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Authorization for County Attorney to Vote for Approval of Thirteenth Joint Bankruptcy Plan for Purdue Pharma, L.P., and to Electronically Sign Governmental Entity Settlement Agreement a/k/a GESA Sackler Release Regarding Opioid Litigation
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BRIEF OVERVIEW
I. The Litigation
On January 29, 2019, the Board of County Commissioners selected a litigation team consisting of numerous nationally renowned law firms including Podhurst Orseck, P.A.; Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, PA; Baron & Budd, PC; Greene, Ketchum, Farrell, Bailey & Tweet, LLP; McHugh Fuller Law Group, PLLC; Hill, Peterson, Carper, Bee & Dietzler, PLLC; Powell & Majestro, PLLC., and the Law Office of Lucas Magazine (collectively, “Levin”) as outside counsel to represent the County with regard to opioid litigation.
On June 6, 2019, the County Attorney's Office and Levin filed a federal lawsuit for damages on Hernando County’s behalf against several participants in the opioid industry, including Purdue Pharma, L.P (“Purdue”). The County filed its suit in the Middle District of Florida, but it was subsequently transferred to become part of the multi-district litigation (“MDL”) case pending in the Northern District of Ohio.
(An MDL is a federal legal procedure that is designed to consolidate complex cases that involve similar legal issues before one court for all discovery and pretrial proceedings. The goal of an MDL is to expedite proceedings, conserve resources, and foster consistent court rulings across different lawsuits. The Opioid MDL is the largest such proceeding in U.S. history, and it has been described as the most complex civil litigation in U.S. history. Although the case is currently in the Northern District of Ohio, if it does not settle it will be tried in the Middle District of Florida.)
II. Purdue Bankruptcy Plan
Purdue, the company which developed and marketed Oxycontin, and its affiliates, petitioned for bankruptcy on September 15, 2019, after being named as a defendant in thousands of civil lawsuits seeking damages for asserted opioid-related injuries to state, local, and tribal governments, hospitals, individuals, and insurers, among others. Many such cases were consolidated in the Opioid MDL. Specifically, Purdue filed its petition for bankruptcy under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (In re Purdue Pharma LP, et al., Case No. 19-23649 (RDD)).
Please note that on or about June 30, 2021, the County voted to approve a prior bankruptcy plan that Purdue had submitted to the bankruptcy court. The Supreme Court, however, overturned that plan in Harrington v. Purdue Pharm. L.P., 603 U.S. 204 (2024), on the grounds that the Plan also indemnified members of the Sackler Family, Purdue’s owners, who had not filed for bankruptcy protection themselves.
After the Supreme Court’s ruling, Purdue and the Plaintiffs went to mediation, the result of which is the Thirteenth Amended Joint Chapter 11 Plan of Reorganization of Purdue Pharma L.P. and its Affiliated Debtors (the “Plan”). Since the County filed a proof of claim in said case, it is eligible to vote on the approval of the Plan as one of Purdue’s creditors.
The Plan basically preserves the settlement contained in the Twelfth Amended Plan, which the County previously approved in 2021. The aggregate payment by the Sackler Family to settle claims against it has been increased from $5.5 billion over eighteen years to up to $7 billion over fifteen years, with up to $1.5 billion of that total due on the Effective Date of the Plan (and more than 40% of the $6.5 billion total due in the first three years).
Under the Plan and various settlements with the members of the Sackler Family, billions of dollars will flow into trusts established for the benefit of claimants harmed by the opioid crisis, including local governments such as the County. Creditors in these Chapter 11 Cases will have the opportunity to elect whether to settle their direct claims against the Sacklers in exchange for enhanced recoveries under the Plan. In the aggregate, as much as $8 billion in value could be available for creditors under the Plan.
If the creditors approve the Plan, Purdue Pharma will be dissolved, and its ongoing businesses will be transferred to a newly created company, Knoa Pharma LLC (“NewCo”), which will be wholly owned by a tax-exempt entity intended to be treated as an exempt organization under IRC section 501(c)(4) (the “Foundation”). No federal, state, or local governmental entity will own the equity of NewCo or the Foundation. NewCo will be a private company, will be required to operate in a responsible manner, and will be subject to the same laws and regulations as any other U.S. pharmaceutical company. NewCo will, however, be historic and unique because it will be governed by a charter that will require that it deploy all of its profits to address the opioid crisis. NewCo’s profits will fund the payments to state and local governments.
III. Plan Payments
As discussed above, the combined assets of the Purdue bankruptcy estate will be used to pay various groups of private creditors-insurers, hospitals, individual personal injury plaintiffs-and the residual amount, which may be approximately $8 billion will be allocated among state, local, and tribal governments with a mission to fund abatement of the opioid crisis.
As also noted above, the National Opioid Abatement Trust (NOAT) will distribute the funding to states and local governments that have been detrimentally impacted by the opioid epidemic. The NOAT will have a trust distribution procedure which will determine the distribution of funds for approved abatement uses, such as measures to diminish or eradicate opioid misuse or abuse. All recoveries by state and local governments (including Hernando County) from the proceeds from the Plan, with limited exceptions, will go through the NOAT.
As Florida has entered into a Memorandum of Understanding (MOU) with its local governments on a process for sharing and allocating opioid recoveries, that MOU will control the allocation of funds from the NOAT. (Hernando County entered into the MOU when it adopted Resolution No. 2021-101 on July 13, 2021.)
The ultimate value of the bankruptcy estate is unknown because it depends in part on NewCo’s future profitability and on the revenues that are ultimately realized from the sale of Purdue’s corporate assets. Thus, it is not technically possible to calculate or monetize the County's possible recovery from Purdue at this time. The United States Department of Justice, however, has opined that the Plan should produce sufficient revenue to fully fund the claims of states and local governments.
IV. Conclusion
Levin recommends that the Board approve the Plan. Additionally, the following entities have recommended that the Board approve the Plan: the United States Justice Department, the Florida Attorney General’s Office, States’ Attorneys General Negotiating Group, the Ad Hoc Committee of Governmental and Other Contingent Litigation Claimants, the Multi-State Governmental Entity Group, the Native American Tribes Group, the Ad Hoc Group of Individual Victims, the Ad Hoc Group of Hospitals, the ER Physicians, the Third-Party Payor Group, the Ratepayer Mediation Participants, the NAS Committee, and the Public School District Claimants.
FINANCIAL IMPACT
The financial impact is dependent on the settlement that ends up being approved and applicable resources included in that deal.
LEGAL NOTE
The Board has the authority to approve this Agenda Item pursuant to Fla. Stat. § 125.01.
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RECOMMENDATION
As noted above, Levin recommends that the Board vote to approve the Plan. If approved, it is recommended that the County Attorney be authorized to execute the Governmental Entity Settlement Agreement (“GESA”) Sackler Release.