A trustee has filed a motion requesting court approval of a bankruptcy plan that would require New England Compounding Pharmacy owners and executives to establish a $100-million settlement fund for the benefit of creditors and individuals allegedly harmed by a 2012 fungal meningitis outbreak linked to the company’s steroid injections. In re New Eng. Compounding Pharm., Inc., No. 12-19882 (Bankr. D. Mass., motion filed May 6, 2014).
The company initiated Chapter 11 bankruptcy proceedings in the face of 322 separate lawsuits joined in a multidistrict litigation proceeding; the trustee notes that “[t]he alleged harm suffered by personal injury claimants appears to dwarf the [company] Insiders’ available assets under any realistic analysis.” Sixty-four people died in the outbreak, and more than 750 in 20 states were injured. The proposed agreement would require the owners to contribute $47.75 million and an additional $20 million in tax refunds. They will also give the trustee their insurance policy claims, allowing the collection of some $29 million. The sale of a business owned by the owners is expected to bring another $10 million to the fund.
In a related development, the bankruptcy trustee has also apparently resolved claims arising from administrative proceedings involving the Tennessee Department of Health and Board of Pharmacy, which sought civil penalties for violations of state pharmacy regulations. According to a news source, 16 people died in Tennessee from the meningitis outbreak. Under the proposed agreement, Tennessee will receive $5 million in unsecured claims in exchange for terminating the administrative actions; the state’s claim will be subordinate, “for purposes of voting and distribution, to the claims of tort claimants and other general unsecured creditors.” The drug compounding company and its owner will surrender their Tennessee pharmacy licenses. The trustee has filed a motion seeking court approval of the settlement. See Law360, May 19, 2014.