Jayde Newton helps to set up cardboard gravestones with the names of victims of opioid abuse outside the courthouse where the Purdue Pharma bankruptcy is taking place in White Plains, N.Y., on Aug. 9, 2021. A three-judge panel of the 2nd U.S. Circuit Court of Appeals in New York on Tuesday, May 30 overturned a lower court’s 2021 ruling that found bankruptcy courts did not have the authority to protect members of the Sackler family who own the company and who have not filed for bankruptcy protection from lawsuits. (AP Photo/Seth Wenig, File)

By Geoff Mulvihill

A federal court ruling cleared the way Tuesday for OxyContin maker Purdue Pharma’s settlement of thousands of legal claims over the toll of opioids.

Under the plan approved by the 2nd U.S. Circuit Court of Appeals in New York, members of the wealthy Sackler family would give up ownership of Stamford, Connecticut-based Purdue, which would become a new company known as Knoa, with its profits being used to fight the opioid crisis. They would also contribute $5.5 billion to $6 billion in cash over time. A chunk of that money — at least $750 million — is to go to individual victims of the opioid crisis and their survivors. Only one other major opioid lawsuit settlement includes payments for victims.

Tuesday’s decision also protects members of the Sackler family from lawsuits over the toll of opioids, even though they did not file for bankruptcy.

The court’s ruling reversed a 2021 ruling that found bankruptcy court judges did not have the authority to approve a settlement that would offer bankruptcy protections for those who have not filed for bankruptcy.

Those protections are at the heart of the proposed deal that would end claims against Purdue filed by thousands of state, local and Native American tribal governments and other entities.

“It’s a great day for victims, some of who desperately need the money and have been waiting for this day for a long time,” said Ed Neiger, a lawyer representing individual victims.

Sackler family members have been clear: If they don’t get the legal protections, they won’t do their part of the deal.

“The Sackler families believe the long-awaited implementation of this resolution is critical to providing substantial resources for people and communities in need,” family members who own Purdue said in a statement Tuesday. “We are pleased with the Court’s decision to allow the agreement to move forward and look forward to it taking effect as soon as possible.”

Purdue issued its own statement, calling the ruling “a victory for Purdue’s creditors, including the states, local governments, and victims who overwhelmingly support the Plan of Reorganization.” The company said it would focus on delivering “billions of dollars of value for victim compensation, opioid crisis abatement, and overdose rescue medicines.”

Several states had been withholding support for the plan, but after a new round of negotiations last year, all of them came on board. That left just one high-profile objector: the Office of the U.S. Bankruptcy Trustee, an arm of the Justice Department.

A lawyer from that office told the 2nd Circuit in April 2022 that it’s a “fundamental inconsistency” that people who do not seek bankruptcy protection and have to give up most of their assets could be exempted from some lawsuits.

The Justice Department has not immediately said whether it would appeal Tuesday’s ruling to the U.S. Supreme Court. A spokesperson declined comment Tuesday.

The the latest version of the settlement must still be approved by a bankruptcy court judge before it can be finalized.

While Sackler family members still technically own Purdue, they stopped receiving money from the company years ago.

All three federal appeals judges who heard the Purdue case last year agreed that the Sackler family can be protected from lawsuits. But one — Richard Wesley — said in a separate opinion that he did so reluctantly, noting that while courts allow such deals they’re not explicitly allowed under bankruptcy law.

Purdue is perhaps the highest-profile player in the opioid industry. But several other drugmakers, distribution companies and pharmacies also have been sued by state and local governments. While a handful of cases have gone to trial, many also are being settled.

The total value of proposed and finalized settlements in recent years is more than $50 billion. Companies that have reached deals include drugmakers Johnson & Johnson and Teva; distribution giants AmerisourceBergen, Cardinal Health and McKesson; and pharmacy chains CVS, Walgreens and Walmart. Most of the money is required to be used to fight the opioid crisis, which has been linked to more than 500,000 deaths in the U.S. over the past two decades, including more than 70,000 a year recently.

In recent years, most of the deaths have been connected to fentanyl and other illicit synthetic opioids, not prescription painkillers.