In 2008, as Purdue Pharma was searching for a new chief executive, Richard Sackler received a memo from an adviser.

“In the event that a favorable [recapitalization] deal cannot be structured during 2008, the most certain way for the owners to diversify their risk is to distribute more free cash flow to themselves,” F. Peter Boer, a member of Purdue’s board of directors told Sackler, a prominent member of the wealthy family that owns the company.

That, authorities allege, is exactly what the Sackler family did. A lawsuit filed by the state of Massachusetts claims the Sacklers transferred more than $4 billion from the company to personal accounts between 2008 and 2016. Oregon asserts the family may have taken as much as $10 billion out of the company.

AD

Now, as the maker of OxyContin heads to bankruptcy court, those billions represent a central sticking point in the company’s plan to resolve thousands of lawsuits against it. Purdue asked the bankruptcy judge, Robert D. Drain, on Wednesday to take the unusual step of temporarily halting lawsuits against the Sackler family.

AD

Without that protection, the Sackler family may back out of contributing to a settlement agreement Purdue reached with multiple states, which “risks toppling” the deal, according to the drugmaker’s complaint.

That proposal has angered state attorneys general who say the wealthy family should be doing more to address the opioid crisis. If the Sacklers want special protection from the bankruptcy court, they should be forced to give a detailed accounting of their wealth, said North Carolina’s attorney general, Josh Stein, who sued eight members of the family individually Tuesday.

AD

The Sacklers want protection from lawsuits “so they can get on with their lives. I am fine with that as long as they meaningfully address the problem” caused by the opioid epidemic, Stein said in an interview. “They have billions and billions and billions of dollars that they have sucked out of Purdue Pharma."

AD

Stein said that money should be used “to right the wrongs that they have done.”

A spokesman for the Sackler family, who spoke on the condition of anonymity, denied the allegations in the North Carolina lawsuit as well as more than two dozen other cases filed across the country. The spokesman declined to comment on the details of Purdue’s ongoing bankruptcy and denied that the Sackler family improperly took money from Purdue.

AD

Purdue’s tentative settlement with more than 2,000 plaintiffs in a mammoth federal lawsuit and about half the attorneys general in the United States demands protection from all litigation for the company. In return, the Sacklers would relinquish control of the firm, declare it and related corporate entities bankrupt, turn over assets they claim are worth $10 billion to $12 billion, and resurrect the company as a “public benefit trust” whose primary mission would be to produce addiction treatment and anti-overdose drugs.

AD

The settlement was the result of “months of intense, arduous, careful, and complex negotiations with dozens of relevant stakeholders,” Marshall Huebner, lead restructuring counsel for Purdue, told the bankruptcy court Tuesday. “Very much is at stake here, dare I say, for our country and for states, counties, cities and towns. Billions of dollars of value, and millions of doses of opioid overdose rescue drugs at no or low cost.”

But about half the attorneys general who have sued the company and the family are refusing to go along with the deal. Some contend that the Sacklers knew litigants would be coming after that money and transfers into their personal holdings and trusts amounts to “fraudulent conveyance” — an illegal attempt to hang on to it.

AD

Last week, Letitia James, New York’s attorney general, said in a court filing that her office had found wire transfers of nearly $1 billion by the Sackler family that suggested attempts to shield their money from litigation.

AD

Connecticut Attorney General William Tong said in April: “We will not allow Purdue Pharma to cry poverty after illegally transferring hundreds of millions of dollars to members of the Sackler family — unearned funds these individuals reaped as Connecticut families suffered.” Purdue’s headquarters is in Stamford, Conn.

Huebner told the court that a special committee of Purdue’s board of directors has taken “very seriously” such allegations and that a forensic investigation of transactions between the Sacklers and Purdue over the past decade is underway.

AD

The committee has also reviewed 140 contracts between Purdue and the family, he said. Of those, 49 contracts were terminated and two were amended. “I remain hopeful that parties may be more willing to come on board with the settlement framework as they learn more about certain facts and numbers,” Huebner said.

AD

Purdue comes to bankruptcy court with little debt and a few valuable assets, chief among them OxyContin, the extended release painkiller that is still under patent and is widely blamed for triggering the prescription opioid epidemic in the late 1990s and early 2000s.

The drug generated $790 million last year, according to documents reviewed by The Washington Post. But as patents for the tamper-resistant version of OxyContin expire, its value will decline steeply over the next 10 years.

AD

Steve Miller, chairman of the company’s board, has estimated Purdue’s assets at about $3.5 billion.

About $4.5 billion of the settlement deal is based on the assumption that the Food and Drug Administration will approve a trio of “rescue drugs” that Purdue has in the works. Those include a generic form of Suboxone, used to treat opioid addiction; an inexpensive version of naloxone, the drug that first responders and others carry to reverse overdoses; and the drug nalmefene, which Purdue is developing to reverse overdoses from illegal street fentanyl, which is 50 times as potent as heroin.

