Federal Judge Overturns Sackler Immunity Deal, Rules Bankruptcy Law Violated

On December 16, 2021, U.S. District Court Judge Colleen McMahon overturned the controversial bankruptcy settlement that would have granted the Sackler family immunity from opioid-related lawsuits in exchange for $4.5 billion. Judge McMahon ruled that bankruptcy courts do not have the authority to approve such releases under federal bankruptcy law, rejecting the unprecedented attempt to shield billionaires who never filed for bankruptcy.

Bankruptcy Law Does Not Permit Third-Party Immunity

Judge McMahon ruled that “that kind of deal just isn’t allowed under federal bankruptcy law.” The decision centered on the fundamental principle that bankruptcy courts cannot grant immunity to parties who have not themselves filed for bankruptcy. The Sacklers sought to “piggyback on the bankruptcy of their company, Purdue Pharma, even though none of the family members themselves filed for bankruptcy.”

The ruling found that bankruptcy code section 524(e) explicitly prohibits the discharge of debts owed by non-debtors, yet the Purdue bankruptcy plan attempted to do exactly that—extinguish claims against the non-bankrupt Sackler family members.

Rejection of Coercive Settlement Structure

Judge McMahon’s opinion rejected the coercive structure that forced victims to choose between accepting Sackler immunity or potentially receiving nothing. The bankruptcy process had created a situation where creditors and victims voted for a plan that extinguished their rights to sue the Sacklers personally, not because they believed it was just, but because the alternative might be no compensation at all.

The ruling held that bankruptcy law should not be used to force such choices on victims, particularly when the protected parties extracted billions from the company before bankruptcy and never faced personal insolvency.

DOJ Position Vindicated

The decision vindicated the Department of Justice’s position opposing the settlement. The U.S. Trustee had argued throughout the bankruptcy proceedings that granting immunity to the non-bankrupt Sacklers violated federal law, but Bankruptcy Judge Robert Drain had approved the plan anyway in September 2021.

Judge McMahon’s reversal confirmed that the DOJ was correct on the law: bankruptcy courts lack authority to grant such sweeping third-party releases, regardless of whether victims vote to accept them under economic pressure.

Not the End: Appeals Continue

While Judge McMahon’s ruling represented a significant legal victory for those seeking to hold the Sacklers accountable, it was not the end of the legal battle. The decision could be appealed, and indeed the Second Circuit Court of Appeals would reverse Judge McMahon’s ruling in May 2023, reinstating the Sackler immunity plan.

This reversal-of-reversal demonstrated how complex bankruptcy law questions can produce different outcomes depending on which judges hear the case, allowing wealthy defendants to continue delaying accountability through successive appeals.

Implications for Bankruptcy Law

Judge McMahon’s ruling, while ultimately overturned on appeal, represented an important moment in bankruptcy law. The decision reasserted that bankruptcy code limits exist and that courts should not stretch bankruptcy law to serve the interests of wealthy non-debtors seeking to avoid personal liability.

The ruling recognized that allowing non-bankrupt billionaires to purchase immunity through corporate bankruptcy proceedings would fundamentally transform bankruptcy law from a system for debt relief into a tool for the wealthy to escape accountability.

Death Toll and Justice Delayed

By December 2021, over 500,000 Americans had died from opioid overdoses since OxyContin’s 1996 launch. Judge McMahon’s ruling briefly opened the possibility that Sackler family members might face personal civil liability for their role in directing Purdue’s fraudulent marketing. However, the subsequent appeals process would delay any resolution for years more, demonstrating how successive legal challenges allow the wealthy to postpone accountability indefinitely while victims wait for justice.

Pattern of Delayed Accountability

Judge McMahon’s ruling came in December 2021—25 years after OxyContin’s launch, 14 years after Purdue’s 2007 guilty plea, and over two years after the 2019 bankruptcy filing. Each stage of legal proceedings added years to the timeline, with the Sacklers retaining their billions throughout. Even this favorable ruling would be reversed on appeal, further extending the delay.

This case illustrates how legal complexity and appellate processes allow wealthy defendants to avoid accountability for years or decades while maintaining their extracted wealth, even when lower courts rule against them.