Patrick Semansky/AP Photo
Containers depicting OxyContin prescription bottles lie on the ground in front of the Department of Health and Human Services in Washington during an April 2019 protest.
Since he began overseeing the resolution of family drug company Purdue Pharma in 2019, Bob Drain has become the most famous bankruptcy judge in America, and not in a good way. Purdue unleashed the opioid crisis from its purple-carpeted Connecticut headquarters with the 1996 introduction of its blockbuster drug OxyContin, and its billionaire owners, the Sackler family, have spent the past quarter-century enjoying a truly insane degree of impunity.
In the bold tradition of elite accountability in America, Judge Drain has proposed to extend the entire Sackler family—along with a thousand of their closest friends, lobbyists, trust funds, and limited liability corporations—blanket immunity from civil liability for the misery and death they caused, in exchange for agreeing to return about $4 billion of the $10.7 billion they have cashed out of the company since 2008.
The claims against Purdue and the Sacklers, who meticulously planned and micromanaged the campaign to hook the country on painkillers, total more than $2 trillion. That’s not a fantastical number. More than half a million Americans have died from opioid overdoses alone over the past two decades; even the most tort-unfriendly states would deem those lives to be worth at least a few hundred billion dollars, and that’s before accounting for the misery opioid addiction has caused the millions still living with it.
More disturbingly, the settlement would shut down this accounting, suspending the national effort to unseal millions of pages of documents filed in a 2001 West Virginia class action lawsuit, and instead establishing a “document database” that would aggregate thousands of publicly available documents but redact names from, for example, emails former Purdue CEO Richard Sackler sent vilifying drug addicts as “criminals” while feverishly plotting to convert more Americans into them.
More than half a million Americans have died from opioid overdoses alone over the past two decades.
For weeks, a sense of grim inevitability has enveloped the deal. A Democratic bill that would have outlawed the Sackler liability shields failed to find a Republican co-sponsor and never made its way out of committee. In late June, Judge Drain grudgingly approved a 19-month-old request to appoint an official bankruptcy examiner, but only on grounds that said examiner would be restricted by a comically short leash and a $200,000 budget. Two weeks later, 15 state attorneys general who had opposed the deal reversed course after wresting some concessions on the documents that would be collected. And on Tuesday, Purdue announced that its creditors, many of whom are represented by lawyers who have spent the past two decades essentially working on spec, had voiced “overwhelming” support for the deal, which is expected to be finalized at a hearing on August 9.
But then something strange happened: A group of legislators, including Sen. Elizabeth Warren (D-MA), introduced a new, broader bankruptcy reform bill, the Nondebtor Release Prohibition Act of 2021. A strangely riveting impromptu House Antitrust Subcommittee hearing on Wednesday stressed the need for this reform, touching on everything from oil spills to Simone Biles. (As the Olympic gymnast and attorney Tasha Schwikert Moser explained in her testimony, the U.S. Olympic Committee exploited Sackler-esque liability shields to dodge lawsuits filed by victims of pedophile team doctor Larry Nassar.)
While the likelihood of passing a law in time to stop the Sackler deal seems pretty remote, the hearing suggested that congressional Democrats—and possibly populist, antitrust-friendly Republicans like Ken Buck—might view the Purdue debacle as a “teachable moment.”
And that’s great, because Purdue is only the most recent case study in what has become an epidemic of judges granting legal immunity to the rich and powerful. And none of this happened by accident. Private equity billionaires, who escaped much mention during the hearing but have spent the past two or three decades laying the groundwork for the Sackler family’s forever impunity, have come to view the privilege of “third-party releases” as an entitlement. Whether Congress actually summons the will to slash that entitlement remains to be seen.
A NEW BUSINESS BESTSELLER on one of the past decade’s biggest bankruptcies, Max Frumes and Sujeet Indap’s The Caesars Palace Coup, highlights this repeatedly. Like nearly 3 in 10 of the companies that have filed for bankruptcy in recent years, Caesars was owned by private equity firms, whose business model essentially revolves around draining cash from companies by piling them with debt, then skillfully navigating bankruptcy courts to avoid taking losses if their “investments” don’t pan out. But the casino conglomerate’s billions in plunging bonds had attracted some shrewd distressed debt investors, who threatened not only to sue the private equity firms for “fraudulent conveyance” to get their money, but to name executives, like the foul-mouthed 34-year-old Apollo Global Management partner David Sambur, in a civil racketeering suit as well.
Like the Sacklers, Sambur had spent much of the previous five years transferring billions of dollars in assets out of the bankrupt company into vehicles outside the reach of the estate, acquiring a $15 million house in Manhattan along the way. And as with the Sacklers, who emailed one another about taking “a fantastic amount of money out of the business,” there were damning documents, including an internal PowerPoint presentation detailing Apollo’s plan to strip assets out of Caesars in order to “have our cake and eat it too.” And the idea of being held personally accountable for these actions filled Sambur with Sackler-esque indignation.
