Recent Developments in the Purdue Pharma Case

The following is an update written by Leonard Gumport on a recent case of interest.

Summary

In 2019, the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) granted a preliminary injunction (the “Preliminary Injunction”) that temporarily stayed creditors of chapter 11 debtors Purdue Pharma L.P. (“Purdue”) and its affiliates (collectively, “Debtors”) from pursuing disputed claims against certain Sackler family members (the “Sacklers”).

In 2020, in Dunaway v. Purdue Pharm. L.P. (In re Purdue Pharm. L.P.), 619 B.R. 38 (S.D.N.Y. 2020) (Dunaway), the United States District Court for the Southern District of New York (the “District Court”) affirmed the Preliminary Injunction and its first extension by the Bankruptcy Court. From 2020-2025, the Bankruptcy Court incrementally extended the duration of the Preliminary Injunction.

In 2021, after multiple mediations, the Bankruptcy Court confirmed Debtors’ twelfth amended plan (the “Plan”). The Plan contained nonconsensual releases of Debtors’ creditors’ disputed claims against the Sacklers. On June 27, 2024, in Harrington v. Purdue Pharma L.P., 603 U.S. 204 (2024) (Harrington), the United States Supreme Court invalidated the Plan’s nonconsensual third-party releases.

In July 2024, the Bankruptcy Court appointed mediators (the “Co-Mediators”) to facilitate renewed negotiations among Debtors, their creditors, and the Sacklers. On November 12 and 25, 2024, in status reports (the “Mediation Reports”), the Co-Mediators reported progress and supported the Preliminary Injunction.

On November 15, 2024, in In re Purdue Pharma L.P., 2024 Bankr. LEXIS 2812 (Bankr. S.D.N.Y 2024) (Purdue-OCC), the Bankruptcy Court authorized Debtors’ official creditors’ committee (the “OCC”) to pursue colorable claims that Debtors’ estates have against the Sacklers. On November 26, 2024, in Maryland v. Purdue Pharma L.P. (In re Purdue Pharma L.P.), 2024 U.S. Dist. LEXIS 216421 (S.D.N.Y. 2024) (Maryland), the District Court affirmed three orders in which the Bankruptcy Court granted short extensions of the Preliminary Injunction.

On December 6, 2024, in Purdue Pharma L.P. v. Massachusetts (In re Purdue Pharma, L.P.), 666 B.R. 461,2024 Bankr. LEXIS 2916 (Bankr. S.D.N.Y. 2024) (Massachusetts), the Bankruptcy Court decided, among other things, that: (1) the Mediation Reports were admissible evidence; (2) Harrington did not prohibit extending the Preliminary Injunction’s temporary stay of creditors’ disputed claims against the Sacklers; and (3) the record, including the Mediation Reports and the previously-mediated Plan, supported an additional short extension of the Preliminary Injunction. A copy of Massachusetts is here.

Facts

Pre-Harrington Events

During 1996-2019, Purdue generated approximately $34 billion in revenues, mostly from sales of OxyContin. Purdue was indirectly owned and controlled by the Sacklers. They also owned foreign affiliates (the “IACs”). Harrington, at 209- 211; see id. at 244 (Kavanaugh, J., dissenting); Dunaway, at 43-44.

In 2004, Purdue agreed to indemnify the Sacklers. In 2007, a Purdue affiliate pleaded guilty to a federal felony for misbranding OxyContin as less addictive than other pain medications. Between 2008 and 2016, Purdue distributed approximately $11 billion to the Sacklers. They transferred much of that money to overseas trusts and family-owned companies. Harrington, at 209-211, 225 n.7.

In September 2019, Debtors filed their chapter 11 petitions. The Sacklers and the IACs did not file bankruptcy. Harrington, at 210-211; Dunaway, at 43-45. As of September 2019, Debtors “had more than $1 billion in cash, and no funded debt, but were named in more than 2,600 hundred active lawsuits asserting opioid- related claims. Some of those lawsuits named the Sacklers as defendants, with more lawsuits likely to follow in the future.” Purdue-OCC, at *9 (citation omitted).

