Court File and Parties

COURT FILE NO.: CV-19-627656-00CL DATE: 20240606 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 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.

APPLICATION OF PURDUE PHARMA L.P., UNDER SECTION 46 OF THE COMPANIES’ CREDITORS ARRANGEMENT ACT, R.S.C. 1985, c. C-36, AS AMENDED

BEFORE: Conway J.

COUNSEL: Sharon Kour, Andrew J. F. Kent, and Jessica Wuthmann, for Peter Ballantyne Cree Nation and Lac La Ronge Indian Band, and The City of Grand Prairie and Corporation of the City of Brantford, Moving Parties Cindy Clarke, Alex MacFarlane and Barry Glaspell, for Purdue Frederick Inc. (Canada), Purdue Pharma (Canada) and Purdue Pharma Inc. (Canada) Ashley Taylor and Lee Nicholson, for Purdue Pharma L.P. in its capacity as the foreign representative of the Chapter 11 Debtors Grant B. Moffat and Reidar Mogerman, K.C., for His Majesty the King in Right of the Province of British Columbia David Bish, for the Information Officer, Ernst & Young Inc. Nadia Campion and Matthew Gottlieb, for the Sackler Families

HEARD: May 28, 2024

Reasons for decision (Stay of IMPLEMENTATION OF BC Class Action Settlement)

[1] In August 2018, His Majesty the King in Right of the Province of British Columbia brought a proposed class action (the “BC Action”) on behalf of 14 federal, provincial, and territorial governments in Canada (the “Canadian Governments”). The defendants are manufacturers and distributors of opioids, including Purdue Frederick Inc. (Canada), Purdue Pharma (Canada), and Purdue Pharma Inc. (Canada) (collectively, “Purdue Canada”). The claim is for recovery of healthcare costs expended by the Canadian Governments relating to the opioid epidemic. [^1]

[2] The BC Action has now been certified and settled (the “Settlement”) and has received the approval of the Supreme Court of British Columbia (the “BC Supreme Court”).

[3] Peter Ballantyne Cree Nation and Lac La Ronge Indian Band (the “First Nations”) and The City of Grand Prairie and Corporation of the City of Brantford (the “Municipalities”) (collectively, the “Moving Parties”) have brought their own proposed class actions in Saskatchewan and Alberta, respectively, against various distributors and manufacturers of opioids. Purdue Canada is a defendant in those actions.

[4] On this motion, the Moving Parties seek an order staying the implementation of the Settlement until Purdue Canada demonstrates that the implementation of the Settlement is not unlawful, prejudicial, preferential, or an abuse of process. They further seek disclosure of financial information and documentation from Purdue Canada to that effect (the “Requested Orders”). [^2]

[5] For the reasons that follow, the Moving Parties’ motion is dismissed.

Background

[6] The proceedings giving rise to this motion have been lengthy and complex. I am providing a summary of the background to give some context for the motion before me. The following facts are undisputed, unless otherwise noted.

The Chapter 11 and CCAA Recognition Proceedings

[7] The Purdue US companies (“Chapter 11 Debtors”) [^3] operate a pharmaceutical business that manufactures and distributes, among other things, opioid pain medications. In September 2019, those companies filed for protection under chapter 11 of title 11 of the United States Code with the United States Bankruptcy Court for the Southern District of New York (the “US Court”). The US Court appointed Purdue Pharma L.P. as the foreign representative of the Chapter 11 Debtors (the “Foreign Representative”).

[8] The Foreign Representative brought recognition proceedings in this court pursuant to Part IV of the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, as amended (“CCAA”), and obtained a recognition order from Hainey J. on September 19, 2019. That order recognized the Chapter 11 proceeding as a foreign main proceeding.

[9] In October 2019, the US Court granted a preliminary injunction in favour of the Chapter 11 Debtors and various related parties in the US. The Foreign Representative obtained an order recognizing that preliminary injunction from Hainey J. on December 30, 2019.

The Related Party Stay

[10] In addition to seeking recognition of the preliminary injunction, the Foreign Representative sought and obtained from Hainey J. a stay of opioid-related proceedings against Purdue Canada (the “Related Party Stay”). [^4]

[11] Purdue Canada is not a Chapter 11 Debtor or a subsidiary of a Chapter 11 Debtor. It is related to the Chapter 11 Debtors through direct or indirect common ownership by the Sackler families.

