While the plan is far from final, drugmakers facing litigation over opioid addiction — Endo, Johnson & Johnson, Teva Pharmaceutical Industries Ltd. , Allergan PLC and Mallinckrodt PLC — want to participate in Purdue Pharma LP’s bankruptcy. If successful, these companies would be able to contribute money into a trust established through the bankruptcy in exchange for a complete release from liability, reported The Wall Street Journal. The action could end one of the biggest and most complicated pieces of litigation in U.S. history.
More than 2,500 lawsuits have been filed against drugmakers and distributors, accusing the pharmaceutical industry of using tactics that exacerbated widespread opioid addiction. Now communities are seeking restitution that will “address the costs of treating addiction, including overstressed hospitals and first responders and to care for babies born with opioid dependence,” the article said.
There are some legal precedents to using a bankruptcy proceeding to resolve legal liabilities, without filing for bankruptcy. Carmakers sued along with Takata Corp. about defective air bags were able to contribute money to settle the cases through Takata’s bankruptcy plan, but only one company did. In 2014 Walmart Inc. got a release of liability for selling dangerous plastic gasoline cans as part of a $162 million settlement built into the chapter 11 plan of Blitz USA, maker of the cans.
These third-party releases, which clear a company that is not itself in bankruptcy of liability in exchange for some kind of value, are not allowed in some parts of the country. That is not a problem in New York, where Purdue filed for bankruptcy, or Delaware, where Takata obtained protection.
Purdue and its owners, the Sackler family, would have to accept the idea. So would state attorneys general and local municipalities who are suing the companies. The bankruptcy judge who is overseeing Purdue’s case would have to buy into the idea that he has jurisdiction to enable the other companies to enter into the case. Dan Polster, the U.S. district judge who is overseeing the thousands of federal-court opioid cases, wants both sides to settle the cases instead of wasting time and money in protracted litigation. The proposed plan could cap liability from cases brought by local and state governments in different courts around the country and resolve claims on a near-complete basis.
Purdue entered bankruptcy in September to resolve a multibillion-dollar deal with about half the states and thousands of local governments to resolve much of the litigation. Purdue has claimed that settlement value as $10 billion to $12 billion. Currently, Endo, Allergan and Mallinckrodt have reached settlements valued at a total of $45 million to avoid a landmark opioid trial slated to start in late October to resolve claims in Ohio’s Cuyahoga and Summit counties. They each face significant debt in addition to the opioid lawsuits, so a global resolution “could help them avoid seeking bankruptcy protection or implementing restructurings,” The Wall Street Journal article said.