By September 2019, Debtors and the Sacklers had negotiated a tentative settlement. In an unsigned term sheet, they tentatively agreed that, in return for releases from Purdue and its creditors, the Sacklers would pay $3 billion over seven years, financed by sales of the IACs. Dunaway, at 43-44. The Sacklers’ position was “that they would only put money back into Purdue’s bankruptcy estate if they obtained ‘total peace’ – meaning that they would, as part of [Debtors’ chapter 11 plan], receive releases of all claims from all affected claimants, with or without the consent of the claimants.” Purdue-OCC, at *7-8.

In Purdue Pharma, L.P. et al. v. Commonwealth of Massachusetts, et al., Adv. No. 7:19-ap-08289, Debtors sought a preliminary injunction that stayed governmental and private claimants from pursuing their disputed claims against the Sacklers and related parties. On November 6, 2019, the Bankruptcy Court granted the Preliminary Injunction. Maryland, at *3-4. The Bankruptcy Court granted the Preliminary Injunction “for the express purpose of giving the Debtors time to come up with a plan of reorganization.” Purdue-OCC, at *5. At first, the Preliminary Injunction was set to expire on April 8, 2020. Dunaway, at 46. From 2020-2025, the Bankruptcy Court granted multiple extensions of the duration of the Preliminary Injunction. Maryland, at *6.

Before finalizing the Plan, Debtors participated in a multi-phase mediation. In the first phase, creditors agreed to inter-creditor settlements. In the second phase, the Sacklers agreed to increase their cash contribution from $3 billion payable over seven years to $4.275 billion payable over nine years. The third phase resulted in the Sacklers increasing their cash payments to $4.325 billion over nine years (plus other concessions). Purdue-OCC, at *12-13.

In 2021, Debtors proposed the final version of the Plan. It incorporated the $4.325 billion settlement with the Sacklers. In addition to Debtors’ consensual releases of the Sacklers, the Plan included nonconsensual releases of creditors’ claims against the Sacklers. Of the creditors who voted, the vast majority supported of the Plan. The United States Trustee (“UST”) and certain creditors, including multiple states and opioid victims, opposed the Plan’s nonconsensual third-party releases. See Harrington, at 211-212; Purdue-OCC, at *14.

In September 2021, the Bankruptcy Court confirmed the Plan. In an extensive opinion, In re Purdue Pharma L.P., 633 B.R. 53 (Bankr. S.D.N.Y. 2021), United States Bankruptcy Judge Robert D. Drain determined that the Plan’s releases were valid and that, “without the releases[,] the [P]lan would unravel and Debtors’ cases would likely convert to cases under Chapter 7 of the Bankruptcy Code.” In that event, unsecured creditors “would probably recover nothing[.]” Id. at 109.

Beginning in 2021, the UST and others (including nine states) appealed from the confirmation order and obtained stays pending appeal. The appeals lasted three years. During the appeals, nobody objected to the Bankruptcy Court’s multiple extensions of the Preliminary Injunction. Maryland, at *6-7.

In December 2021, in In re Purdue Pharma, L.P., 635 B.R. 26 (S.D.N.Y. 2021), the District Court vacated the confirmation order. In that decision, using reasoning that foreshadowed Harrington, United States District Judge Colleen McMahon held that the Bankruptcy Code did not authorize the Plan’s nonconsensual releases of creditors’ direct claims against the Sacklers.

After that setback, Purdue, the Sacklers, and others appealed to the United States Court of Appeals for the Second Circuit. In 2022, during those appeals, Debtors and the Sacklers participated in another mediation. It resulted in a settlement between the Sacklers and all nine states that previously appealed the confirmation order. In that settlement, “the Sacklers agreed to pay at least an additional $1.175 billion towards the settlement – payable over 18 years – bringing the total nominal amount of the Sackler contribution for settlement of the estate and other claims to not less than $5.5 billion, and possibly as much as $6 billion.” Purdue-OCC, at *15.

