Purdue Pharma L.P. – Citing a “Bitter Result,” Judge Drain Confirms Debtors’ Plan Based On Strength of Process and Genuine Arms’ Length Settlement with Sacklers

August 27, 2021 – The Court hearing the Purdue Pharma issued a bench ruling confirming the Debtors' Eleventh Amended Plan of Reorganization. Judge Drain's confirmation ruling is subject to two changes to Plan language which will likely be made overnight.

Stating that the primary issues before him were whether a bankruptcy Court could and should be the forum/means to resolve mass claims based on a harmful product, Judge Drain, sounding exhausted and somewhat hoarse, noted that he was comfortable that Congress had provided Courts with the authority to do so and that he “knew of no other reasonably conceivable means to achieve a [fair and comprehensive] result;” that the bankruptcy context was the “unique and only means to resolve” mass claims and bind holdouts.

Judge Drain spent consider time explaining that the “broad civil releases” included in the Plan were “crystal clear” and “pervasively spread throughout the country.” Notice as to those releases was therefore “sufficient and unprecedently broad.” Responding to pro se objections that the Plan gave criminal immunity to the Sacklers, Judge Drain insisted that "the [civil law] Plan does not grant criminal immunity to the Sacklers and never has done…it simply does not do it…it couldn’t do that and doesn’t…lawyers, journalists professors, members of Congress should be careful in this context…it is irresponsible…and cruel…if anyone has engaged in criminal activity, they are not a released party if any prosecutor wants to pursue a criminal case they can…"

Following on his point that information as to the releases was clear and widely circulated, he moved on to the overwhelming nature of the Plan vote. Returning often to the use of “unprecedented,” Judge Drain noted that “this Plan received unprecedented number of votes cast, and of the votes cast… this Plan has been overwhelmingly accepted by every voting class.”

On the issue as to why only $700.0-$750.0mn of $5.0bn going to individual plaintiffs, the majority going to institutions and earmarked for abatement measures, Judge Drain noted the "broader good" of funds earmarked for abatement measures (and noted that to suggest that the interests of individuals were somehow subverted in the interest of institutions, would be to suggest an "ill-cooked and cooked in secret stew," which was not the case). 

As to the even more emotive issue as to why the Sacklers should be allowed to keep $billions pursuant to a settlement, Judge Drain placed a significant weight on the mediation process; the involvement of two mediators ("amongst the best in the world") and "aggressive/effective" personal injury lawyers being critical to Judge Drain's assessment that the settlement was at arms'-length (or as he points out two settlements, the settlement of the estate’s claims against the Sacklers and the settlement of certain 3rd party claims against the Sacklers, with a series of smaller settlements embeded therein). Without the Sackler settlement and the Sacklers' $4.5bn contribution, Judge Drain insisted that all of the rest of the house of cards, the other settlements, would have collapsed. For Judge Drain, bankruptcy process, including arms'-length negotiations amongst lawyers, the extensive circulation of overwhelming Plan terms (including release provisions), overwhelming voting in favor of the Plan clearly justifies a result where the Sacklers, by all accounts critical to the opioid crisis and responsible for many thousands of deaths, should be able to walk away from the Debtors' bankruptcy (the bankruptcy of their company) with $11.0bn (Judge Drain's estimate). 

Judge Drain summed up his view of a process-driven solution now versus the potential of unending litigation: "Bitterness is understandable…but I have to look at process and issues in light of the alternative and with a clear analysis of the risks and awards of continued litigation verses the settlements set forth in the Plan.

Alluding to some unhappiness with rules boxing him in (bankruptcy trusts, offshore trusts and a bankruptcy so large in claims and $amount that a complicated settlement-based Plan was largely unavoidable…with the settlements perhaps having a moderating impact on the final settlement amount), Judge Drain continued: This is a bitter result, but a settlement is not evaluated in a vacuum as a wishlist….in the middle stages of this case, I would have expected a higher settlement, anyone with half a brain would know that when I directed a second mediation, I expected a higher settlement. I am not prepared to risk the agreement…I do not have the ability to impose what I would like on the parties…I am not prepared to do that…as much as I would like to impose a higher recovery…[the settlement] and the process has not been in any way, shape or form a freeride for the Sacklers, they are not 'getting away with it'."

His voice breaking, Judge Drain concluded, "In agreeing with the creditors' committee and everyone else lining up against the Sackler family…I wish the Plan provided for more."

In taking on the Plan's detractors during the hearing, Judge Drain repeatedly berated the media (and others) for misleading the public, referred to the objecting AGs as "liars" for misleading the public and saved special scorn for the U.S. Trustee assigned to the Debtors' cases (William Harrington) who has filed numerous objections to the Plan. "Baffling," "Bizarre," a "Bureaucrat," "sometimes being a watchdog that has no regulatory power requires backing off…this is one of those instances," Judge Drain returned over and over again to Harrington, whose filings have morphed into very public criticisms of the Plan (and implicitly the Judge shepherding it through to confirmation). Harrington loudly accuses the Sacklers of gaming the bankruptcy system to avoid accountability for 'alleged wrongdoing in concocting and perpetuating for profit one of the most severe public health crises ever experienced in the United States. 'Victims must involuntarily 'settle' for what the [bankruptcy plan] 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…" 

Judge Drain's seemingly personal dispute with Harrington (ultimately a DOJ employee) may have life even after the Plan's confirmation, with reports circulating that various arms of the DOJ are intending to appeal the ruling and that the Debtors are waging a campaign to head off that possible appeal.