“Motherfuckers, did you not see what I did in Momentive?” Sambur screamed at the bond lawyers, referencing another Apollo portfolio company that had filed for bankruptcy protection months earlier. In that case, Apollo had saddled a silicone manufacturer with an astonishing 15 times its EBITDA in debt, laid off about half its workforce, forced its secured bondholders to take a $300 million haircut, gotten liability shields for the firm and all relevant executives, and still maintained control of the company—all thanks to its ingenious use of a 2004 ruling, Till v. SCS Credit Corp., that slashed the interest rate on a bankrupt couple’s predatory car loan. (“I will Till the shit out of all of you!” Sambur promised the bondholders.)
For private equity guys, “limited liability” is the heart of the whole profession. Each time a private equity firm wants to buy a company, it forms a new limited liability vehicle—or more typically, a few dozen of them—and then floats bonds under the name of the parent vehicle in order to finance the purchase price. If the company can’t make the interest payments, that’s on the bondholders; the private equity firm bears no responsibility. Some legislators think this is bad: Private equity–owned companies are ten times likelier than their traditionally owned counterparts to file for bankruptcy protection, upending lives and communities while guys like Sambur invariably end up richer no matter what.
Purdue is only the most recent case study in what has become an epidemic of judges granting legal immunity to the rich and powerful.
Fortunately for Sambur, bankruptcy judges revere the concept of limited liability almost as much as private equity moguls, albeit for different reasons. For judges, it appeals to their sense of fostering, rather than impeding, prosperity. And bankruptcy judges are often steeped in legal theory that casts the invention of the limited liability corporation alongside that of the steam engine as a paradigmatic development in the pursuit of said prosperity.
For Wall Street looters, the real value of the supposedly hallowed principle of limited liability came from evading liability for all the other bad stuff they did in the name of profit: belching carcinogenic fumes into residential neighborhoods, forcing nursing home workers to single-handedly care for 30 patients, and committing copious amounts of fraud. Though the Sacklers were genuine trailblazers in many realms of corporate evil, they had plenty of role models in private equity to emulate once they had successfully enslaved millions of Americans to the lucrative hell of opiate addiction.
As it happens, Momentive was also Judge Drain’s case, and a testament to why a Regus shared office space a short drive from his White Plains chambers has become such a popular outpost for companies expecting to file for bankruptcy protection. Drain is one of three judges who handled 57 percent of all major corporate bankruptcies in 2020.
AT THE SAME TIME, a deep dive through the filings on bankrupt private equity–owned health care providers tells a nauseating tale of how much of the American health care system has in recent years become like Purdue Pharma: exploitative, extractive, imbued in a philosophy that sees human lives as vehicles for extracting Medicare reimbursements, and basking in systemic impunity.
In 2007, a general contractor named James Slattery decided to cash in on the opioid epidemic by peddling drug tests to nursing homes and clinics that could detect whether opioid patients were abusing or selling their meds. Within years, his company, Millennium Health, had become the biggest drug testing laboratory in the country, mostly by defrauding Medicaid and Medicare (which the company billed $15 million testing senior citizens’ urine for angel dust alone). In 2014, Millennium borrowed $1.8 billion, $1.3 billion of which went straight to Slattery’s private equity investors. In 2015, the company agreed to pay the Justice Department $256 million to settle its Medicare fraud lawsuits, then filed for bankruptcy protection a few weeks later. The judge in that case, Laurie Selber Silverstein, issued liability releases to both the private equity firms and Slattery, who got to keep his hundreds of millions and his houses and the 40 vintage airplanes he’d purchased under the guise of Pissed Away LLC.
Millennium’s bankruptcy lawyer John T. Dorsey is now a judge himself, presiding over the Delaware liquidation of a pair of gruesome and chronically understaffed private equity–owned Florida nursing homes attempting to discharge more than a quarter-billion dollars in wrongful death settlements and unpaid Medicare fraud awards without paying a penny. Millennium’s former CEO, meanwhile, is now at the helm of Tenet Healthcare, the second-largest for-profit hospital chain, which recently disclosed having lobbied the Biden administration and the Centers for Medicare and Medicaid Services on the two-page Sackler Act. Tenet has sued the Sacklers over its own opioid-related burdens, but it likely supports the settlement, because it has plenty of its own experience getting sued for harming patients and defrauding their insurers in the process.
Under its old name National Medical Enterprises, Tenet became famous for paying “bounty hunters” to kidnap people believed to have good insurance policies from Alcoholics Anonymous meetings, then get them involuntarily committed to its high-priced psychiatric hospitals for however long their insurers would pay. In more recent years, Tenet has paid more than $1.6 billion to settle Medicare and Medicaid fraud lawsuits, mostly revolving around unnecessary procedures and kickbacks. And although the company is currently flush with CARES Act bailouts and COVID-19 liability shields, at least two of its oldest hospitals filed for bankruptcy protection and shut down in 2019 shortly after being sold to a pair of connected private equity entrepreneurs, both of whom blamed Tenet for starving the hospitals of cash, then used the bankruptcy code to dodge litigation and shield valuable assets like Hahnemann University Hospital’s coveted Philadelphia real estate from laid-off nurses and doctors and cafeteria workers.
