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The founder of LeClairRyan will likely be revealed as an additional defendant in the $128 million lawsuit targeting UnitedLex over its role in the firm’s bankruptcy, after a bankruptcy judge on Thursday gave the chapter 7 trustee the go-ahead to amend her complaint, The American Lawyer reported. Chapter 7 trustee Lynn Tavenner is seeking to hold an unnamed attorney partially responsible for the failure of the defunct firm’s joint venture with UnitedLex, claiming that the individual’s “misconduct” was integral to the New Law provider’s “scheme to loot [LeClairRyan] of its valuable assets.” While counsel representing that attorney at a hearing Thursday were careful to refer to him as “John Doe” or “former attorney,” they filed a notice of appearance earlier this month indicating their client was LeClairRyan founder Gary LeClair, who is now a partner at Williams Mullen. At Thursday’s hearing, U.S. Bankruptcy Judge Kevin R. Huennekens ruled that Tavenner could amend her complaint, after Tavenner argued that the “former attorney’s” conduct only became clear as her investigation continued. The amended complaint is also likely to expand the scope of allegations against UnitedLex, even after the judge found in July that much of the conduct originally highlighted by the trustee was not illegal. Tavenner has alleged that, by putting nonlawyers in control of the firm’s affairs and by prioritizing payments to UnitedLex over the firm’s other financial obligations, along with other missteps, UnitedLex’s actions ultimately cost the law firm at least $41.7 million. She is seeking treble damages. Gary LeClair did not immediately respond to a request for comment Friday; nor did his attorneys, William Broscious and Andrew Bowman. Additional former equity members of LeClairRyan may also ultimately face lawsuits from the trustee, after the judge agreed to revisit procedures that had been previously established to protect their identities and reputations.

A bankruptcy judge maintained a pause on asbestos-injury litigation against U.S. units of Ireland’s Trane Technologies PLC but said the company might have gone too far by placing its asbestos liabilities in chapter 11, WSJ Pro Bankruptcy reported. Judge J. Craig Whitley of the U.S. Bankruptcy Court in Charlotte, N.C., said that Trane’s move to split off its asbestos liabilities away from its core climate-control business before placing them in bankruptcy appears to have had a “material, negative effect” on the legal rights of thousands of injury claimants. Yesterday’s ruling marked the second time in recent weeks that Judge Whitley has suggested a solvent asbestos manufacturer might have crossed a legal line by hiving off asbestos liabilities and placing them in chapter 11. Earlier this month, he made similar comments about CertainTeed LLC, a U.S. unit of France’s Compagnie de Saint-Gobain SA that is using bankruptcy to try to settle vast asbestos litigation. Judge Whitley didn’t make any final conclusions in either case about whether the companies’ moves to silo asbestos liabilities ahead of a bankruptcy filing did, in fact, defraud asbestos claimants. Both decisions dealt with a Texas statute that allows companies to split themselves in two and allocate their liabilities between the successor entities. CertainTeed and Trane each used these transactions, known as divisive mergers, to isolate their asbestos liabilities in newly formed subsidiaries that then filed for chapter 11.

A U.S. appeals court on Friday refused to resurrect fraud claims against shareholders involved in Tribune Co.’s disastrous $8.2 billion leveraged buyout, but revived claims against two banks that advised the media company, Reuters reported. The U.S. Court of Appeals for the Second Circuit in Manhattan said a trustee representing Tribune creditors failed to show that large investors who sold back their stock in the media company’s Dec. 2007 LBO were unjustly enriched. Writing for a two-judge panel, Circuit Judge Denny Chin also said that while it was a “close call,” the trustee could try to show that Citigroup Inc and Bank of America Corp’s Merrill Lynch unit did not deserve $12.5 million “success fees.” Marc Kirschner, the trustee, had accused shareholders of pushing for the buyout despite knowing Tribune would be insolvent, portending its December 2008 bankruptcy. He also said the banks knew Tribune’s financial forecasts had been too rosy and the company would become insolvent by more than $1 billion, yet failed to act. The panel rejected claims that the banks intended to defraud creditors or committed professional malpractice. It also rejected all claims against another Tribune adviser, Morgan Stanley, but revived a claim against a valuation research firm that had projected Tribune would remain solvent. Tribune, which then owned the Chicago Tribune, Los Angeles Times, Baltimore Sun and WGN superstation, sought chapter 11 protection as ad revenue plummeted and more readers went online for news. The LBO left Tribune with about $13 billion of debt. Sam Zell, the real estate billionaire who led the LBO and became Tribune’s chief executive, has called the buyout the “deal from hell.” Lawyers for the trustee and Bank of America did not immediately respond to requests for comment. Citigroup said it was pleased with the decision. In July 2019, a Delaware bankruptcy judge approved a $200 million settlement of the trustee’s fraud claims against about 50 defendants, including Zell. None admitted wrongdoing. Read more. 

The fiduciary responsibilities of directors of potentially failing companies are the subject of The Zone of (In)solvency: Fiduciary Duties and Standards of Review for Corporations and Limited Liability Companies, available at the ABI bookstore. 

