Florida AG, Other Public Agencies Balk at Insys Hurry-Up Bankruptcy Procedure
Opioid-maker Insys Therapeutics filed for bankruptcy protection this month and wants to estimate claims ahead of a planned August asset sale.
June 26, 2019 at 08:07 PM
5 minute read
The original version of this story was published on Law.com
Florida, two other states and a handful of cities and counties object to a plan to estimate the total value of legal claims against bankrupt opioid manufacturer Insys Therapeutics Inc.
Insys, which filed for Chapter 11 bankruptcy protection June 10, filed a motion to estimate the costs of about 1,000 lawsuits brought against the Phoenix-based company over the opioid crisis. The procedure would preserve funds and “fix aggregate amounts of particular categories of claims on an expedited basis,” according to the motion.
But plaintiffs suing Insys, including Florida, New Jersey and New York, filed objections Tuesday insisting the early plan was premature and procedurally improper and would reduce their potential compensation without due process. Ten other states would be subject to the disputed procedure.
“The debtors ask this court and all of their many creditors, including sovereign governmental entities such as the state, to go through a truncated, procedurally backward, and ludicrously expensive estimation process,” Florida Attorney General Ashley Moody's office wrote. “Rather, the estimation motion is a clear attempt by the debtors to reduce their liabilities without affording any due process to claimants.”
A hearing on the plan is set for Tuesday.
Insys is one of several manufacturers of opioids, a class of drugs that includes prescription painkillers tied to increasing deaths and addiction nationwide. Several Insys executives, including founder John Kapoor, have been convicted of racketeering and other crimes related to the opioid crisis.
An Insys spokesman declined to comment on the bankruptcy move..
Insys, which also sought injunctive relief to stay hundreds of active opioid cases, brought its estimation procedure under section 502(c) of the U.S. Bankruptcy Code, which allows a debtor to estimate unliquidated claims that “would unduly delay the administration of the case.”
The company put its bankruptcy case on a fast track with an asset sale planned for August.
“Waiting for approximately 1,000 individual cases, many of which are still in their nascent stages, or have yet to be filed, to be resolved will impede the debtors' ability to formulate, confirm, and implement a plan and could drain the debtors' estates of tens of millions of dollars — materially reducing the value of these estates and creditor recoveries,” the motion said. “Given the volume of claims, litigating each of them would unduly delay administration of the debtors' estate, potentially by years, if it were necessary to reduce all of them to a final judgment.”
The procedure would estimate actual and compensatory damages and other compensation for a wide range of cases brought by states, cities, counties, Native American tribes, personal injury plaintiffs and insurance providers.
In an objection, Moody's office called the procedure a “monumental waste of precious resources,” particularly given uncertainties over whether there would be any assets to distribute.
The “truncated and unrealistic time schedule” would be unfair to claimants, whose claims would be “arbitrarily reduced,” said the motion filed by Russell S. Kent , special litigation counsel in the attorney general's office. He has been with the AG's office since 2004 and handled the state's legal response to the Deepwater Horizon oil spill.
“These timeframes would be considered highly aggressive in a normal contested matter, but here, these deadlines are completely unrealistic and unneeded,” he wrote. “There is no reason to force such a truncated schedule on claimants other than to put them at a disadvantage in this case.”
Kylie Mason, a spokeswoman for Moody's office, declined to comment.
New Jersey and New York joined Florida's objection.
Hundreds more cases pending against Insys, mostly by cities and counties, have been stayed in the multidistrict litigation before U.S. District Judge Dan Polster of the Northern District of Ohio. Two of them are set for trial Oct. 21 and name Insys and several other opioid companies as defendants.
Lead plaintiffs attorneys in those cases, in a separate objection Tuesday, called the proposed procedure a “flawed strategy for these cases.” They raised additional concerns about how Insys would use the estimated values of the cases, particularly if other opioid companies filed for bankruptcy.
Instead, they wrote Insys should go through its asset sale and put the proceeds into a liquidating trust.
Another objection came from two Arizona cities and counties in Maryland and Missouri, who called the procedure a “complex sleight of hand.”
“Debtors have essentially proposed eliminating all of claimants rights without any regard to due process or the merits of their claims,” wrote Eric Fromme of Theodora Oringher in Costa Mesa, California. “Adoption of debtors' proposal would prevent claimants' meaningful discovery to determine a fair value of their claims.”
Another filing came from lawyers who brought class actions in 25 states on behalf of people who alleged the opioid crisis caused their health insurance premiums to skyrocket. The class actions are in states including California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Texas.
While not objecting to the Insys estimation motion, lawyers in the class actions want their clients to be included as a category of claims.
“The details of how this is going to work are very important, and it can't be jammed through,” said one of them, Joe Huston, of Stevens & Lee in Wilmington, Delaware.
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