In May 2023, in Purdue Pharma, L.P. v. City of Grande Prairie (In re Pharma L.P.), 69 F.4th 45 (2d Cir. 2023), a 2-1 divided panel of the Second Circuit reinstated the Bankruptcy Court’s order confirming the Plan. In a concurring opinion, United States Circuit Judge Richard C. Wesley urged the Supreme Court to grant review. In August 2023, on behalf of the UST, the Solicitor General obtained a stay and writ of certiorari from the Supreme Court. See Harrington v. Purdue Pharma L.P., 2023 U.S. LEXIS 2872 (Aug. 10, 2023).

 ​Harrington

On December 4, 2023, during oral argument of Harrington, counsel for the parties presented conflicting scenarios of what would happen if the Court invalidated the Plan. On behalf of the UST, the deputy solicitor general argued that the Sacklers may “want global peace,” but that did not mean “that they wouldn’t pay a lot for 97.5 percent peace.” Harrington, at 225 (quoting Tr. of Oral Arg. 26). In contrast, the OCC’s counsel argued: “If there’s one thing you take away from my argument today, it is this, and let me be crystal-clear: Without the release, the [P]lan will unravel, Chapter 7 liquidation will follow, and there will be no viable path to any recovery.” Tr. of Oral Arg. 100-101. Similarly, Purdue’s counsel argued: “If the [UST] succeeds here, the billions of dollars that the [P]lan allocates for opioid abatement and compensation will evaporate. Creditors will be left with nothing, and lives literally will be lost.” Id. at 62.

On June 27, 2024, in a 5-4 divided decision, the Supreme Court reversed the Second Circuit and decided that the Plan’s nonconsensual third-party releases and permanent injunction were invalid. The majority opinion, by Justice Gorsuch, held “that the bankruptcy code does not authorize a release and injunction that, as part of a plan of reorganization under Chapter 11, effectively seeks to discharge claims against a nondebtor without the consent of affected claimants.” Harrington, at 227. “As a result [of Harrington], a cornerstone of the settlement agreement with the Sacklers was eliminated.” Purdue-OCC, at *16.

On behalf of the four dissenting justices, Justice Kavanaugh quoted the OCC’s oral argument and predicted: “With the current plan now gone and non-debtor releases categorically prohibited, the consequences will be severe, as the victims and creditors forcefully explained. Without releases, there will be no $5.5 billion to $6 billion settlement payment to the estate and ‘there will be no viable path to any victim recovery.’” Id. at 230 (quoting 12/4/23 Tr. of Oral Arg. 100-101).

 ​Post-Harrington Events

On the same day as Harrington, Debtors requested the Bankruptcy Court to appoint the Co-Mediators and to extend the Preliminary Injunction (then set to expire on July 29, 2024) to 60 days from the appointment of the Co-Mediators. Massachusetts, at *6. Debtors’ request had the support of “a vast majority of their constituents.” Id. at *6.

The next day, in a supporting brief, Debtors argued that: [1] “Despite [Harrington], these reorganization cases remain likely to succeed – provided that the injunction remains in place to facilitate expedited mediation.” [2] “The Court need look no further than the history of these Chapter 11 cases to find strong evidence of the Debtors’ prospects of success.” [3] “Over the course of five years and through numerous uncertain litigation outcomes, the Debtors and their stakeholders successfully struck – in mediation – a series of complex and interlocking settlements among themselves and with the Sackler families.” Mem. of Law in Support of Motion to Extend the Preliminary Injunction to Facilitate Mediation at 11 [Adv. No. 7:19-ap-08289, ECF No. 490].

On July 9-10, 2024, after a July 9 hearing, United States Bankruptcy Judge Sean H. Lane extended the Preliminary Injunction for 60 days and granted an order (the “Mediation Order”) appointing United States Bankruptcy Judge Shelley C. Chapman (Ret.) and Eric D. Green to serve as Co-Mediators. Massachusetts, at *6-7; see Order Appointing the Hon. Shelley C. Chapman (Ret.) and Eric D. Green as Co-Mediators and Establishing Terms and Conditions of Mediation [Case No. 7:19-bk-23469, ECF No. 6537].

