Awdesa: Purdue Pharma appeals judge likely to stay deal approval pending appeal

A pharmacist holds a bottle OxyContin made by Purdue Pharma, at a pharmacy in Provo, Utah, U.S., May 9, 2019. REUTERS/George Frey

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Hearing on motion for stay pending appeal set for Tuesday
Judge says she won't let appeal be 'equitably mooted'

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(Reuters) - A New York judge said she will likely issue an order pausing the implementation of Purdue Pharma’s reorganization plan to allow the U.S. Department of Justice's bankruptcy watchdog and a handful of states time to appeal the deal.

U.S. District Judge Colleen McMahon in Manhattan issued a temporary restraining order on Sunday, putting the plan and underlying opioid litigation settlement on hold until Tuesday afternoon, when she will hear arguments on a motion for a longer-term stay.

A representative for Purdue did not immediately respond to a request for comment.

The OxyContin maker secured bankruptcy court approval of its plan and settlement in September, with support from around 40 states and a wide range of municipalities, Native American tribes, hospitals, and personal injury claimants, among others.

The deal includes legal protections for the members of the Sackler family that owned Purdue, who are contributing approximately $4.5 billion to the settlement, against opioid-related civil lawsuits in the future. Court documents show that overall approximately $5.75 billion will be placed into trusts that will funnel money to opioid abatement programs and personal injury claimants.

DOJ's bankruptcy watchdog, the U.S. Trustee, and a handful of states have appealed the September order, specifically taking issue with the protections for the Sacklers.

Purdue, represented by Davis Polk & Wardwell, filed for bankruptcy in September 2019 to resolve thousands of lawsuits accusing it and Sackler family members of fueling the U.S. opioid crisis through deceptive marketing of its products.

On Tuesday, McMahon will hear the U.S. Trustee’s motion to stay the implementation of the order approving the plan and settlement while the appeal process plays out. She said in Sunday’s order that she has “no intention” of allowing the issues on appeal to be “equitably mooted,” meaning they become irrelevant once the terms of the plan are put into effect.

Due to the drawn-out nature of appeals, bankruptcy plans are often put into effect before an appeal can play out. This has caused some courts to determine that if a plan has already been "substantially consummated," a successful appeal will do more harm than good by forcing the debtors to unwind any transactions they closed through the plan.

While lawyers for Purdue say its plan is not being implemented immediately, U.S. Trustee William Harrington said in court papers that the U.S. 2nd Circuit Court of Appeals has previously found "substantial consummation" when only a few steps have been taken to put the plan into effect, making a stay necessary.

McMahon said in her order that she will resolve the U.S. Trustee’s motion on Tuesday.

“As long as I have jurisdiction to enter a stay pending appeal I fully intend to do so, unless some opponent comes up with an argument that I cannot presently anticipate,” she wrote.

Separately, the U.S. Trustee has asked U.S. Bankruptcy Judge Robert Drain to send the appeal directly to the 2nd Circuit, skipping over the federal district court level, where McMahon sits. Her hearing on Tuesday will come two days before the U.S. Trustee makes it case to Drain.

The case is In re Purdue Pharma LP, U.S. District Court, Southern District of New York, No. 21-07966.

For Purdue: Marshall Huebner, Benjamin Kaminetzky, Timothy Graulich, Eli Vonnegut and James McClammy of Davis Polk & Wardwell; and Paul Breene, Ann Kramer, Anthony Crawford and Lisa Szymanski of Reed Smith

For U.S. Trustee William Harrington: Assistant U.S. Trustee Linda Riffkin, DOJ Deputy Director/General Counsel Ramona Elliott, Associate General counsel P. Matthew Sutko, trial attorneys Beth Levene, Sumi Sakata and Wendy Cox and U.S. Trustee trial attorneys Paul Schwartzberg and Benjamin Higgins

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DOJ appeals Purdue Pharma bankruptcy deal, aims to pause approval order

Maria Chutchian

Maria Chutchian reports on corporate bankruptcies and restructurings. She can be reached at maria.chutchian@thomsonreuters.com.

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