Background

On September 14, 2019, Purdue Pharma L.P. and 23 affiliated Debtors (“Purdue” or the “Debtors,” with organizational and ownership charts included on pages 17/18 of the Petition) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 19-23649. At filing, the Debtors, pharmaceutical companies that manufacture, sell or distribute, among other products, opioid pain medications, noted estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $500.0mn and $1.0bn.

Of the roughly $5.0bn in contributions to be funded under the Eleventh Amended Plan, $700 to $750 million, minus amounts prepaid to the United States on account of certain opioid-related claims and liens held by the United States against Holders of PI Claims will be provided to a trust (that will make distributions to qualified personal injury claimants.

Those funds will be split between two separate groups of personal injury claimants: "NAS PI Claimants," who are individuals with personal injury claims arising from intrauterine exposure to opioids resulting from opioid use by a biological mother, and "Non-NAS PI Claimants," who are individuals with personal injury claims arising from their own Purdue opioid use as well as individuals with claims arising from the death of someone else who used Purdue opioids.

The funds provided to the PI Trust under the Plan will be split between a fund for NAS Claimants, which is entitled to receive $45 million, in value and a fund for the Non-NAS Claimants, which is entitled to receive $655 to $705 million in value, in each case gross of deductions and holdbacks for certain claims, liens, expenses, costs and fees.

According to the Fourth Amended Disclosure Statement, “More than 614,000 Proofs of Claim alleging liability arising out of or in connection with Opioid-Related Activities were filed against the Debtors by the General Bar Date. Approximately 10% of the submitted Proofs of Claim allege a specific amount of liability. The aggregate alleged liability associated with these Proofs of Claim is more than $40 trillion (exclusive of one personal injury claim that asserted $100 trillion in alleged liability). Approximately 90% of Claims alleging liability arising out of or in connection with Opioid-Related Activities do not allege a specific amount of liability.”

Overview of Plan

The Debtors’ Plan may well be best summarized by quoting two lines from the Disclosure Statement. First, the Debtors reveal that the Plan “significantly improves on the initial settlement framework that was in place at the commencement of these Chapter 11 cases, most notably by increasing the amount that Purdue Pharma’s existing shareholders will be required to pay in the aggregate from $3.0 billion to $4.5 billion.” This amount includes $4.275 billion earmarked for the Debtors’ creditors. Second, the Disclosure Statement notes “As for Purdue Pharma, it will cease to exist.” Instead, a newly created company, which will be “indirectly owned” by two of the opioid abatement trusts to be created under the Plan, will oversee the Debtors’ businesses following the Plan Effective Date.

The Revised Fifth Amended Disclosure Statement [Docket No. 2983] notes, “Specifically, of the approximately $5 billion in value that will be provided to trusts with a mission to fund abatement of the opioid crisis, approximately $250 million will be distributed to a trust for hospitals, $365 million will be distributed to a trust for insurers and other third-party payors, and $60 million will be distributed to a trust for NAS monitoring programs. The remainder will be distributed to the two abatement trusts established for non-federal domestic governmental entities and tribal authorities. A description of each of the abatement trusts, how they will be funded, which types of creditors may qualify for distributions from each trust and how distributions will be made is set forth in Article IIIS. Copies of the final trust distribution procedures (the ‘Trust Distribution Procedures’) for each such trust (and the PI Trust as defined below) will be included in the Plan Supplement by no later than the July 7, 2021, deadline to file the final Plan Supplement. The current drafts of the Trust Distribution Procedures have already been filed.

An additional $700 to $750 million, minus amounts prepaid to the United States on account of certain opioid-related claims and liens held by the United States against Holders of PI Claims (‘PI Claimants’) will be provided to a trust (the ‘PI Trust’) that will make distributions to qualified personal injury claimants. Those funds will be split between two separate groups of personal injury claimants: ‘NAS PI Claimants,’ who are individuals with personal injury claims arising from intrauterine exposure to opioids resulting from opioid use by a biological mother, and ‘Non-NAS PI Claimants,’ who are individuals with personal injury claims arising from their own Purdue opioid use as well as individuals with claims arising from the death of someone else who used Purdue opioids. The funds provided to the PI Trust under the Plan will be split between a fund for NAS Claimants, which is entitled to receive $45 million, in value and a fund for the Non-NAS Claimants, which is entitled to receive $655 to $705 million in value, in each case gross of deductions and holdbacks for certain claims, liens, expenses, costs, and fees, as described in more detail herein.

Various federal healthcare programs hold claims or liens against PI Claimants or their recoveries under the Plan on the basis of amounts that the healthcare programs previously paid to, or on behalf of, those claimants for opioid-related injuries. The PI Trust (on behalf of the PI Claimants) has entered into a settlement with the United States to resolve these claims and liens in a way that minimizes administrative expense and maximizes the value that PI Claimants ultimately receive. This settlement is called the ‘United States-PI Claimant Medical Expense Claim Settlement’ and is set forth in more detail in Section 5.2(h) of the Plan. In summary, the PI Trust has assigned to the United States the right to receive $26 million of the PI Trust’s $700 million to $750 million of expected receipts under the Plan, and various United States healthcare programs have agreed to waive the claims and liens that otherwise would have entitled them to take a portion of recoveries away from some PI Claimants’ Distributions. The $26 million is a prepayment by the PI Trust of amounts owed by certain PI Claimants. The PI Trust will equitably allocate that prepayment to, and recoup it from, the PI Claimants who actually owed money to these federal healthcare programs. It will do so by reducing those claimants’ Distributions under the PI TDP and the Plan.

