon on Dec. 16 struck down the OxyContin maker’s sweeping opioid settlement, putting the accord at risk of collapsing. Supporters of the deal have warned that the alternative to a settlement is years of costly — and potentially fruitless — litigation.
The reversal will likely be appealed to a higher court. In the meantime, it’s a victory for a handful of state attorneys general and an arm of the U.S. Justice Department, which have been working to overturn the settlement.
Attorneys general from states including Washington, Connecticut and Maryland want to block the deal so they can keep suing Purdue’s owners, members of the billionaire Sackler family, over their role in the opioid crisis.
The settlement would prevent that, giving Purdue’s owners broad legal protections from opioid-related civil lawsuits. Judge McMahon said the drugmaker’s bankruptcy judge erred in granting those releases.
The settlement would route billions of dollars to opioid abatement efforts and see Purdue’s assets turned over to the states, cities and counties suing over its role in the crisis. Members of the Sackler family have agreed to contribute more than $4 billion to the deal and leave the opioid business entirely.
In her ruling, McMahon said the bankruptcy court lacked authority to grant the kind of releases at issue. So-called third-party releases have divided federal courts across the country for decades, she said, adding that her ruling won’t be the last word on the subject.
“This issue has hovered over bankruptcy law for thirty-five years,” McMahon said in her written ruling. “It must be put to rest sometime; at least in this Circuit, it should be put to rest now.”
In September, U.S. Bankruptcy Judge Robert Drain signed off on the deal after a lengthy trial.
During the appeal, McMahon questioned whether Purdue’s owners might have “abused” the bankruptcy system with the settlement. She scrutinized how aggressively members of the Sackler family siphoned money out of the drugmaker in the years following the company’s 2007 guilty plea over how it marketed OxyContin.
Representatives for members of the Sackler family and Purdue Pharma didn’t immediately respond to requests for comment last Thursday.
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