[12] Justice Hainey granted the Related Party Stay order pursuant to ss. 49 and 52 of the CCAA. He noted the significant volume of litigation against the Chapter 11 Debtors, over 2600 civil actions in the United States and 13 actions in Canada. He observed that the purpose of the Chapter 11 proceeding was to resolve the litigation and achieve a global settlement for all opioid-related claims.

[13] He noted, at paras. 23-24, that the preliminary injunction was intended to “pause all of the opioid-related litigation” and that the Related Party Stay was “intended to accomplish the same purpose” as the preliminary injunction granted by the US Court. He stated (my emphasis added):

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.

The US Plan

[14] The Chapter 11 Debtors have filed a joint plan of reorganization in the Chapter 11 proceedings (the “Plan”). One of the terms of the Plan is that the Sackler family members will use their best efforts to sell their interest in international pharmaceutical companies within seven years of the Plan implementation date. In the case of Purdue Canada, the sale must occur by the later of seven years from the Plan implementation date and two years following final resolution of the BC Class Action. The sale proceeds are to be contributed by the Sackler family to the Plan.

[15] The Plan has not yet been confirmed. Issues related to the Plan (in particular, the granting of third-party releases) are before the courts in the United States. The Supreme Court of the United States heard submissions on December 4, 2023 and reserved its decision.

The Settlement and Proceedings in the BC Courts

[16] Purdue Canada entered into the Settlement with the Canadian Governments on May 17, 2022. The Settlement is for $150 million payable over seven years. The payments are secured by the assets of Purdue Canada.

[17] The negotiations in the BC Action proceeded over a period of two years in a mediated process presided over by the late Honourable Joel Avery Silcoff, a retired judge of the Superior Court of Quebec, and his counsel. As noted, the Settlement was reached in May 2022. On November 15, 2022, this court lifted the Related Party Stay to allow an application for approval of the Settlement to proceed before the BC Supreme Court. Lac La Ronge Indian Band (“Lac La Ronge”) sought to intervene. It also sought disclosure from the Canadian Governments and Purdue Canada.

[18] Justice Brundrett of the BC Supreme Court heard the approval application on December 15 and 16, 2022. He approved the Settlement and denied Lac La Ronge’s application to intervene. He said that neither it nor another proposed intervenor is “a creditor of Purdue Canada, despite their submission that they may be in the future”: British Columbia v. Purdue Pharma Inc., 2022 BCSC 2343, at para. 11. Justice Brundrett held that the Settlement was fair, reasonable, and in the best interest of the class as a whole. He specifically noted that “there is no reason to believe that any collusion or extraneous considerations have influenced negotiations”: British Columbia v. Purdue Pharma Inc., 2022 BCSC 2288, at para. 22. He also noted that the Purdue Canada defendants were solvent.

[19] Lac La Ronge appealed to the Court of Appeal for British Columbia (“BC Court of Appeal”). The Canadian Governments moved to quash the appeals. On February 22, 2024, the BC Court of Appeal granted the application to quash Lac La Ronge’s appeals: British Columbia v. Purdue Pharma Inc., 2024 BCCA 58.

Lift Stay Motions

[20] In August 2021, while settlement negotiations with the Canadian Governments were underway, the US Court approved a “Stipulation”, in which the Canadian Governments agreed to withdraw their proofs of claim against Purdue US. The Stipulation provided that their claims were preserved against Purdue Canada. The Plan was subsequently amended to provide a “carve-out” from the Plan of all Canadian plaintiffs’ claims against Purdue Canada.

[21] Thereafter, numerous plaintiffs sought leave from this court to lift the Related Party Stay to pursue their claims against Purdue Canada. Those lift stay orders were not opposed by Purdue Canada and were granted by this court. In particular, the Related Party Stay was lifted in September 2021 to permit a proposed class action to proceed to a certification motion against Purdue Canada in Quebec. In June 2022, it was lifted to permit an Ontario plaintiff to bring a certification motion to proceed against Purdue Canada in Ontario.