The Ad Hoc Group of Individual Victims has performed a preliminary analysis that estimates that a qualified Non-NAS Claimant whose personal injury claim is liquidated pursuant to the streamlined procedures set forth in the Non-NAS distribution procedures (the ‘Non-NAS PI TDP’) will likely be entitled to a gross award ranging between $3,500 and $48,000 in distributions from the PI Trust, depending on the severity of the injuries. This amount will be reduced to pay certain fees, costs, claims, liens and expenses, as described in further detail below. Awards will in some cases be paid out in installments because the PI Trust will be funded in installments over five years, or because a court has ordered installment payments for minor claimants. In addition, Non-NAS Claimants who elect to liquidate their opioid-related personal injury claims against the Debtors in the tort system (i.e., by commencing a separate lawsuit) rather than pursuant to the streamlined procedures set forth in the Non-NAS PI TDP, and who successfully obtain a final judgment in respect of such claim, will receive payments on account thereof subject to certain limitations and caps that ensure, among other things, that no personal injury claimant receives more than its pro rata recovery on account of its opioid-related personal injury claims. A detailed description of the Non-NAS PI TDP that will be used to determine the amount of such distributions is set forth in Article III.T, and a copy of such distribution procedures is included in the Plan Supplement.

The NAS Committee has prepared a preliminary analysis that estimates that a qualified NAS Claimant whose NAS claims are liquidated pursuant to the streamlined procedures set forth in the NAS distribution procedures (the ‘NAS PI TDP’) will likely be entitled to a gross award of approximately $7,000 in distributions from such trust. This amount will be reduced to pay certain fees, costs, liens and expenses, as described in further detail below. Awards may be paid out in installments because the PI Trust will be funded in installments over five years, or because a court has ordered installment payments for minor claimants. In addition, NAS Claimants that elect to liquidate their opioid-related personal injury claims against the Debtors in the tort system (i.e., by commencing a separate lawsuit) rather than pursuant to the streamlined procedures set forth in the NAS TDP, and who successfully obtain a final judgment in respect of such NAS PI Claim, will receive payments on account thereof subject to certain limitations and caps that ensure, among other things, that no NAS personal injury claimant receives more than its pro rata recovery on account of its opioid-related NAS personal injury claims. A detailed description of the NAS PI TDP that will be used to determine the amount of such distributions is set forth in Article III.S, and a copy of such distribution procedures will be included in the Plan Supplement.”

Agreement with States

On July 7, 2021, mediation that spanned nearly two months resulted in an agreement in principle with 15 "Non-Consenting States" in respect of the Debtors' Plan of Reorganization, according to a Mediator's Report filed by Shelley C. Chapman [Docket No. 3119]. On July 14, 2021, the Debtors filed a Sixth Amended Plan of Reorganization, which incorporated the terms of the Non-Consenting States agreement, as well as language related to Master Distribution Trust shareholder insurance rights and the Document Repository to be created under the Plan.

On May 7, 2021, the Court hearing the Debtors' cases issued an order appointing Chapman as mediator [Docket No. 2820] "to conduct a mediation (the 'Mediation') between the Non-Consenting States, on the one hand, and the representatives of the Covered Parties [i.e., covered members of the Sackler family], on the other hand, with respect to the agreement in principle reached among the Covered Parties, the Debtors, the Creditors’ Committee, the Consenting Ad Hoc Committee and the MSGE Group."

Chapman reported that approximately 145 telephonic meetings between the mediation parties were held between the dates of May 7, 2021 and June 29, 2021. The mediator presented a settlement proposal, and a revised version of that proposal was presented on July 1, 2021 and was the subject of further talks through July 7th.

The Mediation Report explains, "The Mediation resulted in an agreement in principle among a majority, but not all, of the participants in the Mediation, subject to documentation and approval of this Court. The following Non-Consenting States accepted the Mediator’s Settlement Proposal: Colorado, Hawaii, Idaho, Illinois, Iowa, Maine, Massachusetts, Minnesota, Nevada, New Jersey, New York, North Carolina, Pennsylvania, Virginia and Wisconsin. The other Non-Consenting States have not yet accepted the Mediator’s Settlement Proposal. The Covered Parties accepted the Mediator’s Settlement Proposal, as did the Debtors.

The parties accepting the Mediator’s Settlement Proposal have reached agreement on the following, in each case as set forth in further detail in definitive documentation:

• (i) Enhanced economic consideration to be provided by the Sackler family members in the form of $50 million in incremental cash payments, consisting of $25 million on or about June 30, 2022 and $25 million on or about June 30, 2023, as well as acceleration of $50 million in previously agreed settlement payments, consisting of $25 million on or about June 30, 2024 and $25 million on or about June 30, 2025;
• (ii) A material expansion of the scope of the public document repository to be established under the Debtors’ proposed plan of reorganization to include tens of millions of documents and approximately 13 categories of attorney-client privileged documents (see Exhibit B attached hereto);
• (iii) A prohibition with regard to the Sackler family’s naming rights related to charitable contributions until they have fully paid all obligations owed by them under the terms of the contemplated settlement and exited, worldwide, all businesses that engage in the manufacturing or sale of opioids;
• (iv) Timing for disposition of NewCo following the consummation of the Debtors’ plan of reorganization; and
• (v) Plan adjustments to permit states or other non-federal governmental entities that do not wish to receive all or a portion of their Abatement Distributions from NOAT in accordance with the [National Opioid Abatement Trust ("NOAT")] Trust Distribution Procedures to disclaim or transfer such rights, in whole or in part, subject to any consent or other rights of applicable states or local governments under the default allocation mechanism in the NOAT TDP or an applicable Statewide Abatement Agreement.

