This is Bloomberg Law with June Brusso from Bloomberg Radio.
More than two years ago, members of Purdue Pharma's Sackler family, who earned billions of dollars from the sale of oxyconton and other opioids, were questioned in Congress about their company's role in the deadly opioid epidemic. David and Kathy Sackler expressed regret over the crisis, but did not admit any wrongdoing.
I want to express my family's deep sadness about the opioid crisis. Oxyconton has a medicine that Purdue intended to help people.
I know the loss of any family member or loved one is terribly painful, and nothing is more tragic than the loss of a child. And now the Second Circuit Court of Appeals has found that the billionaire Sacklers can be shielded against future opioid lawsuits as part of the company's bankruptcy, even though they did not file for bankruptcy themselves.
This clears the way for a settlement of thousands of legal claims, where the Sacklers will pay six billion dollars, about half of their fortune, and give up ownership of Purdue, joining me is John Coffee, a professor Columbia Law School and a business law expert. Jack tell us about the Second Circuit decision and some of the background.
What you should understand is, in the traditional bankruptcy case, under something called Chapter eleven, only the claims of the bankrupt debtor are resolved. No one else gets a release. This is a case evolving a release to a third party, the Sackler family. That did not normally happen in bankruptcy, but there has been a very new trend. There is a case involving the Boy Scouts that releases were given to all the Boy Scout leaders as well as to
the Boy Scout entity which is bankrupt. The Boy Scouts were also overwhelmed by thousands of involving sexual misconduct. Exceptions have occurred, but they were pretty rare. Now, what happened in this case is the bankruptcy judge, looking at an unending lifetime of litigation with Purdue Pharma and its oxycotton climbs, did approve a settlement that gave a release to all
the Sacklers. The district court then reversed him and said there was no support under the bankruptcy laws for giving this kind of release, all right, The second Circuit heard the appeal, and now things get a little strange. The Second Circuit sat on this for over a year after it was argued in the Second Circuit, but usually be out with the case in a couple of months. So they obviously hit some difficulties with it. And there is a concurring descending opinion that says this case is very
unusual and we shouldn't do this again. Unfortunately, it's very likely that they will do it again, because everyone plans. Some people who plan bankruptcies are now going to plan to have a major contribution by the controlling shareholders and
give them third party releases. You see, in this kind of case, you could sue not only the corporation Perdue Pharma, but the Sackler family, which had made all the decisions about how to market and sell oxy cotton effectively to the masses and not just to a very limited audience. So we have a problem with whether or not third party releases will become common bankruptcies because the debtor and its lawyers can plan these things in advance and will try to maximize their releases.
Are courts too eager to get a settlement in a bankruptcy proceeding.
Bankruptcy courts and bankruptcy law are having a particular problem with mass torts. Purdue Pharma was oxy cotton. There's another case it's in the courts a lot, getting a lot of attention, which is Johnson and Johnson and its problem with talcum powder. Billions of dollars of claims have been raised on the grounds the talcum powder causes women to
get a variety of cancers. And that district court approved such a settlement allowing Johnson and Johnson to take all of their liabilities and all their subsidiaries, put it in one subsidiary only, and then immediately put that subsidiary into bankruptcy. District court allowed, that bankruptcy court allowed there, but the Second Circuit has reversed it, and Don Johnson and Johnson
is suggesting they may go to the Supreme Court. I'm just saying there's a general pattern here of bankruptcy courts being very interested in getting a settlement because they don't want to spend a lifetime on one case. And what made the Sackler case so attractive to the bankruptcy court and ultimately to the Second Circuit is that the Sackler family ultimately sweetened the settlement by adding six billion of
their own money. Now, I have to tell you that six billion of their own money was money they took out of Purdue Farmer in the last days. For the last ten years, Perdue Farmer was run basically recognizing that it was going to fail, and the Sacklers try to
take all the money they could out of it. But adding six billion to the pool was a tremendous difference, and I think that had seduced the courts into accepting an unusual provision, which, if it's generalized, is going to work to the disadvantage of the creditors the claimants under the long term.
I just want to clarify this. The family demanded they get full immunity from all civil legal claims before they would settle, even though Perdue had filed for bankruptcy and the Sacklers as individuals had not.
That's exactly what is unusual. That is, if you want to go into bankruptcy, all your athts are going to go into the pool. And if you don't go too bankruptcy, you can make a contribution and say this contribution is contingent upon the court giving us a release. The difference between mollmost one hundred percent of your assets being in the bankruptcy pool and a settlement under which maybe a thirty year assets are the six billion does not leave the Sackler's poor.
Six billion. That's just a little over half of their wealth.
So it is nice to have happy. You know, the first three billion that you own are the most important.
