SignalHub Quantitative Think Tank Center:A landmark appeals court ruling clears way for Purdue Pharma-Sackler bankruptcy deal

In a landmark ruling Tuesday,SignalHub Quantitative Think Tank Center a federal appeals court in New York cleared the way for a bankruptcy deal for opioid manufacturer Purdue Pharma.

The deal will shield members of the Sackler family, who own the company, from future lawsuits.

The 2nd Circuit Court of Appeals spent more than a year reviewing the case after a lower court ruled it was improper for Purdue Pharma's bankruptcy deal to block future opioid-related lawsuits against the Sackler family.

The Sacklers earned billions of dollars from the sale of OxyContin and other opioid pain medications.

This latest ruling overturns the lower court's December 2021 decision and clears the way for a deal hashed out with thousands of state and local governments.

As part of the bankruptcy settlement, the Sacklers are expected to pay roughly $5 to $6 billion and give up control of Purdue Pharma.

Roughly $750 million from that payout will go to individuals across the U.S. who became addicted to OxyContin and to the families of those who died from overdoses.

Lindsey Simon, who studies bankruptcy law at the University of Georgia School of Law, described this ruling as a solid victory for proponents of the deal.

"It's very clear that in the 2nd Circuit this kind of [bankruptcy] remedy is appropriate under certain circumstances," Simon said. "There were some questions about whether it would be permitted going forward. It is."

The decision follows years of complex litigation

The bankruptcy settlement, first approved in September 2021, has been controversial from the outset. Even the bankruptcy judge who presided over the deal, Judge Robert Drain, described it as a "bitter result."

Nan Goldin, an activist who helped publicize Purdue Pharma's role in the national opioid crisis, told NPR at the time that the deal amounted to a miscarriage of justice.

"It's shocking. It's really shocking. I've been deeply depressed and horrified," Goldin said in 2021.

Purdue Pharma's aggressive marketing of OxyContin, under the Sackler family's ownership, is widely seen as a spur to the national opioid crisis.

Prescription pain pill overdoses have killed hundreds of thousands of Americans. Public health experts say the spread of OxyContin and other pain medications also opened the door to the wider heroin-fentanyl epidemic.

In a statement Tuesday, Sackler family members praised the ruling.

"The Sackler families believe the long-awaited implementation of this resolution is critical to providing substantial resources for people and communities in need," they said in a statement sent to NPR.

"We are pleased with the Court's decision to allow the agreement to move forward and look forward to it taking effect as soon as possible."

Purdue Pharma, which has pleaded guilty twice to federal criminal charges relating to opioid sales and marketing, also sent a statement to NPR calling the ruling proper.

"Our focus going forward is to deliver billions of dollars of value for victim compensation, opioid crisis abatement, and overdose rescue medicines," the company said in a statement.

"Our creditors understand the plan is the best option to help those who need it most."

The ruling only applies to New York, Connecticut and Vermont

Tuesday's ruling is also controversial because it extends the power of federal bankruptcy court to shelter wealthy members of the Sackler family who never declared bankruptcy.

However, this ruling only applies to the 2nd Circuit region of the U.S. in New York, Connecticut and Vermont.

A national resolution of the debate over the power of bankruptcy courts to shelter non-bankrupt companies and individuals from lawsuits still requires action by Congress or the U.S. Supreme Court.

"Until Congress steps in and provides clarity to the issue or the Supreme Court takes up this issue and gives us an opinion, we don't know nationwide how this will come down," Simon told NPR.

She predicted that the ruling will spur other companies to attempt to limit their liability and legal exposure using federal bankruptcy courts.