In addition, the individual trustees of NOAT, or such other qualified party or parties as shall be selected by the Bankruptcy Court, will, subject to receipt of necessary approvals, become the controlling members of the Raymond and Beverly Sackler Foundation and the Raymond and Beverly Sackler Fund for the Arts and Sciences, which shall have an aggregate value of at least $175 million, and will be required to limit the purposes of the Foundations to purposes consistent with philanthropic and charitable efforts to ameliorate the opioid crisis."

Claim Amounts

As reported previously, in respect of NAS Personal Injury Trust Liquidation Procedures, the Fourth Amended Disclosure Statement specified that there were “approximately 6,500 opioid-related NAS personal injury victims filed claims in the Chapter 11 Cases.” On the same topic, the Fifth Amended Disclosure Statement additionally acknowledges: “Your distribution amount under the NAS PI TDP is a gross award subject to the PI Trust Deductions and Holdbacks, which are as follows: (A) your pro rata share of the operating expenses of the PI Trust, (B) amounts held back under the LRP Agreement (discussed below) to settle liens held by private insurance companies against you or your award, if any, (C) your equitable portion of amounts prepaid to the United States under the United States-PI Claimant Medical Expense Claim Settlement to settle claims and liens of certain federal healthcare programs like Medicare, Tricare or VA against you or your award, if any, (D) your pro rata share of the compensation, costs and fees of professionals that represented or advised the Ad Hoc Group of Individual Victims and the NAS Committee in connection with the Chapter 11 Cases, subject to Section 5.8(g) of the Plan, and (E) the fees and costs of your individual attorney(s) in the Chapter 11 Cases, if any.”

According to the Fourth Amended Disclosure Statement, “More than 614,000 Proofs of Claim alleging liability arising out of or in connection with Opioid-Related Activities were filed against the Debtors by the General Bar Date. Approximately 10% of the submitted Proofs of Claim allege a specific amount of liability. The aggregate alleged liability associated with these Proofs of Claim is more than $40 trillion (exclusive of one personal injury claim that asserted $100 trillion in alleged liability). Approximately 90% of Claims alleging liability arising out of or in connection with Opioid-Related Activities do not allege a specific amount of liability.”

Future Personal Injury Claims

The Fifth Amended Disclosure Statement also points out that “The Debtors do not believe that the pre-petition conduct of the Debtors and/or the Shareholder Released Parties can give rise to any Future PI Channeled Claims. The Debtors intend to seek findings to the effect that it is not possible for Future PI Channeled Claims to come into existence under the facts and circumstances presented in these Chapter 11 Cases. However, out of an abundance of caution, a PI Futures Trust will be established and funded with $5 million. Future PI Channeled Claims (to the extent any exist) will be channeled to the PI Futures Trust and may apply for distributions solely therefrom — and to no other Creditor Trust—pursuant to PI Futures Trust’s trust distribution procedures.

Although the trust distribution procedures for the PI Futures Trust will be substantially similar to the PI TDPs for PI Claimants, the PI Futures Trust and the PI Trust will be two separate and independent Creditor Trusts. The PI Futures Trust will be the sole recourse of Holders of Future PI Channeled Claims as set forth in Section 5.7(d) of the Plan. All amounts remaining in the PI Futures Trust upon the resolution of all Future PI Channeled Claims asserted by Holders of Future PI Channeled Claims on or before the sixth (6th) anniversary of the Effective Date shall be contributed pursuant to the Confirmation Order and in accordance with the PI Futures Trust Documents.”

The following is an unchanged summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