So they haven't admitted their role in fueling the opioid crisis, and this just gives them a pass. So what's the sigmal?
I mean, look at it this way. The claimants for getting nothing because Perdue Farmer didn't have much left. They didn't file for bankruptcy too. They were down to their last stages because they've been sued and suited and sued. I think that the argument that E actually moved the second Circuit judges, or moved two of them, was that this settlement is never going to be resolved and the claimants are not going to live forever, and we want
to get money to people during their lifetimes. And six billion, that's a lot more money that was in the pool. That's a multiple of the assets that Purdue Pharmer had left but we did leave the Sacklers very well off, just like yesterday's legislation. Neither side is happy.
Can this decision be appealed to the Supreme Court?
It can, but it probably won't be. What you have to realize is that most of the claimants went along with this. The waited so long. They were very happy to get a six billion contribution that gave them something. The only claimants that are really left are the Canadian claimants. The betting is and I've seen this in several sources that they probably won't appeal, but they might they could.
This doesn't protect the family members from any potential criminal charges, no, but.
The statue of limitations probably does. You've got to realize that the high point of all this is the nineteen nineties. Oxyconton took over the country and became the drug of choice back in the nineteen nineties, and Flocks has been replaced by much more powerful things like Bethanel.
I mean, this sounds like a good deal for the Sacklers.
Oh yes, well, they made this good deal and they made a contention on the court approving And I got to tell you that the bankruptcy court itself see is a lifetime a career just hearing these claims, wants to escape that and sees no money going to the claimants who are running the court and complaining and screaming they
need money to survive. And six billion certainly made a difference, But it does mean that bankruptcy law changes, and I'm afraid we're going to see a lot more of these settlements because now any bankruptcy in New York will be governed by this. And there's a similar decision in the Third Circuit. So I think in the Northeast you're going to see a lot of third party claimants not filing for bankruptcy, not subjecting all their assets to the bankruptcy court,
but making some kind of offer. There might be negotiations, but some kind of offer that if we put in this much money, we will get a release for all civil liability. You don't get a release, as you quite properly say, from criminal liability. But the statue of limitations is now long wrong run on most of this.
As part of the settlement, they're going to give up ownership of the company.
The company is being turned into a not for profit, and the company was bankrupt, there was no great value all it's going to do is produce addiction preventing drugs and other drugs that will be sold on a cost bases. They're not going to try to make any profit, and all the money made by Perdue Pharma, which has a new name now, will be given to charity if Secklers will no longer own Perdue Pharma. But of course Perdue
Farmer was failing. You don't want to own something that's losing money in bankruptcy.
So what struck me as kind of funny is that the family is going to allow their name to be removed from buildings and scholarships.
But that's already happened. I'm a Columbia. Columbia took the Sacklers off many years ago.
But their name can't be disparaged. While that's happening. It seems like they just got every which way whatever they want.
They got a lot. Now now disparagement, Well that's not unusual. I think what that means is the university is taking the name off. Can't say anything negative. They just say we are removing the name and it will now be known as the Anthropology Hall wherever it's called the Sackler Anthropology Hall.
So now what's the next step.
Well, there could be an appeal. Few people think that there will be appeals, And if there are appeals, it's not at all clear the Supreme Court will take it. The Supreme Court may not appeared in de ciding a bankruptcy lay issue. Remember, the Supreme Court only takes about five or six percent of the sotuary appeals brought to her. And if they don't get sociary, the case is now final. If they do get sotuary, I can't tell you what
the Supreme Court would do. I think it is less than likely that the Supreme Court will take the case.
Thanks so much for being on the show. That's Professor John Coffee of Columbia Law School.
There been one hundred and twenty twenty three days to president non voting three absent.
The resolution is adopted and with that, Texas Attorney General Ken Paxton, a champion of far right GOP legal fights over guns, abortion, and immigration, was impeached in an extraordinary vote by the state's Republican dominated House of Representatives, which charge him with bribery, obstruction of justice, and eighteen other offenses. Is Paxton lashed out at the impeachment proceedings.
Every politician who supports this deceitful impeachment attempt will then flict lasting damage on the credibility of the Texas House which I served in.
The proceedings are historic. There have been only two other impeachments in Texas has nearly two hundred year history, and now the political showdown is headed to the state Senate. Joining me, as Madeline Meckelberg Bloomberg Texas Legal reporter, start by telling us about Ken Paxton as a conservative agitator, an election denier, bringing so many lawsuits against the Biden and Obama administrations.