[22] In January 2023, the Related Party Stay was lifted to permit the Moving Parties to bring a certification motion and to issue fresh and amended claims adding other related parties to their actions in Saskatchewan and Alberta. [^5]

Jurisdiction

[23] Purdue Canada submits that this court does not have the jurisdiction to make the Requested Orders. It submits that these are Part IV recognition proceedings only and that Purdue Canada is not a Chapter 11 Debtor in those proceedings. It says that the Related Party Stay was granted as an ancillary order to support the Chapter 11 proceedings and to facilitate the objective of resolving all litigation claims on a global basis. It was not intended to confer on this court a general supervisory role over Purdue Canada.

[24] In my view, this is not an issue of jurisdiction. The Related Party Stay was granted, at the request of the Foreign Representative, to pause all opioid litigation against Purdue Canada. There was no issue raised about this court’s jurisdiction to grant the order pursuant to Part IV of the CCAA. Justice Hainey stated, at para. 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.”

[25] In Paladin Labs Canadian Holding Inc., 2022 ONSC 4748, Morawetz C.J.S.C, in Part IV recognition proceedings, granted a third party stay. He stated, at para. 24: “I am satisfied this Court has the jurisdiction to grant a stay with respect to non-applicant debtor companies. The Court’s jurisdiction arises from its authority under subsection 49(1) of the CCAA and pursuant to section 106 of the CJA.”

[26] This court has jurisdiction over Purdue Canada. However, it is not necessary for me to determine the precise limits of this court’s jurisdiction over Purdue Canada since, as explained below, there is no basis to grant the relief sought on this motion.

The Requested Orders

[27] The Moving Parties submit that because this court granted the Related Party Stay, it brought Purdue Canada into these insolvency proceedings. They note that Purdue Canada is not independent of the Chapter 11 Debtors due to the common ownership by the Sackler family. They argue that Purdue Canada has had the benefit of the Related Party Stay for over four years. The position of the Moving Parties is that Purdue Canada should not be entitled to settle litigation with one set of plaintiffs (the Canadian Governments) without disclosing its financial status to this court. Further, they argue that the implementation of the Settlement should be stayed until Purdue Canada has demonstrated that the Settlement is not unlawful, prejudicial, preferential, or an abuse of process.

[28] There are numerous problems with the Moving Parties’ position.

[29] I acknowledge that Purdue Canada was brought into these insolvency proceedings through the Related Party Stay. However, it must be remembered that these are Part IV recognition proceedings under the CCAA with respect to the Chapter 11 Debtors. Purdue Canada is not a Chapter 11 Debtor. These were not insolvency proceedings against Purdue Canada as a “debtor company” under the CCAA. [^6] There has been no determination that Purdue Canada is insolvent. The proceedings were not brought for the purpose of restructuring the affairs of Purdue Canada. The extent of this court’s supervision over the affairs of Purdue Canada must be viewed in this context.

[30] While Hainey J. granted the Related Party Stay against Purdue Canada, it was for a limited purpose – namely, to further the objective of the US Court and facilitate a global resolution of all litigation. The Related Party Stay was not intended to grant this court a more expansive supervisory role over the conduct or operations of Purdue Canada. The terms of that order did not restrict Purdue Canada’s business activities or preclude it from negotiating settlements of claims against it. It did not constitute Purdue Canada a CCAA debtor.

[31] Once it was evident that a global resolution of all claims would not be achieved (in 2021 when the Plan was amended to carve out claims against Purdue Canada), it was open to the Moving Parties to seek a lift stay to pursue their actions. Other Canadian litigants obtained those lift stay orders on an unopposed basis. The Moving Parties were in no different position to move their actions forward or seek a negotiated settlement. Indeed, when they sought to lift the Related Party Stay in January 2023, the order was granted on an unopposed basis.

[32] The Moving Parties question the ability of Purdue Canada to satisfy any judgment they may obtain. They state in their reply factum that “Purdue Canada may in fact be a “debtor company” that has simply not disclosed its financial status.” They want Purdue Canada to prove that it is not insolvent – otherwise, they argue, the pari passu principle applies and all unsecured creditors of Purdue Canada have to be treated equally. They add that there has been no claims process conducted for Purdue Canada and the full extent of claims against it are unknown.

