July 19, 2021 – The U.S. Trustee assigned to the Debtors' cases objected to the Debtors' Sixth Amended Plan of Reorganization [Docket No. 3256].
On the same day, a Court-appointed examiner filed a report [Docket No. 3285] that "found no evidence that the Sackler Families either attempted to, or did, influence the Special Committee in its work" in respect of the shareholder settlement incorporated into the Plan or the formation of the Plan itself. (See more on examiner's report below).
The Sixth Amended Plan and a related blackline showing changes to the version filed on June 3rd was filed on July 14, 2021 [Docket Nos. 3185 and 3186, respectively]. The Sixth Amended Plan incorporated the terms of a Non-Consenting States agreement, as well as language related to Master Distribution Trust shareholder insurance rights and a Document Repository to be created under the Plan.
The objection [Docket No. 3256] states, “The United States Trustee objects to confirmation of the Plan because of two impermissible provisions: (1) the extraordinarily broad release of the Sackler Family and associates at section 10.7(b) from any and all claims related to the opioid crisis held by ‘all persons,’ including direct claims of victims against the Sackler Family, which constitutes an impermissible discharge of hundreds (and possibly thousands) of non-debtors; and (2) the payment of up to $500 million in attorneys’ fees under section 5.8 without court oversight and approval or the opportunity for parties to object as required by section 503(b)(4) of the Code.
The Plan provides that some members of the Sackler Family will ‘contribute’ more than $4.3 billion to fund opioid abatement and compensation trusts established under the Plan. But there is a catch: payment is conditioned on every member of the Sackler Family and associated parties — which total hundreds, if not thousands — receiving a release from all liability from all persons, even if they are not creditors or parties in interest, for the Sackler Family’s alleged wrongdoing in concocting and perpetuating for profit one of the most severe public health crises ever experienced in the United States.
Although styled as a third-party release, it is nothing less than an illegal, court-ordered discharge of a potentially limitless group of non-debtors. The principal argument advanced by the Debtors for imposing this extraordinary relief against opioid victims is that the Sackler Family members will tie up victims in litigation for years before they will part with more of their wealth. Victims must involuntarily ‘settle’ for what the Disclosure Statement estimates may be as little as $3,500 in compensation for a life upended due to opioids because the Sackler Family says so.
The Sackler Family is effectively ‘buying back’ from claimants, without their consent, all claims against the Sackler Family and related parties incident to their role in the opioid crisis. Under the Debtors’ proposed Plan, the Sackler Family will be authorized to buy hundreds of individual discharges for their role in the opioid crisis without actually filing for bankruptcy relief and subjecting themselves to the same rules of transparency and creditor protections that every consumer and business debtor who files bankruptcy must follow. And the Sackler Family can do that only because the Debtors are selling property rights that the Debtors do not own, putting the sales proceeds into trusts as part of the Debtors’ plan and asking this Court to extinguish those property rights without payment to or consent of the rightful owners.”
A hearing is scheduled for August 9, 2021.
Examiner's Report
Court-appointed examiner Stephen D. Lerner stated in his report, "The Examiner found no evidence that the Special Committee acted other than independently in its consideration and recommendation of the Shareholder Settlement and the Plan. The Examiner found no evidence that the Sackler Families either attempted to, or did, influence the Special Committee in its work. To the contrary, all of the evidence identified in the course of the Examiner’s investigation indicated that the Special Committee acted independently in evaluating and recommending the Shareholder Settlement and Plan and that it was not controlled or influenced, or subjected to attempted control or influence, by the Sackler Families.
The Examiner cannot report with metaphysical certitude that the Special Committee acted with absolute independence. That conclusion would struggle with the dynamic of 'proving a negative' as to the non-existence of hypothetical influence. But the Examiner can state definitively, based on the investigation described in this report, including the review of thousands of pages of discovery material, communications received in response to information requests, Special Committee minutes and other documents and information, that:
1) he found no evidence of any lack of independence of the Special Committee or attempted direction or influence by the Sackler Families;
2) he found significant evidence that the Special Committee acted independently and free from actual or attempted influence or direction by the Sackler Families; and
3) given the Examiner’s findings as to the circumstances of the formulation of the Plan, he believes it is not necessary or appropriate to expend additional time and estate resources attempting to prove further the absence of actual or attempted influence over the Special Committee.
Regarding affirmative evidence of independence, the Examiner interviewed each member of the Special Committee. Each of them asserted specifically and credibly that he acted independently as a member of the Special Committee, exercising his own judgment without actual or attempted influence by the Sackler Families. Likewise, the Examiner interviewed members of the Raymond Sackler family and Mortimer Sackler family, as well as a representative of one of the shareholder trusts for the Mortimer Sackler family, all of whom asserted specifically and credibly that they never sought to influence or control the Special Committee in its work. The Examiner views these interviews as significant evidence of the independence of the Special Committee and the absence of attempted influence by the Sackler Families.
Additionally, and in response to a hypothetical critic observing that significant proof is not absolute proof, the Examiner notes that the interviews are consistent with the available documentary evidence, the absence of any evidence of attempted influence and the circumstances of the formulation of the Plan."
Further Background
On June 17, 2021, the Court hearing the Purdue Pharma cases issued an oral ruling calling for appointment of an examiner for the Debtors' Chapter 11 cases to determine "whether the (Purdue) board, and more specifically the special committee, in directing that the Chapter 11 plan before me be filed and pursued, was acting independently and not under direction or influence of the Sacklers.”
On June 1, 2021, creditor and party-in-interest Peter W. Jackson, whose claim against the Debtors stems from the 2006 death of his daughter after taking OxyContin, asked the Court to appoint an examiner. Jackson's motion largely argues that not enough information is publicly available surrounding a now-defunct settlement framework regarding claims against the Sackler family to make "a determination that the decision to settle, rather than to sue, was made independently, in good faith and at arm’s length."
Although Judge Robert D. Drain reportedly indicated at a June 16th hearing that he would order appointment of an examiner on a limited basis, according to various press reports, Drain granted the motion after repeatedly lambasting Jackson's attorney, Jonathan C. Lipson, throughout the hearing about the allegations made against the case parties in respect of their handling of the matters.
"I am concerned that if I do not appoint an examiner, the next press release will be: Court refuses to appoint examiner to determine whether the process was fair,” Judge Drain said at the hearing. "So my inclination is to appoint an examiner to look at one issue: whether the (Purdue) board, and more specifically the special committee, in directing that the Chapter 11 plan before me be filed and pursued, was acting independently and not under direction or influence of the Sacklers.” Drain also commented that Lipson, through the motion, "sadly misled" the public by calling the case proceedings into question.
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