In extending the Preliminary Injunction, the Bankruptcy Court found that “the requesting parties had satisfied the requirements for a preliminary junction to bar litigation against the third-party Sacklers while the mediation went forward.” In reaching that conclusion, the Bankruptcy Court found “that the breathing room provided by the requested injunction was critical to the parties’ mediation efforts.” The Bankruptcy Court also noted that the “history of [the] cases provided strong evidence of [Debtors’] prospects for success through a plan of reorganization that might result from the mediation.” Massachusetts, at *7.

The Mediation Order provided in part: [1] The mediation would terminate on September 9, 2024, unless the Bankruptcy Court extended that deadline. See Mediation Order, at ¶ 5. [2] “All communications made by . . . a Mediation Party in connection with the Mediation . . . shall remain confidential, [and’] shall not be made available to the public,” subject to exceptions. Id. at ¶ 11. [3] “Except as provided in paragraphs 8 and 17 hereof, the Co-Mediators shall have no communication with the Court relating to the substance of the Mediation or matters occurring during the Mediation, and the Mediators shall not disclose whether a verbal agreement was reached or [whether] a Mediation Party has refused to execute a definitive written settlement.” Id. at ¶ 9. [4] “At any time during the Mediation, the Co-Mediators, in their sole discretion, may also file interim status reports with the Court.” Id. at ¶ 17.

Subsequently, Debtors requested and were granted short extensions of the Preliminary Injunction. The extensions of the Preliminary Injunction were accompanied by extensions of the Mediation Order. The requested extensions met with few objections. Among the few objectors was the State of Maryland (“Maryland”). It objected only to extensions of the Preliminary Injunction.

On August 23, 2024, Debtors moved for (and were subsequently granted) an order (the “37th Order”) extending the Preliminary Injunction for 18 days. Maryland, at *10. On September 13, 2024, Debtors moved for (and were subsequently granted) an order (the “38th Order”) extending the Preliminary Injunction for 35 days. Id. at *12. On October 21, 2024, Debtors moved for (and were subsequently granted) an order (the “39th Order”) granting a second 35-day extension of the Preliminary Injunction. Id. at *13. On October 31, during the hearing on the October 21 motion, one of the Co-Mediators reported progress in the mediation and stated “the importance of the preliminary injunction remaining in place to the success of the mediation.” Massachusetts, at *9.

In granting the 37th-39th orders, the Bankruptcy Court weighed the four factors to be considered in granting a preliminary injunction. The Bankruptcy Court decided that they weighed in favor of extending the Preliminary Injunction. In addition, the Bankruptcy Court rejected Maryland’s argument that Harrington prohibited granting a preliminary injunction that temporarily stayed creditors from pursuing claims against third parties. Maryland appealed to the District Court from the Bankruptcy Court’s 37th-39th Orders. See Maryland, at *2-3, 10-13.

On November 12, 2024, during Maryland’s appeals, the Co-Mediators filed their first Mediation Report (the “1st Mediation Report”). It reported in part: [1] “The Co-Mediators, consistent with the confidentiality provisions of the Mediation Order, can now report that substantial progress on multiple complex issues has occurred thus far in the Mediation.” [2] Certain “agreements in principle” had been reached. [3] “While the Co-Mediators are pleased with the progress to date, much work remains.” [4] The “continuation of the injunction and the absence of the litigation has been utterly essential to the Mediation process and has enabled the progress achieved to date.” Co-Mediators’ First Interim Status Report at ¶¶ 3- 4 [Case No. 7:19-bk-23649, ECF No. 6917].

