Court File and Parties

COURT FILE NO.: CV-19-00627656-00CL DATE: 20191230 SUPERIOR COURT OF JUSTICE – ONTARIO - COMMERCIAL LIST

RE: IN THE MATTER OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT , R.S.C. 1985, c. C-36 AS AMENDED AND IN THE MATTER OF A PLAN OF AND IN THE MATTER OF PURDUE PHARMA L.P., PURDUE PHARMA INC., RHODES ASSOCIATES L.P., PAUL LAND INC., RHODES TECHNOLOGIES, RHODES PHARMACEUTICALS L.P., UDF LP, SVC PHARMA INC., BUTTON LAND L.P., SVC PHARMA LP, QUIDNICK LAND L.P., SEVEN SEAS HILL CORP., OPHIR GREEN CORP., PURDUE PHARMA OF PUERTO RICO, AVRIO HEALTH L.P., PURDUE TRANSDERMAL TECHNOLOGIES L.P., PURDUE PHARMACEUTICALS L.P., PURDUE PHARMA MANUFACTURING L.P., ALDON THERAPEUTICS L.P., IMBRIUM THERAPEUTICS L.P., GREENFIELD BIOVENTURES L.P., NAYATT COVE LIFESCIENCE INC., PURDUE NEUROSCIENCE COMPANY, PURDUE PHARMACEUTICALS PRODUCTS L.P.

BEFORE: HAINEY J.

COUNSEL: David Byers, Ashley Taylor and Lee Nicholson for the Foreign Representative Grant Moffat and Reidar Mogerman for the Province of British Columbia Alex MacFarlane and Cindy Clark for Purdue Pharma Inc., as the General Partner of Purdue Pharma Limited Partnership (Ontario) and Purdue Pharma Limited Partnership (Ontario) David Bish for Ernst & Young, Information Officer Raymond Slattery for the Directors and Officers Natalie Renner for McKesson Canada Corporation and McKesson Corporation Mark Meland, Avram Fishman and Tina Silverstein for the Quebec Class Action Plaintiff, Riccardo Camarda Jonathan Lisus and Nadia Campion for the Sackler Family

HEARD: November 28, 2019

Endorsement

Overview

[1] Purdue Pharma L.P. (“Purdue”), in its capacity as the foreign representative (“Foreign Representative”) of itself, and 23 other debtors in possession (“Chapter 11 Debtors”), moves for an order recognizing and enforcing a U.S. Preliminary Injunction Order in Canada; and granting a stay of proceedings in favour of certain related parties in Canada (“Related Party Stay Order”).

[2] Purdue operates a pharmaceutical business that manufactures, distributes and sells opioid pain medication. Purdue and the other Chapter 11 Debtors only operate in the United States, although they have related parties that operate in Canada.

Facts

[3] On September 15, 2019, each of the Chapter 11 Debtors filed a voluntary petition for relief (“Chapter 11 Proceedings”) in the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court”) under chapter 11 of title 11 of the United States Code.

[4] Purdue and the other Chapter 11 Debtors are named as defendants in over 2,600 civil actions pending in various state and federal courts in the United States and 13 actions in Canada (“Pending Actions”). In certain instances, various related parties of the Chapter 11 Debtors are also named as defendants (“Related Parties”). The actions generally allege that Purdue, the Chapter 11 Debtors, and the Related Parties acted improperly in the marketing and sale of opioids and seek damages based on various causes of actions.

[5] The purpose of the Chapter 11 Proceedings is to resolve this extensive litigation that has consumed Purdue and the Chapter 11 Debtors and achieve an overall resolution of all opioid-related claims against Purdue, the Chapter 11 Debtors, and the Related Parties through a global settlement that is described below.

[6] On September 19, 2019, the Chapter 11 Debtors sought recognition by this court of the Chapter 11 Proceedings as “foreign main proceedings” under Part IV of the Companies’ Creditors Arrangement Act (“CCAA”), the appointment of Ernst & Young Inc. as information officer in respect of these proceedings, recognition of certain of the interim orders made by the Bankruptcy Court and various other supplemental relief. I granted the relief sought in two recognition orders (“CCAA Recognition Orders”).

[7] In the United States, the Related Parties primarily consist of Purdue’s U.S. associated entities, the Sackler family (who are the owners of Purdue), and Purdue’s current and former directors and officers. Certain of the U.S. Related Parties are also named as defendants in the Pending Actions in Canada.

[8] In both the United States and Canada there are also civil actions brought solely against the Related Parties that do not name Purdue or the Chapter 11 Debtors as defendants, but which allege claims based on substantially similar facts and causes of action as those alleged against Purdue and the Chapter 11 Debtors in the other Pending Actions.

