Bankrupt Meningitis Pharmacy Battles States Over Insurance

By | April 15, 2013

The bankruptcy estate of the pharmacy linked to a deadly U.S. meningitis outbreak plans to battle nearly 30 states to preserve its right to redeem several million dollars worth of insurance policies for creditors.

The insurance policies are key assets in New England Compounding Center’s bankruptcy estate.

Paul Moore, the trustee for NECC’s bankruptcy estate, requested court approval to hire Collora LLP, a Boston law firm known for its high-profile defense work, according to documents filed on Friday. Collora would battle pharmacy board regulators from at least 28 states and contend with an ongoing, previously disclosed investigation by the U.S. Justice Department, according to the trustee.

Creditors in the bankruptcy include the victims of the outbreak, court records show. Their claims, however, are much larger than NECC’s assets, which have been listed at between $1 million and $10 million.

In January, U.S. Bankruptcy Judge Henry Boroff temporarily restricted NECC’s owners from selling their luxury homes or spending up to $21 million they received last year in salary and shareholder distributions. The Official Committee of Unsecured Creditors, which represents meningitis victims, has said it would like to claw back that money for the bankruptcy estate.

Lawyers for NECC’s owners have said there is no evidence that any of them directly participated in the events that led to the deadly U.S. meningitis outbreak. They have been named in a number of civil lawsuits.

NECC filed for Chapter 11 bankruptcy protection in December. The U.S. Food and Drug Administration shut down its operations after the compounding pharmacy shipped thousands of vials of steroids tainted with fungal meningitis. The ensuing outbreak that killed 53 people and sickened 733 others is attributable to injectable steroids distributed by NECC, according to the U.S. Centers for Disease Control and Prevention.

Moore said he initially thought NECC creditors would be best served if he allowed the pharmacy’s operating licenses to be forfeited in various states. But he said he quickly learned there could be “adverse collateral consequences,” namely the ability to redeem various insurance policies and claims for the benefit of creditors, if he let that happen.

As of early March, there have been actions in at least 28 states to compel a suspension, revocation or forfeiture of NECC’s license, the trustee said in his court request.

In addition, the trustee learned that one unnamed state may seek to impose a penalty of more than $2.5 million.

Collora law partner Paul Cirel has been interacting with the U.S. Justice Department, which is investigating the Framingham, Massachusetts-based pharmacy, the trustee said. Cirel has represented NECC since 2003 on regulatory matters. He also has represented Barry Cadden, NECC’s chief pharmacist.

(Reporting By Tim McLaughlin; Editing by Bernard Orr)

Topics USA

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