Recently, lawyers for Purdue Pharma submitted a bankruptcy proposal that would have included a provision protecting the company's owners, the Sackler family, from litigation. However, a judge has since determined that the initial approval of the bankruptcy proposal overstepped the bounds of bankruptcy court authority.

According to U.S. District Judge Colleen McMahon, the prior deciding judge does not have the power to protect individuals from litigation if those individuals are not themselves filing for bankruptcy.

In 2019, Purdue Pharma filed for bankruptcy after being slammed with thousands of lawsuits relating to the company's alleged contribution to the opioid epidemic via its practice of encouraging doctors to overprescribe the highly addictive drug, OxyContin. Since that time, negotiations have been underway between the company, the Sackler family's representation, government agencies, and plaintiffs.

Over the course of the opioid crisis, it's estimated that the overprescription of OxyContin contributed to the deaths of more than 500,000 people. In 2010 alone, sales of OxyContin brought in $2.3 billion to Purdue Pharma.

Over the course of negotiations, Purdue's bankruptcy proposal was structured to remove ownership of the company from Sackler family members. The company would still sell opioids, but profits would now go towards combating the opioid crisis. The same is true of any funds awarded to government agencies via the bankruptcy process.

The Sackler family itself was set to pay $4.5 billion towards the overall price tag of $10 billion. In return, the family members would have been protected from opioid-related suits, including 860 lawsuits that have already been filed.

The $4.5 billion would actually have been paid out over the course of ten years, further mitigating its impact on the Sacklers. According to analysts, by the time the family is finished paying off the $4.5 billion towards the Purdue bankruptcy, they will have increased in worth by $14.6 billion. The Sacklers also agreed to sell their pharmaceutical holdings as a part of the deal, sales which could amount to $3 billion.

When asked if the Sackler family would end up making more money off of this bankruptcy deal, David Sackler responded that there was no way to know.

"I don't think anybody can say that with any certainty," David Sackler said. "As you know, markets go up and down."

One thing that is for certain is that the proposed deal would not have required the family to sell any homes, yachts, art, or cars, according to Connecticut Attorney General William Tong.

"They're going to be able to fund this from their average investment returns," Tong said. "Not only is that outrageous, that's unjust,"

Tong called Judge McMahon's ruling "a seismic victory for justice and accountability" that will "re-open the deeply flawed Purdue bankruptcy and force the Sackler family to confront the pain and devastation they have caused."

The recently-overturned deal had been approved by a separate bankruptcy judge, along with most state and local governments and individual plaintiffs. However, eight state attorneys general and the U.S. Bankruptcy Trustee's Office both opposed the deal, arguing that it fails to hold the Sackler family accountable and removes the states' abilities to do so themselves.

Protections from litigation for parties who are not themselves filing bankruptcy, or "third-party releases", aren't unheard of in bankruptcy court. These sorts of provisions are particularly common in cases in which a low-value, bankrupt company is owned by a wealthy individual who could otherwise be forced to pay off their company's outstanding debts.

These third-party release provisions effectively allow company owners to escape relatively unscathed from major business failures, excluding criminal charges. Purdue, for instance, has pleaded guilty to three felony charges relating to the overprescription of opioids.

In her ruling to overturn the proposal, McMahon pointed to the Sackler family's transfer of $10.4 billion from Purdue, saying the transfer may have been made specifically in order to ensure that the family would be able to seek third-party releases in any Purdue bankruptcy negotiations. However, she acknowledged that third-party releases have been under debate for some time.

"This opinion will not be the last word on the subject, nor should it be. This issue has hovered over bankruptcy law for thirty-five years," McMahon said.