What happens to 2,000 lawsuits against OxyContin-maker Purdue Pharma if the company files for bankruptcy

If Purdue Pharma files for bankruptcy, it could actually be a good thing for the cities and individuals behind the approximately 2,000 lawsuits demanding that the OxyContin maker pay up for an overdose crisis that has cost the country billions of dollars.

That’s because all the claims in the lawsuits against Purdue would be frozen if the Connecticut-based company filed for Chapter 11 bankruptcy — as multiple news outlets reported it was considering last week. That includes the 1,600 lawsuits filed by cities and counties that have been consolidated into one, massive multidistrict litigation case in Cleveland, Ohio.

The financial claims in those cases would then shift to the supervision of a U.S. bankruptcy judge, rather than being scattered in courtrooms across the country, all vying for the first — and likely largest — chunk of a limited pot of settlement money, which could be as high as tens of billions of dollars.

Without the bankruptcy, the parties first to get a payout from Purdue would receive the most money and likely would leave little left over for other parties down the line. This way, every party will get an equal shot at claiming what they feel they’re owed.

“Bankruptcy has an incredibly powerful ability to bring everybody to the table and get a global resolution that really does resolve everything,” Lindsey Simon, a bankruptcy expert and professor at the University of Georgia School of Law. “It is the endgame. That’s why you see so many mass litigation scenarios end in bankruptcy.”

Purdue Pharma did not immediately respond to a request for comment, but the company has denied the allegations in the bevy of lawsuits relating to OxyContin, which has done billions of dollars in sales since its introduction in 1996. It’s not clear whether the company intends to file for bankruptcy.

There’s plenty of precedent for how these sorts of bankruptcies play out, like the dozens of asbestos trusts accessible to mesothelioma patients or people with other asbestos-related illnesses. Also, people who have been injured by a faulty Takata airbag can claim access to a $125 million trust.

Once cases against Purdue pass over to bankruptcy court, all the parties usually negotiate over the terms of setting up a trust, according to Simon. The debtor — in this case, Purdue — then puts aside a set amount of money in the trust, exclusively for groups that have financial claims against the company. The parties currently suing Purdue could then come forward, offer proof of their claim, follow the rules established by the negotiating parties, and ultimately, get access to their money.

The bankruptcy judge, however, controls who gets paid how much and ensures the process stays fair and simplified. To determine whether all the parties get the money they claim they have a right to, a bankruptcy judge might appoint a special master or a trustee to examine the facts or hold mini-trials. In cases where a city or another geographic location is suing Purdue on behalf of people harmed by the opioid crisis, the city would receive the money and could then spend it how they wanted — either doling it out to the individuals involved or putting it toward some sort of social program.

The bankruptcy could also — at least temporarily — seriously complicate what’s already become a famously complicated case, considering Purdue isn’t the only company being sued. Drugmakers such as Endo International, Johnson & Johnson, and Teva have also been named in the lawsuits, in addition to distributors such as AmerisourceBergen, McKesson Corp., and Cardinal Health.

If Purdue files for bankruptcy — which would put its role in the lawsuits on hold — a judge would have to decide how to pursue litigation against the remaining companies. And it’s possible that claims against Purdue could be negotiated in bankruptcy court while the claims against the other defendants continue as-planned.

“Even though it’s not a huge company, it’s a major player in this area,” said Richard C. Ausness, a law professor at the University of Kentucky, said of Purdue. “That doesn’t necessarily mean they’ve got the most money — and liability and money are two different things. That’s partly why cities and states are suing a bunch of other defendants as well: to get as big of a pot as they can.”

Cover image: In this Aug. 17, 2018, file photo, family and friends who have lost loved ones to OxyContin and opioid overdoses leave pill bottles in protest outside the headquarters of Purdue Pharma, which is owned by the Sackler family, in Stamford, Conn. (AP Photo/Jessica Hill, File)