• Class 1 (“Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“Federal Government Unsecured Claims”) is impaired and entitled to vote on the Plan. Pursuant to the DOJ 9019 Order, the DOJ Civil Claim is Allowed in the amount of $2.8 billion. The DOJ Criminal Fine Claim will be Allowed in the amount of $3.544 billion on the later of (i) the DOJ Conviction Judgment Date and (ii) the entry by the Bankruptcy Court of the Confirmation Order. The United States shall receive (i) the Initial Federal Government Distribution and (ii) the MDT Federal Government Claim, which collectively total $50 million in payment obligations.
  • Treatment: On the Effective Date, Holders will receive (i) the Initial Federal Government Distribution and (ii) the MDT Federal Government Claim. The MDT Federal Government Claim will be payable by the Master Disbursement Trust in the following installments (which will be reduced, to the extent applicable, as a result of prepayments in accordance with Section 5.2(d)(iv) of the Plan): (x) $10 million on the first Scheduled MDT Distribution Date, (y) $10 million on July 31, 2023 and (z) $5 million on July 31, 2024. The Initial Federal Government Distribution and the amounts paid to the United States on account of the MDT Federal Government Claim will be deemed applied 60% to the DOJ Unsecured Claims and 40% to the Other Federal Agency Claims 
• Class 4 (Non-Federal Domestic Governmental Claims”) is impaired and entitled to vote on the Plan. Treatment: Approximately $4.0bn in estimated cash distributions to NOAT over time (excluding potential proceeds of insurance claims and any release of restricted cash).
  • Treatment: On the Effective Date, NOAT will receive (i) the Initial NOAT Distribution (less the Public Schools’ Special Education Initiative Contribution), (ii) the TopCo NOAT Interest and (iii) the MDT NOAT Interest. Distributions in respect of Non-Federal Domestic Governmental Channeled Claims wiall be exclusively in the form of Abatement Distributions made by NOAT to Authorized Recipients for Authorized Abatement Purposes, in accordance with the NOAT Trust Distribution Procedures.
  • Channeling: As of the Effective Date, in accordance with the Plan and the Master TDP, any and all liability of the Debtors and the other Protected Parties for any and all Non-Federal Domestic Governmental Channeled Claims will automatically, and without further act, deed or court order, be channeled exclusively to and assumed by NOAT. Each Non-Federal Domestic Governmental Channeled Claim will be asserted exclusively against NOAT and resolved solely in accordance with the terms, provisions and procedures of the NOAT TDP. The sole recourse of any Person on account of any Non-Federal Domestic Governmental Channeled Claim, whether or not the Holder thereof participated in the Chapter 11 Cases and whether or not such Holder filed a Proof of Claim in the Chapter 11 Cases, will be to NOAT as and to the extent provided in the NOAT TDP. Holders of Non-Federal Domestic Governmental Channeled Claims are enjoined from asserting against any Debtor or other Protected Party any Channeled Claim, and may not proceed in any manner against any Debtor or other Protected Party on account of any Channeled Claim in any forum whatsoever, including any state, federal or non-U.S. court or administrative or arbitral forum, and are required to pursue Non-Federal Domestic Governmental Channeled Claims exclusively against NOAT, solely as and to the extent provided in the NOAT TDP.
• Class 5 (“Tribe Claims”) is impaired and entitled to vote on the Plan. Treatment: Approximately $140.0mn in estimated cash distributions to the Tribe Trust over time (excluding potential proceeds of insurance claims and any release of restricted cash).
  • Treatment: On the Effective Date, the Tribe Trust will receive (i) the Initial Tribe Trust Distribution, (ii) the TopCo Tribe Interest and (iii) the MDT Tribe Interest. Distributions in respect of Tribe Claims will be exclusively in the form of Abatement Distributions made by the Tribe Trust to Authorized Recipients for Authorized Abatement Purposes, in accordance with the Tribe TDP.
  • Channeling: As of the Effective Date, in accordance with the Plan and the Master TDP, any and all liability of the Debtors and the other Protected Parties for any and all Tribe Channeled Claims will automatically, and without further act, deed or court order, be channeled exclusively to and assumed by the Tribe Trust. Each Tribe Channeled Claim will be asserted exclusively against the Tribe Trust and resolved solely in accordance with the terms, provisions and procedures of the Tribe TDP. The sole recourse of any Person on account of any Tribe Channeled Claim, whether or not the Holder thereof participated in the Chapter 11 Cases and whether or not such Holder filed a Proof of Claim in the Chapter 11 Cases, will be to the Tribe Trust as and to the extent provided in the Tribe TDP. Holders of Tribe Channeled Claims are enjoined from asserting against any Debtor or other Protected Party any Channeled Claim, and may not proceed in any manner against any Debtor or other Protected Party on account of any Channeled Claim in any forum whatsoever, including any state, federal or non-U.S. court or administrative or arbitral forum, and are required to pursue Tribe Channeled Claims exclusively against the Tribe Trust, solely as and to the extent provided in the Tribe TDP.
• Class 6 (“Hospital Claims”) is impaired and entitled to vote on the Plan. Treatment: $250.0mn in funding via Hospital Trust.
