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Judge overturns settlement that protected the Sackler family from opioid lawsuits

AUDIE CORNISH, HOST:

In a surprising ruling late today, a federal judge in Manhattan overturned a controversial Purdue Pharma bankruptcy settlement, and that deal was worth more than $4 billion. It granted immunity from opioid lawsuits to members of the Sackler family, who own Purdue Pharma. That's the company that makes OxyContin.

NPR addiction correspondent Brian Mann joins us now. Welcome back, Brian.

BRIAN MANN, BYLINE: Hi, Audie.

CORNISH: This deal took a long time to negotiate - right? - and to win approval from most states and even Purdue Pharma's creditors. Why did the judge overturn it?

MANN: Yeah. This settlement, which was approved back in September, did something controversial. It allowed members of the Sackler family to sort of piggyback on the bankruptcy of their company, Purdue Pharma, even though none of the family members themselves filed for bankruptcy. In fact, they're very wealthy. What the Sacklers offered to do is pay more than $4 billion in exchange for a clean legal slate - meant no future lawsuits linked to OxyContin or the opioid crisis.

What happened today is that U.S. District Court Judge Colleen McMahon ruled that that kind of deal just isn't allowed under federal bankruptcy law. Lindsey Simon is a bankruptcy expert at the University of Georgia School of Law.

LINDSEY SIMON: She looked strictly at the bankruptcy code. Does the statute written by Congress allow the bankruptcy judge to address this sort of issue? And her conclusion is that the bankruptcy code, nothing in it give the judge authority to grant these releases. And as a result, the plan cannot be permitted to go forward as written.

MANN: But Simon said she was actually pretty shocked by this decision. It basically reverses a trend, Audie, from recent years where courts and judges were tending to allow releases from liability like the ones sought here by the Sacklers.

CORNISH: Did the judge raise other concerns about this deal?

MANN: Yeah. Judge McMahon also wrote at length about the Sacklers' decision to withdraw more than $10 billion out of Purdue Pharma profits from opioid sales in the years before they left the company's board and before the company filed for bankruptcy. McMahon doesn't base her ruling here on that behavior, but during hearings over the past couple weeks, she signaled she had concerns about whether that activity was appropriate. The question she's raised is whether the Sacklers were trying to game the bankruptcy system.

CORNISH: How - sorry. What's been the response from the Sackler family or from Purdue Pharma?

MANN: We heard from one branch of the Sackler family. They said no comment on this ruling. Other members of the family have not responded, nor has Purdue Pharma. The Sacklers have said all along that they did nothing wrong with opioid sales or with management of their financial affairs.

This is clearly a victory for critics of the Sacklers, who viewed this sort of legal firewall they were trying to create as an outrage. And while most of Purdue Pharma's victims eventually did vote in favor of this bankruptcy deal, hoping to win some compensation, there was this small group of really passionate opponents who continued to fight this deal. And they were supported by the U.S. Justice Department and a handful of state attorneys general, and those state attorneys general say they want to sue the Sacklers directly.

CORNISH: So this deal has been rejected. What happens next?

MANN: Well, for now, everything grinds to a halt. I spoke with sources last week close to this process who said they thought the bankruptcy plan might be implemented before the end of this month, which meant money from the settlement might have begun to flow to communities that need help paying for drug treatment and health care programs.

Now, none of that will happen in the short term. Lindsey Simon at the University of Georgia says she thinks it's certain this ruling will be appealed, and that means more legal wrangling.

SIMON: It reads very much like an opinion that is designed for appeal. It is the best effort from one court of where the landscape is today, asking for clarity on what it should be going forward, and I think that's the purpose of this opinion.

MANN: So this legal fight over Purdue Pharma and the role played by the Sacklers in the opioid crisis, it's not over. Legal experts have told me, Audie, that this could eventually reach the Supreme Court.

CORNISH: That's NPR addiction correspondent Brian Mann. Thank you for your reporting.

MANN: Thank you.

(SOUNDBITE OF GODSPEED YOU! BLACK EMPEROR'S "MOYA") Transcript provided by NPR, Copyright NPR.