PURDUE PHARMA’S TRANSITION from what Jonathan Sackler called “a growth program” into “more of a smart milking program” of the sort that generally concludes in bankruptcy court came in May 2007, when three of the company’s executives pled guilty to felony criminal charges stemming from the company’s fraudulent promises that its blockbuster drug OxyContin was mild and veritably abuse-proof. “Those people had to take the fall to save the family,” a Purdue lawyer repeatedly explains to employees in Patrick Radden Keefe’s rage-inducing new book, Empire of Pain.
Virginia prosecutors had spent six years hammering out a bulletproof racketeering, conspiracy, and money laundering case against the executives that would have involved mandatory prison time. But the Sackler family had an improbable number of very important friends, and someone powerful within the Bush Justice Department mysteriously downgraded the charges against the executives, got the family’s earwax removal business Purdue Frederick named in the plea deals to keep the Medicare and Medicaid spigots open for OxyContin patients, and put the prosecutor who brought the case on a list of U.S. attorneys to fire instead.
While the Sacklers could not have known in May 2007 that their old defense attorney Eric Holder was about to be named the next attorney general, family emails betray a notable combination of total unconcern for the efforts of law enforcement authorities, and laserlike focus on shielding their wealth from trial lawyers. “We’re rich? For how long? Until which suits get through to the family?” asked David Sackler, a hedge fund manager, advising his cousins to “lever up where we can”—i.e., borrow money against the company’s cash flows—on the theory that “it’s better to have the leverage now while we can get it than thinking it will be there for us when we get sued.”
Whether Congress actually summons the will to slash that entitlement remains to be seen.
Purdue’s payouts to the family soared nearly a hundredfold after the plea deal, averaging more than a billion dollars a year between 2008 and 2018. (Even that wasn’t enough for the late notorious spendthrift Mortimer Sackler, who in 2014 sent a snippy email to Jonathan citing a Bloomberg story about all the companies in the S&P 500 index that had forsworn investing in plants and equipment to plow all of their profits into dividends and stock buybacks.)
In another classic private equity move, the family also transferred Rhodes Technologies, a generic opioid maker it had secretly incorporated the year earlier, off the Purdue books. And they sought out private equity firms for operational advice, enlisting an unnamed firm to help pitch the board on a joint venture called Project Tango to “vertically integrate” its opioid business by launching an addiction treatment subsidiary. Most gruesomely, they retained the private equity industry’s favorite consulting giant, McKinsey, which in 2013 recommended “turbocharg[ing]” OxyContin sales by offering kickbacks to pharmacies for every patient who experienced a documented “overdose event.”
DURING HER PRESIDENTIAL CAMPAIGN in 2019, Elizabeth Warren proposed legislation that would have effectively repealed liability shields for private equity investors, inviting a laid-off Toys R Us manager to testify about the depravity of the business model that lined Wall Street pockets while leaving 33,000 workers with nothing. The business media was predictably alarmed by Sen. Warren’s Stop Wall Street Looting Act (SWSLA), with one Financial Times columnist hyperventilating that “abolishing the principle of ‘limited liability’ for private equity firms would undermine freedoms that touched off one of the most rapid phases of economic development in history.”
Warren’s bid to prevent private equity larceny wouldn’t have stopped the Sacklers’ copycat crimes. As the conservative pundit Oren Cass pointed out in a recent critique of the legislation for his think tank American Compass, many of the forms of legalized embezzlement pioneered by private equity firms have in more recent years become fixtures of blue chips like Johnson & Johnson and Apple, which last year spent more than twice its $57 billion net income on stock buybacks and dividends. Notably, given the incredulous response of congressional Republicans to Warren’s bill back in 2019—and that he cut his teeth in politics as a campaign adviser to private equity centimillionaire Mitt Romney—Cass’s central critique of the Stop Wall Street Looting Act is that its narrow focus on the Bain/Blackstone brand of corporate plunder leaves us with a bill that seems “unnecessarily prescriptive yet ultimately does not go nearly far enough.” Judge Drain’s Sackler deal is a testament to this.
But SWSLA is a good place to start a broader debate about how to reform late capitalism, because Warren understands where the major crimes of the 21st century typically end: in bankruptcy court. Not coincidentally, bankruptcy is also one branch of law that has specifically codified, reinforced, and replicated the particular brand of impunity we are used to associating with special cases like the Sackler family.
Amending the bankruptcy code to stop the toxic proliferation of billionaire lawsuit immunity is now the nation’s last and only hope for the possibility of justice in the Sackler saga, but legitimately fighting the next century’s “crime of the century” will require us to rethink the whole concept of limited liability, and whether Americans might be better off abolishing those limits on anyone with the power and resources to inflict mass suffering.