  • Treatment: On the Effective Date, the Hospital Trust will receive (i) the Initial Hospital Trust Distribution and (ii) the MDT Hospital Claim. Distributions in respect of Hospital Channeled Claims will be exclusively in the form of Abatement Distributions made by the Hospital Trust to Authorized Recipients for Authorized Abatement Purposes, in accordance with the Hospital TDP.
  • Channeling: As of the Effective Date, in accordance with the Plan and the Master TDP, any and all liability of the Debtors and the other Protected Parties for any and all Hospital Channeled Claims will automatically, and without further act, deed or court order, be channeled exclusively to and assumed by the Hospital Trust. Each Hospital Channeled Claim will be asserted exclusively against the Hospital Trust and resolved solely in accordance with the terms, provisions and procedures of the Hospital TDP. The sole recourse of any Person on account of any Hospital Channeled Claim, whether or not the Holder thereof participated in the Chapter 11 Cases and whether or not such Holder filed a Proof of Claim in the Chapter 11 Cases, will be to the Hospital Trust as and to the extent provided in the Hospital TDP. Holders of Hospital Channeled Claims are enjoined from asserting against any Debtor or other Protected Party any Channeled Claim, and may not proceed in any manner against any Debtor or other Protected Party on account of any Channeled Claim in any forum whatsoever, including any state, federal or non-U.S. court or administrative or arbitral forum, and are required to pursue Hospital Channeled Claims exclusively against the Hospital Trust, solely as and to the extent provided in the Hospital TDP.
• Class 7 (“Third-Party Payor Claims”) is impaired and entitled to vote on the Plan. Treatment: $365.0mn in funding via TPP Trust.
  • Treatment: On the Effective Date, the TPP Trust will receive (i) the Initial TPP Trust Distribution and (ii) the MDT TPP Claim. Distributions in respect of Third-Party Payor Channeled Claims shall be exclusively in the form of Abatement Distributions made by the TPP Trust to Authorized Recipients for Authorized Abatement Purposes, in accordance with the TPP TDP. For the avoidance of doubt, any payments from the TPP LRP Escrow Account to which LRP Participating TPPs may be entitled under the LRP Agreement shall not be subject to this Section 4.7.
  • Channeling: As of the Effective Date, in accordance with the Plan and the Master TDP, any and all liability of the Debtors and the other Protected Parties for any and all Third-Party Payor Channeled Claims will automatically, and without further act, deed or court order, be channeled exclusively to and assumed by the TPP Trust. Each Third-Party Payor Channeled Claim will be asserted exclusively against the TPP Trust and resolved solely in accordance with the terms, provisions and procedures of the TPP TDP. The sole recourse of any Person on account of any Third-Party Payor Channeled Claim, whether or not the Holder thereof participated in the Chapter 11 Cases and whether or not such Holder filed a Proof of Claim in the Chapter 11 Cases, will be to the TPP Trust as and to the extent provided in the TPP TDP. Holders of Third-Party Payor Channeled Claims are enjoined from asserting against any Debtor or other Protected Party any Channeled Claim, and may not proceed in any manner against any Debtor or other Protected Party on account of any Channeled Claim in any forum whatsoever, including any state, federal or non-U.S. court or administrative or arbitral forum, and are required to pursue Third-Party Payor Channeled Claims exclusively against the TPP Trust, solely as and to the extent provided in the TPP TDP.
• Class 8 (“Ratepayer Claims”) is impaired and entitled to vote on the Plan. Treatment: $6.5mn (less attorneys’ fees) from a Truth Initiative Contribution
  • Treatment: On the Effective Date or as soon thereafter as reasonably practicable, Effective Date Cash will be used to make the Truth Initiative Contribution in an amount equal to $6.5 million, subject to the deductions therefrom for the required payments to the Common Benefit Escrow and in respect of attorneys’ fees of the Ratepayer Mediation Participants in accordance with Section 5.8(c) and (f) of the Plan.
  • Tax Treatment: The Truth Initiative Contribution will be treated, for U.S. federal income tax purposes, as (i) the cancellation of all Ratepayer Claims for no consideration and (ii) a transfer of Cash to the Truth Initiative Foundation by the Debtors.
• Class 9 (“NAS Monitoring Claims”) is impaired and entitled to vote on the Plan. Treatment: $60.0mn in funding via NAS Monitoring Trust
  • Treatment: On the Effective Date, the NAS Monitoring Trust will receive (i) the Initial NAS Monitoring Trust Distribution and (ii) the MDT NAS Monitoring Claim. Distributions in respect of NAS Monitoring Channeled Claims will be exclusively in the form of Abatement Distributions made by the NAS Monitoring Trust to Authorized Recipients for Authorized Abatement Purposes, in accordance with the NAS Monitoring TDP.
