Failed Negotiation Examples in the News: The Purdue Pharma Settlement Collapses

Failed negotiation examples from the news have much to teach us about what can go wrong in business deals and other bargaining situations, as a recent legal ruling regarding the U.S. opioid crisis shows.

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Relationship-Building in Negotiation

To get what we want, we typically need to make concessions in negotiation. But how much is too much? And when the other party demands a take-it-or-leave-it ultimatum, should we take it or not? Failed negotiation examples in the news can shed light on such negotiation dilemmas. A settlement that thousands of U.S. state, local, and tribal governments reached in September 2019 with OxyContin manufacturer Purdue Pharma over its role in the opioid epidemic stands out as such a failed negotiation case study.

A Contentious Settlement

In 2007, Purdue and three of its top executives pleaded guilty to misleading the public about the risks of OxyContin. Over the next 10 years, members of the Sackler family, Purdue’s owners, withdrew more than $10 billion from the company and deposited most of it in offshore accounts and trusts, beyond the reach of American authorities, the New York Times reports.

By 2018, all but two U.S. states and about 2,300 local and tribal governments and other entities, including unions and hospitals, had sued Purdue Pharma for its role in the opioid epidemic. The plaintiffs banded together to try to jointly negotiate a settlement to recoup many billions in taxpayer funds spent on medical treatment, social services, and other costs resulting from OxyContin addiction and overdoses.

With Purdue on the brink of bankruptcy, the Sackler family would be the main backers of any monetary settlements reached, but they repeatedly pushed back against the plaintiffs’ financial demands. The Sacklers also insisted on being released from liability in all future civil opioid-related cases. Although this type of release is common for those in bankruptcy, it was a controversial demand for billionaire defendants.

In September 2019, believing they had little choice, the plaintiffs agreed to give the Sacklers immunity in exchange for $4.5 billion. Under the terms of the agreement, Purdue would file for Chapter 11 bankruptcy and be dissolved; a new company, not owned by the Sacklers, would then be formed, with its profits used to pay plaintiffs. At least 10 U.S. states, led by Massachusetts and New York, rejected the deal, saying Purdue’s proceeds could take years to materialize.

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Plaintiffs Strike Back

After a bankruptcy-court judge approved the settlement, the U.S. Trustee (a division of the U.S. Department of Justice), eight states, and other parties appealed, arguing that prohibiting plaintiffs from suing the Sacklers violated due-process rights. They argued that the Sacklers had no right to demand such a concession because they had emptied Purdue’s coffers, the Times reports.

In December 2021, federal judge Colleen McMahon of the U.S. District Court for the Southern District of New York agreed with this argument and invalidated the negotiated agreement. Judges have no authority to grant legal immunity to parties that do not seek bankruptcy protection, she ruled.

Moreover, Judge McMahon said she was troubled by the Sacklers’ apparent attempts to shield billions of dollars from plaintiffs. “Concerned about how their personal financial situation might be affected, the family began what one member described as an ‘aggressive[]’ program of withdrawing money from Purdue almost as soon as the ink was dry on the 2007 papers,” she wrote. Purdue said it would appeal the ruling.

Learning from Failed Negotiation Examples

Judge McMahon’s ruling was good news for other parties that are taking the Sacklers to court. But with the Purdue bankruptcy plan on indefinite hold, it was a significant setback for the thousands of plaintiffs that had counted on funds from the $4.5 billion deal and now must wait longer to find out if they will get a similar or larger payout.

What can business negotiators learn from this and other failed negotiation examples in the news, particularly when it comes to making concessions in negotiation? First, before making a difficult concession, remember that a contract isn’t worth the paper it’s printed on if it collapses during the implementation stage. The idea that the extraordinarily wealthy Sacklers could be granted immunity from future lawsuits was on shaky legal ground from the start. The plaintiffs gambled that the courts would uphold the Sacklers’ demand—a bet that didn’t pay off. Wise negotiators carefully analyze the legal and other risks of agreeing to an extreme demand.

Second, agreeing to terms that would disadvantage outsiders is questionable on ethical, legal, and strategic grounds. In acceding to the Sacklers’ demand, the plaintiffs bargained with the well-being of other parties that arguably deserved their day in court. Judge McMahon called foul, insisting this wasn’t the plaintiffs’ decision to make. In negotiation, we need to consider how our deals will affect not only those who are at the table but also those who are not.

Third, as failed negotiation examples sometimes highlight, there are often alternatives to conceding to a threat. You may be able to defuse a take-it-or-leave-it negotiation ultimatum that draws a line in the sand through a variety of tactics, including ignoring the threat, pursuing more collaborative negotiation by inquiring about the party’s underlying interests, or calling their bluff—and being prepared to walk away.

What other takeaways have you absorbed from this or other failed negotiation examples in the news?

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