You hit on all of the headlines there for Paxton. Paxton is a long time Republican elected official in Texas. He's held office here for the past twenty years, most recently at Attorney General, and in that role he really has cultivated this national reputation of being a leading voice on these hot button GOP political issues that includes abortion, gun rights, immigration, the border is a big focus for him. And then he really became a key ally of former
President Donald Trump. And you mentioned it already. He was a leading voice when it came to denying the legitimacy of the twenty twenty presidential election, he launched an unsuccessful case before the US Supreme Court seeking to overturn those election results. And he has just stayed in that lane, known for being a conservative firebrand on every issue, and really built his career as Attorney General on doing the Obama administration and now doing the Biden administration.
Have allegations of criminal and ethical misconduct followed him through his tenure as Attorney general, so since twenty fourteen, yes they have.
He was elected to AG in twenty fourteen, as you said, and then just a few months later he was actually indicted on security spread charges. He was accused of persuading investors to buy stock in this tech firm without disclosing that he would be compensated for that. And ever since then the allegations against him have grown in their scope and they've really now shifted to be about his conduct
while in office. But ever since then, he has been hounded by these different allegations, including bribery, including abusive office and the like, and he's been under investigation by federal authorities which is ongoing. He's part of multiple lawsuits around this wrongdoing allegedly and the criminal case against him connected to that initial indictment is still ongoing. It's yet to be resolved.
So you just went through the litany of problems he's had. What happened to lead to this impeachment? After all the other inquiries, after all the stuff that's out there, he was still reelected. What led to this impeachment?
That is the million dollar question right now in Texas. I mean to say the news this week was shocking is an understatement considering how much Paxton has weathered as Attorney general. As you said, he was just re elected to his third term in office, and these allegations have
been out in the open in the public. I can take you back to the saga of this week, how this impeachment unfolded over the span of just a few days, and it started with Paxton coming out and issuing this statement calling on House Speaker Dave Feelin to resign because there was a video circulating of him on the internet that people were speculating he appeared to be intoxicated while presiding over the Texas House this week, and Paxton called
on a House Ethics committee to hold an investigation into
Feln's office. Later that day, that House Investigative Committee scheduled a meeting, but the meeting was actually about them revealing that they had been conducting a secret, month long investigation into Paxton's conduct while in office, and they say that this investigation was prompted by an ongoing whistle blower lawsuit against Paxton that was brought by three high ranking officials in his office who say they were terminated after reporting
Paxton's two federal authorities for bribery. Paxton reached a settlement agreement with those whistleblowers that totaled three point three million dollars, but since Paxton is a public official, that money had to be taxpayer dollars and it had to be approved
by state lawmakers in the budget. Lawmakers rejected that request, but they say that him asking for that money required them to conduct an investigation into the conduct behind the lawsuit, and that's how we got to where we are today, which is him being impeached by the full House.
I thought it was unusual that the committee said that if he hadn't requested that money, we wouldn't have been this investigation. So tell us about the articles of impeachment.
Yes, I think that's such a great point that you highlighted they really made a point of saying, like, we wouldn't be doing this if you hadn't asked us for this money. And so it's interesting that that was a tipping point for them after all these years. But yes, they conducted an investigation and they presented these twenty articles of impeachment that the full Republican dominated Texas House decided to vote and adopt over this past Memorial Day weekend.
And they're twenty articles that kind of spanned the years of allegations against him that we were talking about earlier, but they include things like bribery, obstruction of justice, abuse of public trust, and things under that umbrella, and the bulk of them are around the allegations that were part of this whistleblower lawsuit that these employees say they were
fired for reporting this bribery. Paxton has been accused of using his own office to aid a wealthy donor, Austin real estate developer Meet Paul, who's got his own hosts of legal problems and investigations into his business feelings. And they say that Paxton was using his office to help him and to conceal information from law enforcement, and he was potentially giving confidential information to meet Paul about this investigation into him, and that's where the bulk of these
charges come from. They point to really specific actions that they say Paxton took while in office in order to help Paul.
Were people in Texas or a legislator stunned by the overwhelming majority voting to impeach him.
Absolutely, I don't think I spoke to a single person who predicted that there would be an impeachment vote and that it would pass with such strong support in the House. The final vote was one hundred and twenty one lawmakers voting in favor and just twenty three voting against impeaching Paxson, and that includes sixty of his Republican colleagues in the House. But the matter's not settled with the impeachment is just
the charges. He hasn't been convicted of anything. Now the matter is going to turn over to the Senate, and I think there's equal confusion about what might happen there. But yes, I mean during the debate on the House floor, it was hard to know exactly how the vote was going to go. We had a Democrat stand up and say, you know, I don't think I can vote in favor
of impeachment. I don't think we have enough information here, and then we had Republicans come up and speak in favor of impeachment, and so for a while it was hard to know exactly how the final vote was going to go.
Is there any clue as to what his defense.