  • Channeling: As of the Effective Date, in accordance with the Plan and the Master TDP, any and all liability of the Debtors and the other Protected Parties for any and all NAS Monitoring Channeled Claims will automatically, and without further act, deed or court order, be channeled exclusively to and assumed by the NAS Monitoring Trust. Each NAS Monitoring Channeled Claim will be asserted exclusively against the NAS Monitoring Trust and resolved solely in accordance with the terms, provisions and procedures of the NAS Monitoring TDP. The sole recourse of any Person on account of any NAS Monitoring Channeled Claim, whether or not the Holder thereof participated in the Chapter 11 Cases and whether or not such Holder filed a Proof of Claim in the Chapter 11 Cases, will be to the NAS Monitoring Trust as and to the extent provided in the NAS Monitoring TDP. Holders of NAS Monitoring Channeled Claims are enjoined from asserting against any Debtor or other Protected Party any Channeled Claim, and may not proceed in any manner against any Debtor or other Protected Party on account of any Channeled Claim in any forum whatsoever, including any state, federal or non-U.S. court or administrative or arbitral forum, and are required to pursue NAS Monitoring Channeled Claims exclusively against the NAS Monitoring Trust, solely as and to the extent provided in the NAS Monitoring TDP.
• Class 10(a) (“NAS PI Claims”) is impaired and entitled to vote on the Plan. Treatment: $45.0mn in funding of the PI Trust with respect to NAS PI Channeled Claims.
  • PI Trust: On the Effective Date, the PI Trust will receive, subject to Section 5.2(h) of the Plan, (i) the Initial PI Trust Distribution and (ii) the MDT PI Claim.
  • NAS PI Claims (Class 10(a)) (i) Treatment: The PI Trust will deposit the NAS PI Portion into the PI Trust NAS Fund in periodic installments as funds are received by the PI Trust. Distributions in respect of NAS PI Channeled Claims will be exclusively in the form of Distributions from the PI Trust NAS Fund to Holders of Allowed NAS PI Channeled Claims, in accordance with the NAS PI TDP, and shall be subject to the PI Trust Deductions and Holdbacks.
  • Channeling: As of the Effective Date, in accordance with the Plan and the Master TDP, any and all liability of the Debtors and the other Protected Parties for any and all NAS PI Channeled Claims will automatically, and without further act, deed or court order, be channeled exclusively to and assumed by the PI Trust. Each NAS PI Channeled Claim will be asserted exclusively against the PI Trust and resolved solely in accordance with the terms, provisions and procedures of the NAS PI TDP. The sole recourse of any Person on account of any NAS PI Channeled Claim, whether or not the Holder thereof participated in the Chapter 11 Cases and whether or not such Holder filed a Proof of Claim in the Chapter 11 Cases, will be to the PI Trust NAS Fund as and to the extent provided in the NAS PI TDP. Holders of NAS PI Channeled Claims are enjoined from asserting against any Debtor or other Protected Party any Channeled Claim, and may not proceed in any manner against any Debtor or other Protected Party on account of any Channeled Claim in any forum whatsoever, including any state, federal or non-U.S. court or administrative or arbitral forum, and are required to pursue NAS PI Channeled Claims exclusively against the PI Trust, solely as and to the extent provided in the NAS PI TDP.
• Class 10(b) (“Non-NAS PI Claims”) is impaired and entitled to vote on the Plan. Treatment: $655.0mn to $705.0mn in funding of the PI Trust with respect to Non-NAS PI Channeled Claims.
  • Treatment: The PI Trust will deposit the Non-NAS PI Portion into the PI Trust Non-NAS Fund in periodic installments as funds are received by the PI Trust. Distributions in respect of Non-NAS PI Channeled Claims will be exclusively in the form of Distributions from the PI Trust Non-NAS Fund to Holders of Non-NAS PI Channeled Claims, in accordance with the Non-NAS PI TDP, and will be subject to the PI Trust Deductions and Holdbacks.
  • Channeling: As of the Effective Date, in accordance with the Plan and the Master TDP, any and all liability of the Debtors and the other Protected Parties for any and all Non-NAS PI Channeled Claims will automatically, and without further act, deed or court order, be channeled exclusively to and assumed by the PI Trust. Each Non-NAS PI Channeled Claim will be asserted exclusively against the PI Trust and resolved solely in accordance with the terms, provisions and procedures of the Non-NAS PI TDP. The sole recourse of any Person on account of any Non-NAS PI Channeled Claim, whether or not the Holder thereof participated in the Chapter 11 Cases and whether or not such Holder filed a Proof of Claim in the Chapter 11 Cases, will be to the PI Trust Non-NAS Fund as and to the extent provided in the Non-NAS PI TDP. Holders of Non-NAS PI Channeled Claims are enjoined from asserting against any Debtor or other Protected Party any Channeled Claim, and may not proceed in any manner against any Debtor or other Protected Party on account of any Channeled Claim in any forum whatsoever, including any state, federal or non-U.S. court or administrative or arbitral forum, and are required to pursue Non-NAS PI Channeled Claims exclusively against the PI Trust, solely as and to the extent provided in the Non-NAS PI TDP.
• Class 11(a) (“Avrio General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 11(b) (“Adlon General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 11(c) (“Other General Unsecured Claims”) is impaired and entitled to vote on the Plan. Treatment: $15.0mn in aggregate Other General Unsecured Claim Cash.
• Class 12 (“Intercompany Claims”) is unimpaired or impaired, deemed to accept or reject and not entitled to vote on the Plan.
• Class 13 (“Shareholder Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 14 (“Co-Defendant Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 15 (“Other Subordinated Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 16 (“PPLP Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 17 (“PPI Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 18 (“Intercompany Interests”) is unimpaired or impaired, deemed to accept or reject and not entitled to vote on the Plan.