[9] The large volume of Pending Actions became unmanageable and unsustainable for Purdue and the Chapter 11 Debtors. Following over a year of negotiations, Purdue agreed to a settlement structure for a potential global settlement with significant plaintiff constituencies. The settlement structure contemplates a global resolution of all claims in exchange for the transfer of all the Chapter 11 Debtors’ assets to a trust for the benefit of the plaintiffs as well as a minimum contribution to the settlement by the Sackler family of US $3 billion to be primarily funded through the sale of Purdue’s international pharmaceutical businesses, including Purdue’s Canadian affiliates.

[10] According to the Foreign Representative, the Pending Actions have had a significant detrimental effect on Purdue, consuming over a hundred million dollars a year in legal fees and significant time of the Chapter 11 Debtors’ management. In 2019, Purdue was forecasted to pay approximately US $121 million for its own legal defense costs in connection with the Pending Actions. In addition to its own legal fees, Purdue pays significant indemnification costs for current and former directors, officers, employees and others in connection with the actions against the Related Parties.

[11] In furtherance of their efforts to achieve a global settlement, Purdue and the Chapter 11 Debtors sought and obtained an injunction from the Bankruptcy Court enjoining all actions against the Related Parties in order to pause the litigation and the financial drain on the Chapter 11 Debtors resulting from the proceedings. According to the Chapter 11 Debtors for there to be a chance of accomplishing a consensual resolution for the benefit of all stakeholders, all parties must focus their efforts on determining whether such a resolution is possible rather than continuing to pursue the Pending Actions.

[12] Following a full day hearing on the issue, the Bankruptcy Court granted an injunction with respect to all actions against the Related Parties in the United States (“Preliminary Injunction”) until November 6, 2019. The Preliminary Injunction has since been extended until April 8, 2020.

[13] The Foreign Representative brings this motion seeking recognition of the Preliminary Injunction and a stay of all proceedings against the Related Parties in Canada in aid and support of the relief granted by the Bankruptcy Court and the efforts of Purdue and the Chapter 11 Debtors to achieve a global resolution of all opioid-related claims. According to the Foreign Representative, the Related Party Stay Order will support the primary goal of the Chapter 11 Proceedings of advancing a global resolution of all claims that will deliver significant value to all stakeholders and fund opioid-crisis abatement efforts.

[14] The Foreign Representative submits that a stay of the Related Party actions in Canada will give effect to the judicial supervision of the Chapter 11 Proceedings, temporarily halt the adversarial proceedings in Canada and focus all parties’ efforts on advancing the potential global resolution with the benefit of input from stakeholders in Canada. This was the intent of the Bankruptcy Court in granting the Preliminary Injunction. According to the Foreign Representative, refusing to grant the Related Party Stay Order will result in the continuation of complex and expensive litigation in numerous Canadian courts over the next decade which will make a global resolution very difficult to achieve.

[15] The only opposition to the Foreign Representative’s motion for the Related Party Stay Order is from the plaintiff (“Quebec Plaintiff”) in a proposed class action before the Superior Court of Quebec (“Quebec Opioid Class Action”) in which two Canadian entities, Purdue Pharma, a limited partnership, and Purdue Frederick are defendants (“Quebec Purdue Defendants”). The Quebec Plaintiff opposes the Foreign Representative’s request for a stay of proceedings of the Quebec Opioid Class Action against the Quebec Purdue Defendants and seeks to have this Quebec proceeding excluded from any stay of proceedings that I grant.

Issue

[16] The only issue that I must decide is whether I should stay the Quebec Opioid Class Action along with the other Pending Actions in Canada.

Positions of the Parties

[17] The Foreign Representative submits that I should recognize the Bankruptcy Court’s Preliminary Injunction and grant the Related Party Stay Order in favour of the Related Parties in Canada to give effect to the Bankruptcy Court’s judicial supervision of the Pending Actions and to focus all parties’ efforts on advancing a global resolution of all opioid-related claims with the benefit of input from the Canadian stakeholders. This was the clear intent of the Bankruptcy Court and the Foreign Representative argues that I should respect that intent. Further, none of the other parties in Canada oppose this motion except the Quebec Plaintiff. The Foreign Representative further submits that I should not allow the Quebec Opioid Class Action to proceed because this would result in a single stakeholder frustrating a collective process that may benefit a much larger number of stakeholders.

[18] The Quebec Plaintiff submits that I should not stay the Quebec Opioid Class Action because it is the only one of the Pending Actions in Canada that does not assert a claim against any of the Chapter 11 Debtors or the Chapter 11 Debtors’ Related Parties. It is, therefore, the “only action which is totally outside of the parameters of any order made by the U.S. Bankruptcy Court” and should be excluded on the basis that it is unique in comparison to the other Pending Actions in Canada. According to the Quebec Plaintiff, to grant a stay of proceedings of the Quebec Opioid Class Action in these recognition proceedings under the CCAA would be “a bridge too far” because the Quebec proceeding is unrelated to the Chapter 11 Proceedings. The Quebec Plaintiff submits that the Quebec Opioid Class Action should be permitted to proceed to a certification hearing in the Quebec Superior Court without any interference by the unrelated Chapter 11 Proceedings.