On November 14, 2024, during oral argument of Maryland’s appeals from the 37th-39th Orders, the District Court asked Debtors to estimate a date when they would no longer need the Preliminary Injunction. Quoting a line from the Mel Brooks movie Spaceballs (1987), Judge McMahon asked: “When will then be now?” Maryland, at *28-29 (“At oral argument, I asked the parties ‘When will then be now?’ in an effort to figure out when ‘soon’ might be arriving. No one could tell me. No one even hazarded a guess.”).

On November 17, 2024, Debtors requested an extension of the Preliminary Injunction through January 9, 2025. Subsequently, after overruling objections, the Bankruptcy Court granted an extension through December 23, 2024.

On November 21, 2024, in an opposition to the November 17 extension motion, the State of Washington (“Washington”) argued, among other things, that: [1] “Purdue continues to rely principally upon statements by the mediators. These statements cannot be considered by this Court in this proceeding because they are inadmissible hearsay.” [2] “Moreover, reliance on extra-judicial statements by a mediator is especially objectionable in this case because mediation parties are barred, by order of this Court, from divulging the contents of the mediation.” [3] “The earlier mediations in this case did not lead to a successful reorganization. The settlement that was produced was fatally flawed because it included in the estate property – nonconsensual [third-party] releases – that did not belong to the estate.” Obj. of State of Washington to Motion for an Additional Extension of Injunction at 3-5 [Adv. No. 7:19-ap-08289, ECF No. 597] (emphasis in original).

On November 22, 2024, in a separate opposition, Maryland argued, among other things, that: [1] Debtors “fail to specify or explain in any detail” the recent events that required the extension. [2] The 1st Mediation Report admitted that “much work remains” and showed that the parties were still far apart. [3] “Although the State of Maryland continues to support the co-mediators and their efforts, as we have said, the preliminary injunction appears to be impeding those efforts which appear to be nowhere close to success.” [4] “At any rate, because paragraph 4 of the Co-Mediators’ Report takes one side of a disputed substantive position between many parties in interest, it exceeds the authorization under the Mediation Order . . . to ‘file interim status reports with the Court.’” The State of Maryland’s Opp. to Debtors’ Motion to (1) Extend the Mediation and (II) Extend the Preliminary Injunction and Associated Deadlines Including Tolling at 4-6 [Adv. No. 7:19-ap-08289, ECF No. 603] (emphasis in original).

On November 25, 2024, the Co-Mediators filed their second Mediation Report (the “2nd Mediation Report”). It reported in part: [1] “Consistent with the requirements of mediation confidentiality, the Co-Mediators can report that additional points of agreement have been” reached among the key parties. [2] “The parties expect that the Debtors will file a plan and disclosure statement and exhibits thereto in January 2025.” [3] There was now a “detailed term sheet,” and “negotiations are ongoing to resolve the remaining open issues.” [4] “Also consistent with the requirements of mediation confidentiality, the Co-Mediators can report that, the total amount of cash consideration being made available . . . is higher than the amount provided for in the Plan.” [5] The Co-Mediators “can assure the Court that the Mediation Parties are focused on crafting release mechanics that are consistent with [Harrington].” [6] The Preliminary Injunction was “absolutely vital” to ongoing negotiations, and “far too much is at stake to run the risk, with so many parties, that we would guess incorrectly about the parties’ ability to continue to work towards a fully consensual resolution while being forced to engage in dozens, if not hundreds or thousands, of separate litigations.” Co-Mediators’ Second Interim Status Report at ¶¶ 2-5 [Case No. 7:19-bk-23649, ECF No. 6960]; see Maryland, at *10.

On the same day, in a reply, Debtors argued in part: [1] The 2nd Mediation Report reflected “clear progress” towards a successful reorganization. [2] The opposition of Washington “contorts the rules of evidence in a bizarre attempt to bar this Court from considering the Mediators’ Report.” [3] “Consistent with Harrington, any plan of reorganization will include only consensual [third-party] releases.” Reply Mem. in Further Support of Motion to Extend the Mediation and Extend the Preliminary Injunction and Associated Deadlines Including Tolling at 1,13 [Adv. No. 7:19-ap-08289, ECF No. 606] (underlining in original).