[33] In questioning Purdue Canada’s solvency, the Moving Parties point to the fact that the Canadian Governments withdrew their CAD $80 billion claim in the Chapter 11 proceedings and settled for $150 million after receiving financial disclosure from Purdue Canada. They rely on a statement from Luciana Brasil, counsel for the Province of British Columbia, in her affidavit on the settlement approval motion. She stated that after reviewing Purdue Canada’s financial disclosure, she concluded that the Canadian Governments’ claim amount “vastly exceeded the value and resources of Purdue Canada.” In my view, the statement that an CAD $80 billion claim exceeds the resources of Purdue Canada does not lead to the conclusion that Purdue Canada cannot afford to pay the $150 million Settlement over seven years or that doing so will render it insolvent.

[34] Melanie Milburn, the general manager of Purdue Canada, was cross-examined on her affidavit dated April 19, 2024. She stated that it was critical in the settlement negotiations that the amount be one that Purdue Canada could bear and afford for the foreseeable future while continuing to operate with stability. She stated that Purdue Canada has organized its financial affairs to allow it to make the Settlement payments and continue as a going concern. The Moving Parties submit that Ms. Milburn’s statement that Purdue Canada would remain a going concern is bald and unsubstantiated. [^7] Further, she would not answer whether Purdue Canada had made any allowances for payment of contingent claims (including the Moving Parties’ claims) when negotiating the amount of the Settlement.

[35] Ms. Milburn’s statements are supported by the structure of the Settlement itself. The Settlement is payable over a seven-year period. The security granted to the Canadian Governments is subordinate to any present or future security granted to creditors loaning money to Purdue Canada for business use. These terms reflect the anticipated continuation of Purdue Canada as an operating company.

[36] The Moving Parties also rely on the decision of McMahon J. of the U.S. District Court for the Southern District of New York, dated December 16, 2021, in which she refers to evidence about how the Sackler family took $10.4 billion out of Purdue between 2008 and 2017, which substantially reduced Purdue’s “solvency cushion”. Justice McMahon was describing evidence about actions taken with respect to Purdue US, not Purdue Canada. There is insufficient evidence before me to draw the inference that comparable actions were taken in Canada.

[37] Justice Brundrett, in his reasons approving the Settlement, held that Purdue Canada was solvent. On appeal, the BC Court of Appeal upheld this finding and stated, at para. 81, that there “was no basis upon which the judge could have concluded that … Purdue Canada was insolvent.”

[38] The Moving Parties’ submissions about Purdue Canada’s potential insolvency are forward-looking and speculative. At this time, the evidence before me is that Purdue Canada is solvent and the Settlement was structured with the objective of Purdue Canada remaining a going concern. The Moving Parties have not provided a sufficient evidentiary foundation for me to require Purdue Canada to prove that it is not insolvent or that it will be able to satisfy any judgment that the Moving Parties (or any other plaintiff) may ultimately obtain in the future.

[39] The Moving Parties rely on s. 18.6 of the CCAA, which imposes a duty of good faith on any interested person in CCAA proceedings. Section 18.6(2) provides that if the court is “satisfied that an interested person fails to act in good faith, on application by an interested person, the court may make any order that it considers appropriate in the circumstances.” Purdue Canada accepts that it has an obligation to act in good faith in these CCAA proceedings and submits that it has met this standard.

[40] Based on the record before me, I am not satisfied that Purdue Canada has failed to act in good faith. The Settlement was negotiated at arm’s length with 14 governments, was approved by the BC courts, and has been found to be fair and reasonable. The BC Court expressly found that there was no reason to believe that any collusion had occurred. In the years prior to the Settlement, Purdue Canada did not oppose the lift of the Related Party Stay to permit other litigants in Canada to pursue their claims against it. There is no suggestion that Purdue Canada has breached the Related Party Stay. It was not restricted from negotiating settlements under the terms of that order. It sought a lift stay order from this court to have the Settlement approved by the BC Court.

[41] The Moving Parties rely on s. 11.9(1) of the CCAA. That section provides that the court may, “on any application under this Act in respect of a debtor company, by any person interested in the matter and on notice to any interested person who is likely to be affected by an order made under this section, make an order requiring that person to disclose any aspect of their economic interest in respect of a debtor company, on any terms that the court considers appropriate.” That section does not apply since, as noted, the information requested is about Purdue Canada, which is not a debtor company under the CCAA.

