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 U.S. Bankruptcy Judge Kevin Gross is expected in July to decide
whether to halt more than 160 active lawsuits brought by state
attorneys general, cities and counties against opioid manufacturer
Insys Therapeutics Inc. When it filed for Chapter 11 protection in
Delaware earlier this month, Insys requested the cases be paused.
A bankruptcy filing would normally halt active litigation
immediately, giving a company such as Insys time to reorganize and
preserve money that would otherwise be spent fighting the cases.
But a longstanding exception in U.S. bankruptcy law can keep the
lawsuits alive if they are enforcing government officials’ “police
or regulatory power.” The exception holds that government actions
seeking to enforce laws related to matters such as public health and
safety are not automatically stopped by a company's bankruptcy
filing as other lawsuits are.
State and local officials are suing Insys and other drugmakers in an
attempt to address harm from an opioid crisis that has killed nearly
400,000 people between 1999 and 2017. More than half these deaths
resulted from prescription painkillers, according to the U.S.
Centers for Disease Control and Prevention.
For a graphic, click https://tmsnrt.rs/2EgfT0n
“Criminal enterprises … should not be permitted to shield themselves
from the consequences of their misconduct by running to bankruptcy
court and obtaining the equivalent of a stay that allows them to
evade justice,” said Minnesota Attorney General Keith Ellison and
Maryland Attorney General Brian Frosh in a Tuesday legal filing
opposing Insys’s request to halt lawsuits.
The opioid crisis "is a national public health emergency," they said
in the filing, which other state attorneys general supported,
including those in New York, New Jersey and Arizona. “The interests
of the public therefore are served by allowing these police powers
actions of the states to continue unfettered by the injunctions that
Insys seeks.”
A spokesman for Insys, which faces trials in Maryland and Minnesota
beginning in August, declined to comment beyond the company's court
filings.
Insys already had reached a $225 million settlement before filing
for bankruptcy with the U.S. Justice Department, admitting to
illegal conduct in resolving claims that it bribed doctors to write
prescriptions, including medically unnecessary ones, for a fentanyl
spray called Subsys designed to treat cancer pain.
The Chandler, Arizona-based company still faces, overall, more than
1,000 lawsuits raising similar allegations of deception and fraud in
marketing its opioids. The misconduct occurred under a prior
management team that has since "entirely turned over" and Insys is
now committed to lawful marketing practices, the company said in
court papers.
Insys contends in bankruptcy-court filings that Judge Gross should
halt the lawsuits against it regardless of any exceptions, lest the
company drain limited financial resources fighting cases on multiple
fronts.
Allowing the cases to continue would leave less money for creditors,
including the very government officials seeking to hold it to
account, Insys contends, adding that its request is not an attempt
to escape liability.
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It had less than $40 million in the bank when filing for bankruptcy
and predicts spending up to $9 million through December to continue
fighting lawsuits, according to court papers.
The judge’s ruling is expected to influence whether another opioid
manufacturer facing 2,000 lawsuits - OxyContin maker Purdue Pharma
LP - decides to file for bankruptcy protection, according to a
person familiar with the matter and legal experts. A Purdue
spokesman declined to comment.
A ruling allowing the Insys litigation to proceed could discourage
Purdue from seeking bankruptcy protection, while pausing the cases
might signal that Chapter 11 bankruptcy proceedings are a viable way
to halt lawsuits and take advantage of breathing room to reach a
broader settlement with plaintiffs, according to the person familiar
with the matter and several legal experts.
Insys lawyers are attempting to persuade government officials to
agree to voluntarily halt their cases, according to a
bankruptcy-court filing. Insys is nearing a deal that would
effectively halt some of those legal claims against the drugmaker
that are consolidated in an Ohio federal court, said Paul Hanly, a
lead lawyer for plaintiffs in the opioid litigation.
An Insys spokesman declined to comment on the potential agreement.
Insys has some legal precedent backing its approach. In 2017, a
bankruptcy judge sided with Takata Corp when temporarily halting
lawsuits brought by Hawaii, New Mexico and the U.S. Virgin Islands
against the Japanese supplier of automobile airbags that exploded,
finding that allowing the litigation to continue threatened the
company’s reorganization. That would have harmed creditors,
including those seeking to hold Takata accountable for widespread
deaths and injuries, the judge ruled.
The ruling allowed Takata to focus on completing a sale to a rival,
creating a combined company called Joyson Safety Systems. A Joyson
representative declined to comment. The Minnesota and Maryland
attorneys general argued in their legal filing on Tuesday that Insys
has not demonstrated the kind of exceptional circumstances present
in the Takata case - an unprecedented automotive recall - that
warranted halting government lawsuits.
While the outcome in the Insys case is not critical for opioid
manufacturers with stronger balance sheets that face lawsuits, such
as Johnson & Johnson, it holds significance for the likes of
OxyContin maker Purdue, according to several legal experts.
In March, Reuters reported that Purdue was exploring filing for
bankruptcy protection to address lawsuits alleging it pushed
prescription painkillers while downplaying their abuse and overdose
risks, according to people familiar with the matter. Purdue's CEO
later confirmed the company was considering a bankruptcy filing.
The company has denied allegations it contributed to the opioid
crisis, pointing to the U.S. Food and Drug Administration approving
labels on its drugs carrying warnings about risk and abuse
associated with treating pain.
(Editing by Vanessa O'Connell and Edward Tobin)
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