On November 26, 2024, in Maryland, the District Court affirmed the 37th-39th Orders. Judge McMahon noted that “the Preliminary Injunction has been in effect for a very, very long time.” Id. at *27. Judge McMahon cautioned: “As more and more extensions are sought, it becomes less and less convincing that the parties really are on the cusp of a deal, or that the public interest would be served by prolonging the stay, rather than by ramping up litigation against the (perhaps recalcitrant) Sacklers.” Id. at *29 (footnote omitted).

At a hearing on the same day, in a bench ruling, the Bankruptcy Court granted an extension of the Preliminary Injunction. On December 2, 2024, the Bankruptcy Court granted an order (the “40th Order”) extending the Preliminary Injunction through December 23, 2024. See Massachusetts, at *32-33; Fortieth Amended Order Pursuant to 11 U.S.C. § 105(a) Granting Motion for a Preliminary Injunction [Adv. No. 19-ap-8289, ECF No. 610].

Analysis

On December 6, 2024, in a modified version of the November 26th bench ruling, the Bankruptcy Court in Massachusetts detailed the reasons for extending the Preliminary Injunction and Mediation Order through December 23, 2024.

1. The Mediation Reports were not inadmissible hearsay. First, even if the reports were hearsay, “hearsay testimony is admissible to support the issuance of a preliminary injunction.” Massachusetts, at *19 (quoting Mullins v. City of N.Y., 626 F.3d 47, 48 (2d Cir. 2010)).

Second, the Mediation Reports satisfied the hearsay exception in Fed.R.Evid.807(a). It “provides that a hearsay statement should not be excluded if ‘the statement is supported by sufficient guarantees of trustworthiness’ under a totality of the circumstances in which it was made and if ‘it is more probative on the point for which it is offered than any other evidence that the proponent can obtain through reasonable efforts.’” Massachusetts, at *19 (quoting Rule 807(a)).

The Mediation Reports were “a highly reliable source of information, having been drafted and filed on the docket by two preeminent, court-appointed mediators, one of whom is a former federal judge.” Id. at *19-20. “There is no more probative source of evidence on the progress of [a] confidential mediation than the statements of the mediators themselves, who have their pulse on the mediation and are really in the best position to know what works and what doesn’t.” Id. at *20 (internal quotations and citation omitted).

The lack of detail in the Mediation Reports did not make them inadmissible. The Mediation Reports “are being made consistent with the confidentiality provisions of the Mediation Order.” Id. at *20. “Neither the mediators nor the Debtors are at liberty to divulge all the details of the confidential mediation process.” Ibid.

2. Harrington did not divest the authority of a bankruptcy court to grant a preliminary injunction that temporarily stays claims against third parties. “Indeed, every other court to address the issue since Harrington has agreed that the legal issue of nonconsensual third-party releases is ‘legally distinct’ from the temporary injunctive relief a debtor may seek under Section 105(a) or Bankruptcy Rule 7065.” Massachusetts, at *26-27 (citing, inter alia, In re Parlement Technologies, Inc., 661 B.R. 722, 724 (Bankr. D. Del. 2024) (Parlement)).

A bankruptcy court has statutory authority to grant a preliminary injunction that temporarily stays litigation against third parties. Section 105(a) of the Bankruptcy Code states in part: “The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title.” “In appropriate circumstances,” section 105(a) “has been used to enjoin actions that were filed against non-debtors where such suits might impede the reorganization process.” Massachusetts, at *12. “In addition to Section 105, bankruptcy courts have granted injunctions under Fed.R.Civ.P. 65, which is made applicable to adversary proceedings under Bankruptcy Rule 7065.” Id. at *12.

A four-factor test applies: “In assessing a request for a preliminary injunction, courts look to the traditional four-factor test for injunctive relief, which includes assessing the likelihood of success on the merits, the possibility of irreparable harm in the absence of the requested injunctive relief, the balance of equities, and whether the injunction is in the public interest. In evaluating these factors, courts take a flexible approach and no one factor is determinative.” Id. at *12-13.