[42] The Moving Parties rely on the case of U.S. Steel Canada Inc. et al. v. The United Steel Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union et al., 2022 ONSC 6993, for the proposition that a company that benefitted from the provisions of the CCAA has corresponding obligations in implementing a restructuring under the statute. They argue that since Purdue Canada benefitted from the Related Party Stay, it had the obligation not to pursue a settlement with one group of creditors but not another. This submission fails to recognize that the Related Party Stay did not preclude Purdue Canada from negotiating settlements with creditors. As set out above, the evidence in the record is insufficient to accept the Moving Parties’ submission that by negotiating and implementing the Settlement, Purdue Canada breached the obligations of a party benefitting from the protection of this court.

[43] In their notice of motion, the Moving Parties refer to various statutes as grounds for staying the implementation of the Settlement, including the Fraudulent Conveyances Act, R.S.O. 1990, c. F.29, and the Assignments and Preferences Act, R.S.O. 1990, c. A.33. The Moving Parties did not provide any analysis of how they can meet the applicable tests under those statutes. Rather, the Moving Parties are asking this court to stay the Settlement and seek information that they potentially might be able to use to challenge the Settlement under those statutes.

[44] Finally, I see no prejudice to the Moving Parties in refusing the Requested Orders on this record. The Moving Parties retain their legal rights and remedies if there is evidence to support a judicial determination that the implementation of the Settlement is unlawful, prejudicial, preferential, or an abuse of process. According to the Financial Accountability Office of Ontario, none of the Canadian governments had a credit rating below A as of November 2023. There is no reason to believe that the Settlement funds cannot be returned if such a judicial determination is made in the future.

Decision

[45] The Moving Parties’ motion is dismissed. [^8]

[46] If the parties are unable to agree on the costs of this motion, they shall arrange a scheduling appointment before me to address the process for costs submissions.

Conway J. Date: June 6, 2024

Footnotes

[^1]: The Canadian Governments relied on the Opioid Damages and Health Care Costs Recovery Act, S.B.C. 2018, c. 35, and parallel legislation in other provinces. [^2]: Purdue Canada brought a cross-motion for an order that this court does not have jurisdiction or alternatively that the Moving Parties’ motion should be dismissed on its merits. [^3]: “Purdue US” and “Chapter 11 Debtors” mean, collectively, Purdue Pharma L.P., Purdue Pharma Inc., Purdue Transdermal Technologies L.P., Purdue Pharma Manufacturing L.P., Purdue Pharmaceuticals L.P., Imbrium Therapeutics L.P., Adlon Therapeutics L.P., Greenfield BioVentures L.P., Seven Seas Hill Corp., Ophir Green Corp., Purdue Pharma of Puerto Rico, Avrio Health L.P., Purdue Pharmaceutical Products L.P., Purdue Neuroscience Company, Nayatt Cove Lifescience Inc., Button Land L.P., Paul Land Inc., Quidnick Land L.P., Rhodes Associates L.P., Rhodes Pharmaceuticals L.P., Rhodes Technologies, UDF L.P., SVC Pharma L.P., and SVC Pharma Inc. [^4]: Purdue Pharma L.P. (Re), 2019 ONSC 7042, 76 C.B.R. (6th) 308. [^5]: In addition, in September 2021, the Related Party Stay was lifted to allow a settlement approval application to proceed in Saskatchewan with respect to ten class actions across the country that were settled prior to the date of the Chapter 11 proceedings. [^6]: Under s. 2(1), debtor company means any company that (a) is bankrupt or insolvent, (b) has committed an act of bankruptcy within the meaning of the Bankruptcy and Insolvency Act or is deemed insolvent within the meaning of the Winding-up and Restructuring Act, whether or not proceedings in respect of the company have been taken under either of those Acts, (c) has made an authorized assignment or against which a bankruptcy order has been made under the Bankruptcy and Insolvency Act, or (d) is in the course of being wound up under the Winding-up and Restructuring Act because the company is insolvent; [^7]: The Moving Parties submit that the only concrete financial information provided by Purdue Canada is that it has the initial payments under the Settlement set aside in a bank account. [^8]: I am granting Purdue Canada’s cross-motion solely on the basis that I am dismissing the Moving Parties’ motion.