Analysis

[19] The motion seeking the Related Party Stay Order is unopposed by all parties in Canada except the Quebec Plaintiff. I am satisfied that I should grant the order with respect to the other actions in Canada to support the Bankruptcy Court’s primary goal of achieving a global resolution of all of the opioid-related claims. The only issue that I must decide is whether I should exclude the Quebec Plaintiff from the order.

[20] Despite counsel for the Quebec Plaintiff’s able argument, I have concluded that I should grant the Related Party Stay Order sought by the Foreign Representative and not exclude the Quebec Opioid Class Action from that order for the following reasons.

[21] The principles of comity, cooperation and accommodation with foreign courts guide CCAA courts in cross-border insolvency cases. Section 52(1) of the CCAA provides as follows:

52(1) If an order recognizing a foreign proceeding is made, the court shall cooperate, to the maximum extent possible, with the foreign representative and the foreign court involved in the foreign proceeding.

[22] Section 49(1) of the CCAA clearly provides me with jurisdiction to make the Related Party Stay Order if I am satisfied that it is necessary for the “protection of the debtor company’s property or the interests of a creditor or creditors”. I am satisfied that the order is necessary for this reason.

[23] It is clear to me that the Bankruptcy Court intended to pause all of the opioid-related litigation against Purdue, the Chapter 11 Debtors and the Related Parties so that they could pursue a global resolution of all claims in the interests of all stakeholders. Following a full day hearing the Bankruptcy Court concluded that the Chapter 11 Debtors had satisfied the “extraordinary burden” for a stay of proceedings against the Related Parties in the United States. In granting the stay of proceedings the Bankruptcy Court stated as follows:

But again, this is a limited preliminary injunction. I believe that while I certainly respect the objecting states’ interest in laying out the facts and in ultimate determination and in information sharing, I believe that interest here is outweighed on a preliminary basis by the benefits to all the parties to this case who are creditors in pursuing an overall reorganization that I would hope would include reasonable and lasting and binding, as I believe only a bankruptcy plan can bind the parties to, means to use the resources of these Debtors for the maximum benefit to the states, communities and individuals who the Debtors acknowledge have suffered from the opioid crisis.

[24] The Related Party Stay Order sought by the Foreign Representative is intended to accomplish the same purpose as the Preliminary Injunction granted by the Bankruptcy Court in the U.S. The stay of proceedings against the Related Parties in Canada will temporarily pause the existing litigation here to allow stakeholders to focus on a global resolution. If I do not grant the stay of proceedings in Canada, Canadian creditors will have an advantage over U.S. creditors by continuing to pursue their actions against Related Parties here while U.S. claimants are at a standstill. This will result in an uneven playing field among stakeholders which is exactly what a stay of proceedings against third parties is intended to prevent. In order to cooperate to the maximum extent possible with the Bankruptcy Court I have concluded that I must grant the Related Party Stay Order with respect to all opioid-related actions in Canada, including the Quebec Opioid Class Action.

[25] I agree with the Foreign Representative’s submission that at this early stage in these proceedings I should not allow a single stakeholder to frustrate a collective process that may benefit a much larger group of stakeholders. In my view, excluding the Quebec Plaintiff from the Related Party Stay Order would do just that.

[26] I do not accept the Quebec Plaintiff’s submission that the Quebec Purdue Defendants are not Related Parties within the meaning of the Chapter 11 Proceedings. In the Chapter 11 Complaint a Related Party is defined to include “associated entities of the Debtors”. The Quebec Purdue Defendants are clearly associated entities of the Chapter 11 Debtors through their common ownership.

[27] I also do not accept that the Related Party Stay Order should not be granted against the Quebec Purdue Defendants because they are operationally independent from the Chapter 11 Debtors. I consider the stay of proceedings against these defendants to be necessary and appropriate because a global resolution of all opioid-related claims cannot be achieved without their involvement and the claims against them and the Chapter 11 Debtors clearly overlap.

[28] Finally, I have concluded that any prejudice to the Quebec Plaintiff arising from the Related Party Stay Order will be minimal. This order merely pauses the litigation. It does not affect the availability of the Quebec Purdue Defendants’ assets to the Quebec Plaintiff and it does not affect the merits of the Quebec Plaintiff’s certification motion or claim for damages against the Quebec Purdue Defendants.

Conclusion

[29] For these reasons the Foreign Representative’s motion is granted. There shall be an order on the terms of the draft Related Party Stay Order contained in the Foreign Representative’s motion record.

Costs

[30] I urge the parties to settle costs. If they cannot, they may schedule a 9:30 a.m. attendance with me to determine costs.

[31] I thank all counsel for their helpful submissions.

HAINEY J. Date: December 30, 2019