Harrington has an impact on how the four-factor test applies to stays of litigation against third parties. After Harrington, “success on the merits cannot be based on the likelihood that a non-debtor will be entitled to a nonconsensual third-party release.” Massachusetts, at *27 (citing Parlement, at 724).

After Harrington, however, a preliminary injunction “can be granted on a variety of other bases, including the debtor’s need for a breathing spell from the distraction of other litigation that would be necessary to permit the debtor to focus on the reorganization of its business or if the debtor believes an injunction will heighten the possibility of a successful reorganization that might include a consensual resolution of claims against non-debtors.” Massachusetts, at *27-28.

3. The record, including the Mediation Reports and the previously-mediated Plan, satisfied the four-factor test for issuance of a preliminary injunction that temporarily stays litigation against third parties during a reorganization.

The first factor, reasonable likelihood of success, required assessing “the prospect of a successful reorganization that might come out of the mediation and whether Debtors are substantially more likely to reorganize with the injunction in place.” Massachusetts, at *15. The history of the Debtors’ cases provided “strong evidence of the Debtors’ prospects for a successful reorganization.” Id. at *16.

“Debtors and various stakeholders previously struck a successful series of complex and related settlements in mediation, among themselves and the Sackler family that formed the basis of the prior confirmed plan.” Ibid.

In addition, the Mediation Reports showed significant progress towards a successful reorganization. Id. at *17-18 (citing 1st Mediation Report ¶ 3 and 2nd Mediation Report ¶¶ 2-3). Moreover, “Debtors correctly recognize that the breathing room provided by the request[ed] injunction is critical to the parties’ mediation efforts with the Sacklers, which was also expressly acknowledged by the mediators in their Mediation Reports.” Id. at *17 (citing 1st Mediation Report ¶ 4 and 2nd Mediation Report ¶ 5).

The second factor, the risk of irreparable injury, was met because “Debtors’ reorganization prospects will be irreparably harmed unless the [Preliminary Injunction] continues. That is because continued litigation against all parties including the Sacklers would hamper Debtors’ efforts at reorganization.” Massachusetts, at *20-21. Among other things, such litigation “would present a more difficult job for the mediators trying to talk to the parties at the bargaining table, who would be forced to focus their attention elsewhere.” Id. at *21-22.

The third and fourth factors, the balance of equities and the public interest, weighed in favor of injunctive relief. Among other things, “[s]uccess through the mediation process could potentially result in significant amounts of money for opioid abatement and victim compensation. Indeed, the prior settlement yielded billions of dollars from the Sacklers.” Id. at *23-24. In addition, consistent with Harrington, “the settlements reached in mediation would fully preserve all creditors’ right not to settle with the Sacklers, a fact made clear in Debtors’ Reply.” Id. at *24 (citing Debtors’ Reply at 13). The objecting parties were only four of Debtors’ thousands of creditors, many of whom supported extending the Preliminary Injunction and Mediation Order. Id. at *25.

Postscript

After Massachusetts, the Co-Mediators reported additional progress and the Bankruptcy Court granted additional extensions of the Preliminary Injunction:

1. On December 19, 2024, in a third interim report, the Co-Mediators reported progress in the mediation and stated: “The Co-Mediators remain convinced that the continuation of the preliminary injunction is vital to the ongoing success of these negotiations. The Debtors’ creditors continue to benefit greatly from the absence of litigation, which not only would distract them from the hard work of these negotiations but would pit them against each other, precisely when their ability to work together is so critical to the negotiation process.” Co-Mediators’ Third Interim Status Report at ¶ 7 [Case No. 7:19-bk-23649, ECF No. 7049].
2. On December 23, 2024, after a hearing on December 20, the Bankruptcy Court extended the Preliminary Injunction through January 24, 2025. Forty-First Amended Order Pursuant to 11 U.S.C. § 105(a) Granting Motion for a Preliminary Injunction [Adv. No. 7:19-ap-08289, ECF No. 634].
3. On January 23, 2025, several state attorneys general announced a tentative $7.4 billion settlement among Purdue, its creditors, and the Sacklers. On the same day, the Co-Mediators reported that “much work needs to be done” and that the Preliminary Injunction “continues to be critical.” Co-Mediators’ Fourth Interim Status Report at ¶¶ 8 and 10 [Case No. 7:19-bk-23649, ECF No. 6917].
4. The next day, the Los Angeles Daily Journal reported that the tentative $7.4 billion settlement “includes more money from the Sacklers but [contains] an unusual provision that allows them to set aside up to $800 million to pay damages from plaintiffs who don’t accept the settlement and sue instead.” Craig Anderson, “New deal reached in Purdue Pharma opioid settlement,” Los Angeles Daily Journal, Jan. 24, 2025, at 1.
5. On January 27, 2025, after a January 24 hearing, the Bankruptcy Court extended the Preliminary Injunction through February 28, 2025. Forty-Second Amended Order Pursuant to 11 U.S.C. § 105(a) Granting Motion for a Preliminary Injunction [Adv. No. 7:19-ap-08289, ECF No. 656.]
6. On February 11, 2025, Debtors filed a motion to extend the Preliminary Injunction and Mediation Order through March 31, 2025. In support of their motion, Debtors stated: “A 31-day extension is warranted due to continued progress towards documenting the many complex and interlocking agreements between and among several dozen core Mediation parties, and [the extension] is necessary to allow for filing the contemplated plan and disclosure statement during this period.” Mem. of Law in Support of Motion to (I) Extend the Mediation and (II) Extend the Preliminary Injunction and Associated Deadlines Including Tolling at 1 [Case No.7:19-bk-08289, ECF No. 7183].
7. On February 21, 2025, in their fifth interim status report, the Co-Mediators reported, among other things, that: [a] “Having reached agreements in principle, the Mediation Parties are now working diligently to complete the dozens of documents needed to the file the Thirteenth Amended Plan and schedule a disclosure statement hearing.” [b] Consistent with Purdue, “public and private claimants who choose not to provide releases to the Sacklers Covered Parties will have the opportunity to pursue litigation against the Sackler Covered Parties.” [c] “[C]laimants who do not provide releases to the Sackler Covered Parties will not receive consideration directly from the Sackler Covered Parties.” [d] Total cash consideration from Debtors’ new plan and settlement with the Sacklers will be “up to” $7.4 billion, including $900 million from Debtors’ bankruptcy estates, plus “up to” $6.5 billion from the Sacklers, payable over 15 years, plus “up to” an additional $500 million. [e] “The continuation of the [Preliminary Injunction] remains essential to the parties’ efforts to complete their work so that billions of dollars can at long last flow to the Debtors’ creditors, providing compensation to victims of the opioid crisis and funding to the public entities for their critical abatement efforts.” Co-Mediators’ Fifth Interim Status Report at 1, 3-5, and 8 [Case No. 7:19-bk-23649, ECF No. 7254].
8. On February 25, 2025, the Bankruptcy Court heard Debtors’ February 11 motion and extended the Preliminary Injunction through March 31, 2025. At the hearing, Debtors’ counsel stated that Debtors expected to file their proposed plan and disclosure statement in March 2025.
9. According to Debtors’ most recent operating report, filed February 4, 2025, Debtors’ bankruptcy estates have cumulatively paid $935,365,662 for “Retained Restructuring Professional Fees,” including the professionals employed by various committees. Corporate Monthly Operating Report at 23 [Case No. 7:19-bk-23649, ECF No. 7164].

These materials were written by Leonard L. Gumport of Gumport Law Firm, PC in Pasadena. Editorial contributions were provided by the Hon. Meredith Jury, Ret. and Kathleen A. Cashman-Kramer of Fennemore LLP.