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Purdue Pharma’s settlement with Oklahoma sets new precedent

March 29, 2019

STAMFORD — Purdue Pharma has settled its first case in the torrent of lawsuits filed against the company in recent years. More agreements could follow.

In its largest payout of the past decade, the OxyContin maker and its owners this week reached a $270 million settlement of Oklahoma’s claims against the company. While the accord is not universally acclaimed, it represents a milestone that could influence the resolution of hundreds of other complaints that allege the Stamford-based firm has exacerbated the opioid crisis with deceptive marketing of its pain drugs.

“Oklahoma’s settlement moves the needle toward more settlements,” said Robert Bird, a professor of business law at the University of Connecticut. “It’s a reference point that other states will look to in their own negotiations with Purdue.”

Reaching a settlement

Oklahoma’s agreement was announced two months before the state would have taken its case against Purdue to trial. It is moving ahead with a planned May 28 start for a trial against several other pharmaceutical firms, the first such court proceedings in the current wave of lawsuits against opioid producers.

The settlement terms call for nearly $200 million to fund the establishment of the National Center for Addiction Studies and Treatment at Oklahoma State University’s medical campus in Tulsa. Local governments would receive $12.5 million for opioid initiatives. In addition, Purdue would allot up to $60 million to cover litigation-related costs and fees.

“We are out of time with regard to the responsibility we have to deal with this crisis,” Oklahoma Attorney General Mike Hunter said in a press conference Tuesday at the Tulsa campus. “But the money from this settlement will provide significant and substantial funding to the Center for Wellness and Recovery here, allowing us to focus our attention on what should be our highest priority: Americans struggling with addiction.”

Purdue, as a company, is providing $122.5 million for the new center. The Sackler family, who owns Purdue, is contributing $75 million to the facility.

Sackler members were not named as defendants in Oklahoma’s case, although eight of them were sued last year by Connecticut and Massachusetts and, this week, by New York.

Purdue denied Oklahoma’s allegations, but a number of experts still see the agreement as a tool for holding the company and its owners accountable.

“The settlement is good for two reasons,” said Angela Mattie, a professor in the schools of business and medicine at Quinnipiac University. “It sends a message that we’re not going to tolerate false or misleading advertising. And it shows that Purdue needs to help pay for this significant public-health problem they’ve contributed to.”

But many of the activists involved in recent protests against Purdue object to the company not admitting any wrongdoing and argue that such settlements would embolden the company to continue controversial practices.

Their suspicion stems, in large part, from what they view as a lack of contrition by the company after a 2007 guilty plea in federal court to misbranding OxyContin that resulted in some $600 million in penalties — the company’s largest-ever payout.

“Criminal indictments will ensure accountability and send a clear message to other pharmaceutical companies that they will no longer get away with illegal activities,” said Cheryl Juaire, who organized last August a protest outside Purdue’s downtown headquarters that was attended by several hundred people. “To say we are disappointed would be an understatement, but we are not giving up hope that Purdue and the Sacklers will one day be held accountable.”

Also in 2007, Purdue reached a nearly $20 million settlement with 26 states, including Connecticut, to resolve allegations of its promotion of off-label uses of OxyContin.

“My hope is that similar cases to Oklahoma’s will also produce fair and just settlements,” U.S. Sen. Richard Blumenthal, D-Conn., who was state attorney general in 2007, said in an interview. “But there also is a virtue in trials that publicly inform the nation and allow evidence to be made public. Not every lawsuit should necessarily be settled if the parties can’t reach a fair and just settlement.”

In 2004, the company settled with West Virginia for $10 million.

In the past decade, Purdue has made only one other major settlement: a $24 million accord with Kentucky in 2015. Reached eight years after Kentucky sued, that deal sparked partisan acrimony in the state for its relatively small size.

Oklahoma received more than 10 times as much as Kentucky, in large part because its funds are allocated for a center that is intended to help tackle the opioid crisis on a national level.

Additional settlements would not necessarily be as large, as Purdue probably would not fund new institutions in every state that has sued. But the Oklahoma accord could be emulated in other ways.

“Because there is earmarking of its funds for specific programs, I think we can say that the Oklahoma settlement has a better model than the tobacco settlements of the late 1990s or the Kentucky and West Virginia settlements with Purdue,” said Richard Ausness, a professor of law at the University of Kentucky, who has extensively researched Purdue’s earlier settlements.

Ongoing litigation

The settlement does not resolve more than 1,000 other, similar cases against Purdue.

“It changes nothing about Connecticut’s case,” Connecticut Attorney General William Tong said in an interview. “Connecticut is going to pursue Purdue Pharma and the individual defendants, including members of the Sackler family. This doesn’t change our strategy or how aggressive we’re going to be.”

“All options,” including a prospective settlement with Purdue, are on the table, Tong said. He declined to comment on whether his office was negotiating with Purdue.

At the same time, about 1,600 cities and counties’ lawsuits against Purdue and other pharmaceutical firms are proceeding through consolidated in “multidistrict litigation,” in federal court in Cleveland.

The MDL parties have been holding their own settlement talks, although they are yet to strike an agreement.

“The focus with respect to the Oklahoma settlement was on providing resources for treatment and research, and that’s consistent with the stated goals of the MDL judge,” said a person familiar with the MDL discussions, who declined to be named because he was not authorized to speak on behalf of Purdue. “We hope that, to the extent that the MDL parties follow those core principles, it will facilitate the parties moving forward with even more serious settlement discussions.”

Paul Hanly, co-lead counsel for the plaintiffs, has spoken of his desire to resolve the litigation without putting Purdue out of business.

“This is not an act of vengeance,” Hanly said in an interview last October. “This is litigation to recover money that these government entities have spent and lost as a consequence of the defendants.”

While it has engaged in settlement talks with many of the plaintiffs, Purdue has also sought to throw out a number of complaints. Earlier this month, it filed a motion to dismiss Massachusetts’ lawsuit.

Questions about company’s future

In recent weeks, the prospect of a bankruptcy has hovered over the litigation. Earlier this month, Purdue CEO and President Craig Landau confirmed filing for Chapter 11 protection was an “option.”

A bankruptcy could halt the pending litigation against Purdue and the Sacklers. Any subsequent moves would then have to be approved by the overseeing bankruptcy court — a framework that could help to contain the company’s liability.

In contrast with a Chapter 7 filing, a Chapter 11 process would not liquidate the firm.

Hunter, the Oklahoma attorney general, cited a possible Purdue bankruptcy as a factor in his decision to settle. He described the agreement as “bankruptcy-proof.”

But the timing and size of the settlement suggest the company probably would not imminently start Chapter 11 proceedings.

“We are full-steam ahead,” Tong said. “I believe Purdue Pharma is solvent and able to pay our claims.”

pschott@scni.com; 203-964-2236; twitter: @paulschott