Iowa share of Purdue Pharma settlement delayed by judge’s rejection of deal

Iowa may have to wait to see a share of a $4.3 billion settlement with Purdue Pharma’s owners over the opioid crisis — millions the state intended to provide pain killer abuse prevention, treatment and recovery efforts — after a federal judge rejected the deal.

A U.S. District Court judge on Thursday rejected OxyContin maker Purdue Pharma’s bankruptcy settlement of thousands of lawsuits, including from Iowa, over the opioid epidemic because of a provision in the deal that would protect members of the Sackler family from facing litigation of their own.

Judge Colleen McMahon in New York found that federal bankruptcy law does not give the bankruptcy judge who had accepted the plan the authority to grant that kind of release for people who are not declaring bankruptcy themselves.

Iowa Attorney General Tom Miller, who was among state attorneys general to join the legal action against Purdue, estimated the state would have received about $25 million to address opioid abuse.

Although Miller said no settlement could make up for the misconduct of Purdue and the Sackler family, who own the company, the settlement was “in the best interests of Iowans, however, and will go a long way toward abating the opioid crisis the defendants helped create.”

However, those efforts now appear to be on hold until the lawsuit is resolved. In a statement issued after the judge’s ruling Thursday, Purdue said it will appeal the ruling and, at the same time, try to forge another plan with its creditors.

“We are hopeful this matter will be resolved quickly in order to make funds available to help abate the opioid crisis in Iowa,” the Attorney General’s Office said in a statement Friday.

In May 2019, Iowa sued Purdue Pharma and its former president and board chairman, Richard Sackler, alleging that the drug company engaged in unfair, deceptive and unlawful practices in the marketing of OxyContin. The lawsuit alleged that Purdue officials repeatedly made false and deceptive claims that OxyContin was safe and suitable for a wide range of pain patients.

Specifically, the lawsuit alleges that Purdue claimed that OxyContin posed a low risk of addiction; that symptoms of addiction were only “pseudoaddiction” indicating the need for more opioids; that long-term opioid use improved patients’ quality of life and function; and that opioids were suitable for vulnerable groups, such as elderly patients and veterans.

Purdue filed for bankruptcy after Iowa and other states sued.

The company said in its statement that the ruling will not hurt its operations, but will make it harder its and Sackler money to be used to fight the opioid crisis while the legal fight continues.

“It will delay, and perhaps end, the ability of creditors, communities, and individuals to receive billions in value to abate the opioid crisis,” said Steve Miller, chairman of the Purdue board. “These funds are needed now more than ever as overdose rates hit record-highs, and we are confident that we can successfully appeal this decision and deliver desperately needed funds to the communities and individuals suffering in the midst of this crisis.”

Connecticut Attorney General William Tong, who was among a handful of state officials seeking to have the deal undone, called the ruling “a seismic victory for justice and accountability.” Tong said the ruling will “reopen the deeply flawed Purdue bankruptcy and force the Sackler family to confront the pain and devastation they have caused.”

The opioid crisis has been linked to more than 500,000 deaths in the United States over the last two decades. In Iowa, the state Public Health Department earlier this year reported that opioid-related deaths rose in 2020 from 157 to 213.

Most state and local governments, Native American tribes, individual opioid victims and others who voted said the plan worked out in the bankruptcy court should be accepted.

New York Attorney General Letitia James, like several others, sued Sackler family members and opposed the settlement before eventually agreeing to it this year. She said in a statement that if the deal doesn’t hold up, she’s ready to resume the lawsuit.

“Purdue Pharma and the Sackler family remain named defendants in our ongoing litigation and we will hold them accountable for their unlawful behavior, one way or another,” she said.

The main issue on the appeal was the lawfulness of the measures that would extend legal protections to Sackler family members.

Such “third-party releases” are not used in most bankruptcy cases, but they are common in cases such as Purdue’s, in which the companies involved are burdened with lawsuits and have relatively little value — but their wealthy owners could contribute.

The Purdue deal would not protect family members from criminal charges. But so far none have been filed, and there are no signs any are forthcoming, though some activists are calling for them.

In her ruling Thursday, McMahon focused on whether bankruptcy law even allows for the kind of deal the company and its creditors struck if there are objections to it.

“The great unsettled question in this case is whether the Bankruptcy Court — or any court — is statutorily authorized to grant such releases. This issue has split the federal Circuits for decades,” she wrote.

She also noted that other courts will weigh in on the case. The next step is likely before the U.S. 2nd Circuit Court of Appeals.

“This opinion will not be the last word on the subject, nor should it be,” she wrote. “This issue has hovered over bankruptcy law for thirty-five years.”

James Q. Lynch of The Gazette Des Moines Bureau and the Associated Press contributed to this report.