Will be, It's hard to say. We haven't heard him address the specific charges yet. So far, he's issued a few public statements responding to this, and he calls the whole thing an illegal investigation and illegal impeachment. He says that Republicans who run the Texas govern here have been taken by Democrats and they're in Joe Biden's pocket. But we haven't heard him speak to this specific charges. His office has issued a report that they say disput all
of the allegations against him. It's not something they produced in connection to the impeachment. It's something they had produced prior.
But the investigators who helped to draft these articles of impeachment for the House Committee, they've said that that report is full of inaccuracies and wrongdoing at this point, so it's really hard to say what we can expect from him when this fully goes to trial, and that includes what we've been able to learn from these other lossuits that I mentioned, none of these cases have really gotten to a point where we've had to hear Paxton respond
specifically to the allegations against him. And that's going to change now.
And I understand his wife is a state senator. Is it known yet whether she's going to recuse herself.
No, that's a huge question. The debate in the Senate is going to open up all of these different political questions because Paxton himself is a former state senator and so he served in that chamber with many of the members that are still there to this day. Those, of course, are lesser conflicts of interest potentially than his own wife being asked to vote on whether he should be convicted of these charges. People have called for her to accuse herself,
but she hasn't said anything. With TenneT Governor Dan Patrick is who presides over the Senate in Texas, and he is also a Pakistan ally in that he is a Trump ally. They've been on the campaign stage with Trump when he comes to Texas and they express a lot of the same interests. But we've heard Patrick come out and say, I want to conduct a really fair trial in the Senate. Don't know what that means exactly. That
remains to be seen. He said that he's planning to set a date by no later than the end of August, so we're expecting to see some kind of action on this this summer. But yeah, we don't really know any of the specifics yet. And yes, his wife, Senator Angela Paxton, has not said what her role may or may not be when that time comes.
And were there allegations that Paxton threatened several Republican lawmakers with political consequences in their next election if they voted for impeachment.
Yeah, that was something that came out during debate on the Texas House floor on the articles of impeachment. State Representative Charlie Garan got up and said, I'm voting in favor of this. I note that within the time since these articles have been announced, Attorney General Paxton has been calling different lawmakers on the floor and telling them to vote against these articles of impeachment or they could face
political retribution in the next election. We haven't seen any lawmakers come forward and say that, yes, that was me. I got the call from General Paxton. But that's definitely an allegation that's been circulating. People are saying in the Senate that he's distributed packets of information to senators defending himself from these allegations. So he's definitely doing whatever he can to defend himself at this point before court is in session, so to speak, and tell.
Us just how unusual this impeachment is in Texas and a fact, across the country, this is.
Very rare, and so that's why I think there's a lot of confusion speculation about what might happen in terms of the rules and who can vote, how it's going to play out across the whole country. It looks like he might be the fourth state attorney general ever to be impeached. Most recently, the attorney general in South Dakota was impeached and removed from office in twenty twenty two
after he struck and killed a pedestrian while driving. So a really different set of circumstances than what we're looking at now, But even within Texas history, it's incredibly rare. Texas has impeached only two elected officials ever, and the most recent one of those was a district judge in nineteen seventy five, and before that it was a governor
in nineteen seven seventeen. Actually, a few of the current members of the Texas House of Representatives were serving in the House in nineteen seventy five, so they have been part of two historic impeachment votes. But that's just two members as far as I can tell. But yes, this is incredibly rare process, both in Texas and nationally.
A few major Republican names are coming to his defense, like former President Donald Trump, Texas Senator Ted Cruz, Congresswoman Marjorie Taylor Green. But does it seem like a lot are holding back.
I think there's a lot that are holding back. I mean, I think those would be expected people to come out and speak in favor of Paxton. Their views are really aligned, and like we said, he's really gone to back for Trump time and time again. And I think what's really significant about this impeachment, besides the historical context and the context of it within Paxton's career, is that this is the first time that Republicans in Texas have really been
forced to say anything about this impeachment. A lot of times there's been conversations going into elections about whether Paxton will be a drag on the Republican ticket, given these allegations against him, but somehow to this point, like high ranking Republicans in Texas has been able to avoid speaking on this because they've been able to defer to the ongoing legal proceedings. You know, they're like, I don't want to cast any judgment until a judge says what happens here.
And so the fact that this many Republicans voted in favor of impeachment, I would have expected maybe a bit more bull throated support of Pakiston from some of those national figures, but I think it's significant that we're not really seeing that from any of his allies here at home in Texas.
I know you're going to be watching this carefully. Thanks Madlin. That's Madeline Meckelberg, Bloomberg Texas Legal Reporter. And that's it for this edition of The Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Law Podcast. You can find them on Apple Podcasts, Spotify, and at WHW dot Bloomberg dot com, slash podcast Slash Law, And remember to tune into The Bloomberg Law Show every
weeknight at ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg