The Sackler family’s bankruptcy plan

Opioid maker Purdue Pharma’s plan to get out of bankruptcy hinges on a brilliant idea: that the judge agree to extend the greatest bankruptcy power – forgiving a company’s debts and obligations – to individual family members Sackler who owned and controlled Purdue for decades. .

In return, the Sacklers would pay $ 4.3 billion over nine years for opioid treatment and victims, and turn the company into a public trust with the idea of ​​using it for good, rather than for profit.

Among the lawsuits against Purdue, hundreds personally name members of the Sackler family, based on claims that they personally motivated many of Purdue’s decisions to aggressively market OxyContin – a drug that can be twice more potent than morphine – to sell it to more users, in higher doses for a longer period.

These lawsuits against members of the Sackler family will simply be wiped out with the stroke of a pen, without a hearing on the merits, if the bankruptcy judge accepts a plan based on the Purdue Pharma plan proposed earlier this month.

Purdue has twice admitted to the Justice Department that he illegally marketed OxyContin when members of the Sackler family were on the board. Members of the Sackler family insist that, as David Sackler told Congress, the family “acted legally and ethically.”

Purdue’s bankruptcy is a sign of a “broken Chapter 11 system.”

So what is wrong with this bankruptcy case? Isn’t that a simple way to make the Sackler family members pay for any wrongdoing and to avoid, in the words of the bankruptcy judge, a “litigation festival”?

Here is what is wrong. With one exception (the asbestos cases), nothing in the Bankruptcy Code allows the rights of individuals to seek justice to be treated as if those rights were property under the control of the bankruptcy court. Nothing in the Code says it can be used to extinguish the rights of victims who seek justice from people like the Sacklers, simply because their company has filed for bankruptcy. Nothing in the Code says that its power to write off debts (another word for liability) can extend to people like the Sacklers, who are not bankrupt.

The Bankruptcy Code actually says that when used to write off the debts and obligations of a bankrupt business, it does not change anyone’s responsibility. This is why courts in many parts of the country do not allow these disclaimers for people who are not bankrupt.

But unless there is a miracle In Congress or in court, members of the Sackler family are likely to get a disclaimer anyway.

Purdue’s bankruptcy is a sign of a “broken Chapter 11 system,” as Adam Levitin did. written.

It is also a sign of how bankruptcy has become the haven for doing without the mass crimes that stem from the mass misdeeds of corporations. “To think that the bankruptcy clause of the Constitution of the United States, a barely meager sentence, is the basis of an entire alternative justice regime,” bankruptcy professor Melissa Jacoby recently said on Twitter.

How did it get there?

It was the problem of asbestos – and compensation for a tidal wave of victims – that gave birth to the idea of ​​protecting people who are not bankrupt from liability.

To help meet the huge costs of paying asbestos victims in the Johns Manville Corp. case, the bankruptcy judge allowed Manville’s insurer to pay an agreed amount for its insurance policies, then banned anyone from suing the insurer over these policies. What the judge was aiming for was a fair distribution of the money to the victims of Manville.

It made sense, said Ralph Brubaker, a law professor at the University of Illinois. “The central idea of ​​bankruptcy is to collect all of the debtor’s assets and distribute them to creditors in an orderly manner,” he said.

The United States Court of Appeals for the Second Circuit found the asbestos settlement to be legal because the insurance policies were owned by the Manville estate. The bankruptcy court therefore had full power over this property.

What happened, according to Brubaker, was that lawyers began to convince some judges to use the idea of ​​a liability waiver to go beyond protecting the property of the bankrupt company, to be protected people who are not bankrupt.

“He was tweaked to do something that wasn’t originally intended: release someone from personal responsibility,” Brubaker told me.

The Second Circuit noted that a free handover of liability for those who are not bankrupt “lends itself to abuse.”

As Brubaker explained in his job, this kind of disclaimer is basically a sleight of hand. Take the example of Purdue and members of the Sackler family:

Under the guise of something designed to protect property, a liability waiver for individual Sacklers does something drastic. He forcibly converts the rights of victims to seek reparation staff the misconduct of the people who owned Purdue in some sort of property by Purdue. Property that Purdue can dispose of as it sees fit in bankruptcy, if the judge agrees.

There are other issues.

With these disclaimers, a bankruptcy judge claims the power to extinguish lawsuits that he does not have the power to hear and adjudicate.

A bankruptcy judge is not a federal judge for life who derives his powers from Article III of the Constitution. He is a judge with a limited mandate, such as an immigration judge or a federal magistrate.

As such, it does not have the power to rule on the merits of lawsuits brought by victims, such as those alleging wrongs committed by members of the Sackler family. This is the job of Article III judges.

But with a liability waiver as requested by members of the Sackler family, the bankruptcy judge is rule on these lawsuits, by extinguishing them. Thus, he claims the power of an Article III judge, even if he is not one.

And he’s claiming it from people like Jenny Scully, a mother whose six-year-old daughter was born addicted to OxyContin and other opioid doctors have prescribed her before and during her pregnancy. Scully’s costume naming members of the Sackler family speaks to them personal responsibility, not at the source of the judge’s power: the Purdue bankruptcy mace.

This leaves Scully and others seeking answers from members of the Sackler family themselves – the people behind Purdue – with nowhere to be heard. In the words of an Oklahoma bankruptcy judge, it has “the effect of a judgment… made without due process.”

And that leaves members of the Sackler family with billions of dollars unknown …unknown because individual Sacklers are not bankrupt– now protected from any prosecution or future civil investigation into the opioid epidemic that helped make his fortune.

The Second Circuit, which includes the financial capital of New York, and where Purdue’s case is located, has been primarily supportive of these disclaimers. But even the Second Circuit recently noted that a free handover of liability for those who are not bankrupt “lends itself to abuse.” So far, the Supreme Court has chosen not to decide the issue.

Until that changes, it is up to the judge – a judge who lacks the power to rule on the very lawsuits in search of justice, morality and accountability that he can always prevent from being heard in n ‘any court anywhere in America.

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