Endo International PLC has tapped a financial restructuring adviser to help the drugmaker evaluate its options for dealing with thousands of lawsuits alleging it contributed to the opioid crisis, WSJ Pro Bankruptcy reported. Endo has engaged consulting firm Alvarez & Marsal Holdings LLC to advise on options that could include a balance-sheet restructuring that would address the company’s liability from litigation around its opioid drugs, as well as its more than $8 billion in debt. As of July, there were nearly 3,000 legal cases pending against Endo from states, counties, cities and Native American tribes over opioids, as well as more than 300 lawsuits from hospitals, health systems, unions, and health or welfare funds. Opioid producers Mallinckrodt PLC, Purdue Pharma LP and Insys Therapeutics Inc. all have turned to chapter 11 since 2019 to drive settlements with state and local authorities alleging the companies contributed to widespread addiction. Endo, which has operations in Malvern, Pa., but is domiciled in Ireland following a 2014 corporate tax inversion, has said that by 2017, it ceased promoting opioid products to healthcare professionals and eliminated the company’s entire pain-product sales force. It also voluntarily withdrew its drug Opana from the market and discontinued the research and development of new opioid products.

Thirty-eight states have enacted emergency orders or laws intended to immunize companies and individuals for care related to the pandemic, according to a tally compiled National Consumer Voice, a nonprofit watchdog organization focused on nursing homes, the Washington Post reported. The public conversation in most of the states was that hospitals, doctors, and long term care facilities should not be held legally responsible for COVID-19 infections and deaths in a viral pandemic that overwhelmed medical systems and long-term care centers. In nursing homes and assisted-living facilities, at least 185,000 people have died of COVID-19 infections, according to the nonprofit, nonpartisan Kaiser Family Foundation. What’s new in North Carolina is that it’s the first state where immunity claims are being cited in court by facilities to defend themselves against cases that are not related to COVID-19 infection and treatment. Such arguments could be more common. Just three of the 38 states with pandemic immunity laws specifically restrict the protections to COVID-19 exposure or infection, according to the survey by National Consumer Voice. The rest of the states have broader language that could cover most forms of harm experienced by patients and residents during the pandemic, according to the organization. North Carolina’s law says immunity applies to the delivery of care “directly or indirectly” impacted by the pandemic. Most of the states have exceptions for acts of “gross negligence” or those in a lack of good faith, higher standards than the usual negligence allegations that are found in nursing home lawsuits over issues like bed sores, falls, dehydration, choking, undiagnosed or untreated infections, and medication errors.

In 2012, former baseball player Curt Schilling abruptly shut down his video game company 38 Studios without giving about 400 employees their final paychecks. Nine years later, many of those people are finally seeing some money — although it’s just a fraction of what they were owed, Bloomberg News reported. Many of the staff who worked for the volatile game developer in either its Rhode Island or Maryland offices will receive payment of about 14% or 20%, respectively, of what the company owed them before it ran out of money and was forced to shut down on May 24, 2012, according to bankruptcy documents. After nearly a decade of litigation through a Delaware court, final payouts were decided in June and recently began being distributed to staff. One former 38 Studios employee told Bloomberg News they received their check this week. Other employees said their checks had been sent to old addresses, as many of them have moved multiple times for new jobs in the years since 38 Studios closed. Schilling founded 38 Studios in the twilight of his baseball career in order to make his dream game, an online role-playing game that would take on the popular World of Warcraft. But his inexperience and mismanagement led the studio to collapse before the game was finished. In 2011, 38 Studios moved from Massachusetts to Rhode Island as part of an elaborate deal in which the state government served as a guarantor for a $75 million loan that was meant to support several years of development. But 38 Studios only received about $50 million and spent lavishly, leading Schilling’s company to run out of money in just one year.

Former Purdue Pharma LP director Mortimer D.A. Sackler testified Thursday he was “shocked and disappointed” when he learned last year the drugmaker his family owns pleaded guilty to federal felonies over its marketing and sale of the opioid OxyContin, saying management assured the board it was complying with relevant laws, WSJ Pro Bankruptcy reported. Sackler said during the second week of a trial in Purdue’s bankruptcy case that before he left the drugmaker’s board in late 2018, briefings by management indicated the company was successfully curbing OxyContin abuse while getting the painkiller to patients with legitimate medical needs. The board got updates on a reformulated, abuse-deterring version of OxyContin as well as an internal program to identify doctors who were overprescribing the drug, Sackler said. He added that management repeatedly told the board that, “Purdue was going above and beyond. We were doing things that no other company had ever done in terms of trying to do that. Trying to reduce prescription opioid abuse.” Purdue filed for chapter 11 bankruptcy protection in September 2019 following an onslaught of lawsuits over OxyContin, the company’s flagship painkiller. The trial is scrutinizing a settlement that would shield Sackler family members from civil litigation accusing them of contributing to the opioid crisis in exchange for a roughly $4.5 billion contribution from them to fund opioid abatement programs. Purdue pleaded guilty last year to three federal felonies over its conduct stretching from 2007, when the company and three of its executives pleaded guilty earlier to federal charges of misleading the public about OxyContin’s addiction risk, to 2017.