AD

Company officials have expressed confidence that the drugs will be approved by the FDA, which has fast-tracked the nalmefene application. But that drug’s effectiveness has not been proved in clinical trials, which began last summer.

AD

The Sackler family, which has several branches and is descended from brothers who started the company in the 1950s, has agreed to put $3 billion in cash into the deal over seven years. That could come from their own funds, or from the sale of Mundipharma, their international drug company, or a combination of both. If Mundipharma’s sale generates an unexpected windfall, creditors would get more.

The attorneys general who oppose the deal say that $3 billion is not enough. The deal’s value depends on Purdue assets that may be smaller than current estimates, some have said.

AD

Forbes has estimated the Sackler family’s net worth at $13.5 billion, which the magazine said makes the Sacklers one of the wealthiest families in the United States.

AD

Typically, a bankruptcy filing halts pending and future lawsuits against a company. Purdue said in its complaint Wednesday that it is spending $2 million a week on legal and other costs associated with the lawsuits. The “tidal wave of litigation” will “drown” the company, the complaint says, adding that it would “most certainly frustrate their successful reorganization.”

But in this case, Purdue also asked the court to extend that special protection to third parties, including the Sacklers.

The Sacklers are “inextricably intertwined” with the lawsuits against Purdue, the company said in Wednesday’s court filing. And “there would be no” settlement agreement without them, the complaint says.

AD

“If forced to bear the risk of adverse money judgments, the [Sackler family] may be unwilling — or unable — to make the billions of dollars of contributions contemplated by the Settlement Structure,” the complaint says. Allowing the cases against “existing shareholders and their affiliates risks toppling” the deal.

The complaint lists at least 19 members of the Sackler family or their trusts and estates. Temporarily halting lawsuits against them would “facilitate an equitable resolution” of the bankruptcy that is “to the benefit of all stakeholders,” the complaint says.

But if the court were to halt lawsuits against the Sacklers, it would be an unusual step, bankruptcy experts say. Protection from lawsuits is usually reserved for the parties that have filed for bankruptcy, not third parties related to the case. These types of arrangements have become more common over the last 20 years, especially in bankruptcy courts in New York and Delaware, but remain controversial, they say.

“The whole thing assumes an honest system, and it’s not an honest system. The Sacklers are choosing their court,” one that is more likely to go along with a potential third-party release, said Lynn M. LoPucki, a professor at the UCLA School of Law. “The courts are granting them in situations where they haven’t been able to grant them traditionally.”

The judge could decide to grant the Sacklers a stay, halting lawsuits while Purdue is in bankruptcy and permanently release them from liability, if a reorganization plan for Purdue is approved, said Jonathan Lipson, a professor at Temple University’s Beasley School of Law.

“Granting third parties, such as the Sacklers, a release is a growing phenomenon, but it’s problematic,” he said. The third parties seeking court protection from lawsuits do not usually undergo the same level of scrutiny as the entity that filed for bankruptcy, he said.

The Sacklers, for example, will not have to give a detailed disclosure of their financial holdings, bankruptcy experts said.

“Often, the people that most want a release are those that may have harmed the company,” Lipson said.

Courts sometimes stay litigation against corporate officers or directors considered important to the company’s reorganization, he said. “The challenge for the Sacklers will be that they are walking away from the company … unlike the ordinary managers who might be entitled to this special protection,” Lipson said.

State attorneys general are expected to argue that their state law enforcement responsibilities should override the bankruptcy protection being sought for the Sacklers. The family violated local consumer protection laws that are outside federal jurisdiction, they could argue.

They could also attempt to claw back the billions several state attorneys general have alleged the Sacklers transferred from the company. But state statutes of limitations could limit how much they may be able to recover.

A chart included in Massachusetts’s Jan. 31 lawsuit shows that the Sacklers voted to pay themselves money from Purdue’s proceeds between 2008 and 2016. The payments were generally made every few months in amounts that ranged from $50 million in April 2008 to more than $350 million for all of 2013.

Lawyers for the Sackler family responded that Massachusetts Attorney General Maura Healey’s lawsuit contains “misleading and inflammatory allegations” and took internal company emails out of context in alleging that the family and Purdue should be held accountable for death and addiction from opioids.

In addition to efforts by state attorneys general to pursue the family’s assets, the judge could also reject the settlement terms, forcing the Sacklers to put up more money, bankruptcy experts say. The court must weigh whether the family is paying a fair amount given the number of lawsuits they face and potential damages, they say.

“What is going to be most important to the judge in deciding whether to grant them a release at the end of the case is the dollar amount: How much are the Sacklers putting in,” Lipson said. “Until the plan is approved, everything is up in the air."