'A Bitter Result': Purdue Pharma, a Sackler Bankruptcy Filing, and Improving Monetary and Nonmonetary Recoveries in Mass Tort Bankruptcies

Abstract

Purdue Pharma, the maker of OxyContin®, filed for bankruptcy in 2019 to resolve thousands of opioid-related lawsuits. The settlement reached in the case would release the controlling Sackler family from all opioid-related liability in exchange for a Sackler financial contribution—without requiring the Sacklers to file for bankruptcy. Critics instead demanded a Sackler bankruptcy filing in exchange for release, asserting that it would improve creditors’ monetary and nonmonetary outcomes. This Article argues that such view is misguided, and that a Sackler bankruptcy filing would harm creditors’ monetary and nonmonetary objectives. First, a Sackler bankruptcy filing would likely reduce financial recoveries because of Purdue’s split, multi-jurisdictional, spendthrift trust-based ownership structure and the limits of fraudulent transfer remedies. To overcome these obstacles and increase financial recoveries, the court implemented a de facto substantive consolidation of Sackler assets across entities and jurisdictions. Second, achieving creditors’ nonmonetary goals, such as broader disclosure, restrictions on the opioid businesses of Purdue and the Sacklers, and limitations on Sackler charitable donations, would likely have been more difficult following a Sackler bankruptcy. A bankruptcy court could not mandate these outcomes, and a filing would have reduced the Sacklers’ willingness and ability to consent to them. Instead, most of these goals were reached consensually without a Sackler filing. Targeted reforms can build on Purdue’s bankruptcy to improve monetary and nonmonetary outcomes in future mass tort bankruptcies: limits on foreign asset protection trusts in bankruptcy, enhanced mandatory financial disclosures, and focused use of trustees and examiners.

Keywords: bankruptcy, third-party release, purdue pharma, sackler

JEL Classification: G33, G38, I18