Voting Results

On August 2, 2021, the Debtors’ claims agent filed the final voting results that indicated that the Debtors’ Sixth Amended Plan of Reorganization has been accepted by all nine of the creditor classes submitting ballots [Docket No. 3372].

The final voting results were as follows:

• Class 3 (“Federal Government Unsecured Claims”) No ballot submitted by a holder entitled to vote in the class.

_{FN: It is Prime Clerk’s understanding that Section 3.3 of the Plan provides: “With respect to each Debtor, if a Class contains Claims eligible to vote and no Holder of Claims eligible to vote in such Class votes to accept or reject this Plan by the Voting Deadline, this Plan shall be presumed accepted by the Holders of Claims in such Class.”}

• Class 4 (“Non‐Federal Domestic Governmental Claims”) 4,770 claim holders, representing $4,770.00 in amount (or 96.87%) and 96.87% in number, voted in favor of the Plan. 154 claim holders, representing $154.00 (or 3.13%) in amount and 3.13% in number, voted against the Plan.
• Class 5 (“Tribe Claims”) 201 claim holders, representing $201.00 in amount (or 96.17%) and 96.17% in number, voted in favor of the Plan. 8 claim holders, representing $8.00 (or 3.83%) in amount and 3.83% in number, voted against the Plan.
• Class 6 (“Hospital Claims”) 895 claim holders, representing $895.00 in amount (or 88.26%) and 88.26% in number, voted in favor of the Plan. 119 claim holders, representing $119.00 (or 11.74%) in amount and 11.74% in number, voted against the Plan.
• Class 7 (“Third-Party Payor Claims”) 42,570 claim holders, representing $42,570.00 in amount (or 93.54%) and 93.54% in number, voted in favor of the Plan. 2,942 claim holders, representing $2,942.00 (or 6.46%) in amount and 6.46% in number, voted against the Plan.
• Class 8 (“Ratepayer Claims”) 31 claim holders, representing $31.00 in amount (or 100%) and 100% in number, voted in favor of the Plan.
• Class 9 (“NAS Monitoring Claims”) 3,220 claim holders, representing $3,220.00 in amount (or 99.78%) and 99.78% in number, voted in favor of the Plan. 7 claim holders, representing $7.00 (or 0.22%) in amount and 0.22% in number, voted against the Plan.
• Class 10(a) (“NAS PI Claims”) 4,237 claim holders, representing $4,237.00 in amount (or 98.08%) and 98.08% in number, voted in favor of the Plan. 83 claim holders, representing $83.00 (or 1.92%) in amount and 1.92% in number, voted against the Plan.
• Class 10(b) (“Non‐NAS PI Claims”) 58,196 claim holders, representing $58,196.00 in amount (or 95.72%) and 95.72% in number, voted in favor of the Plan. 2,600 claim holders, representing $2,600.00 (or 4.28%) in amount and 4.28% in number, voted against the Plan.
• Class 11(c) (“Other General Unsecured Claims”) 250 claim holders, representing $31,775,120.20 in amount (or 96.44%) and 93.28% in number, voted in favor of the Plan. 18 claim holders, representing $1,171,269.04 (or 3.56%) in amount and 6.72% in number, voted against the Plan.

Events Leading to the Chapter 11 Filing

The Debtors' declaration in support of the Chapter 11 filing [Docket No.3] did not include the normal "Events leading to the Chapter 11 filing" section (arguably because "the Debtors had no funded debt and no material past due trade obligations"), but the Debtors' "Informational Brief"  contains the Debtors' version of their role in the opioid crisis and their rationale for the proposed settlement…as actioned through Chapter 11. The briefing states: "OxyContin® Extended-Release Tablets CII (‘OxyContin’), Purdue Pharma’s most prominent pain medication, has been the target of over 2,600 civil actions pending in various state and federal courts and other fora across the United States and its territories (‘Pending Actions'). These Pending Actions name as defendants Purdue Pharma and certain of the other Debtors (‘Defendant Debtors'), among other parties, and generally allege that the Defendant Debtors falsely and deceptively marketed OxyContin and opioid pain medications, and are liable for the national opioid crisis. 

Unlike most debtors, the Debtors have no funded debt and no material past due trade obligations. Nor do they have any judgment creditors. Nonetheless, the onslaught of lawsuits has proved unmanageable and poses a grave threat to the Debtors’ continued viability.

Purdue Pharma, the Debtors’ main operating entity, is projected to spend approximately $263 million on legal and related professional costs in 2019, the vast bulk of which is related to the litigations and government investigations, and the financial pressure resulting therefrom. Indeed, by even the narrowest measure, Purdue Pharma has spent $63 million in the first half of this year on costs and fees related to litigating the Pending Actions in court, and is projected to spend $121 million by year end – a rate of over $2 million per week. Moreover, 'Copycat' complaints are being filed against the Defendant Debtors by the day, further exacerbating an already untenable situation. 

In addition, case-by-case mass tort litigation of the type the Defendant Debtors currently face in the civil tort system is neither an efficient, nor an equitable, way to resolve their alleged liability. Such litigation has only incentivized a multiplicity of ‘races to the courthouse’ as various plaintiffs vied to be the first to trial – and employed ever more aggressive and creative means to that end. Several states even commenced administrative proceedings seeking dozens of trial days to bypass the normal court process and expedite the time to a final determination of their claims. 

This kaleidoscope of piecemeal litigation was and is all but guaranteed to continue to result in inconsistent outcomes and inequitable treatment, as well as unsustainable cost. 

Any judgments or settlements extracted in the process would, at best, potentially have benefited only those select few plaintiffs who happen to be positioned at the beginning of the trial and judgment queue. And it would not have benefited even them, because defending over 2,600 lawsuits to conclusion would almost certainly have forced the Defendant Debtors to file for chapter 11 protection even had they suffered only a small number of significant adverse judgments at the trial level. In its Supreme Court filing, the state of Arizona articulated the problem at hand: “Absent resolution in a single forum, these disputes will be fought over and over in nearly every state in the Nation. This is likely to take years, lead to inconsistent judgments, and create an inequitable distribution of money damages.”

Liquidation AnalysisAbout the Debtors

According to the Debtors: "Purdue Pharma and its subsidiaries develop, manufacture and market medications and consumer health products to meet the evolving needs of healthcare professionals, patients, consumers and caregivers. The company seeks to achieve a global bankruptcy settlement that would deliver more than $10 billion in value, including 100% of Purdue’s assets and millions of doses of opioid addiction treatment and overdose reversal medicines, to communities across the country to fund programs specifically for abatement of the opioid crisis.  The bankruptcy settlement will also deliver funds to private abatement trusts for the benefit of personal injury claimants.

If Purdue’s settlement is approved, Purdue’s assets will be transferred to a new company.  This new company will be governed by new independent board members, and will operate in a responsible and sustainable manner taking into account long-term public health interests relating to the opioid crisis. The company will continue serving patients and consumers who rely on its medicines and products, pursuing its pipeline, and introducing medicines that will help save and improve lives."

Corporate Structure Chart

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