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The family members who own OxyContin maker Purdue Pharma LP required broad legal releases extinguishing opioid lawsuits against them as a condition for funding what became a roughly $4.5 billion settlement proposal, a company director testified yesterday during a bankruptcy trial examining the deal, WSJ Pro Bankruptcy reported. John Dubel, a restructuring specialist who joined Purdue’s board months before it filed chapter 11 in September 2019, said the Sackler family members who own the company required third-party releases as a prerequisite for a settlement so they would “be able to put all of the litigation behind them.” Dubel’s testimony came during the first day of a bankruptcy trial in New York over the settlement and Purdue’s broader chapter 11 plan, which would fund opioid abatement programs. He described the discussions while answering questions from a lawyer for Connecticut, where Purdue is based and one of a handful of states opposing the plan. The inclusion of legal immunity for the Sacklers, under nonconsensual third-party releases, is being challenged in the bankruptcy case by federal and state authorities. These legal releases have also drawn newfound scrutiny from Congressional Democrats. If U.S. Bankruptcy Judge Robert Drain approves the releases, civil claims against the Sacklers would be extinguished even if a minority of creditors and some states oppose the family’s settlement offer. The Sacklers have been named as defendants in civil litigation alleging they share liability for fueling opioid addiction, which they deny. Purdue pleaded guilty to federal felonies last year over its marketing of OxyContin, an opioid painkiller. The company has said the releases are necessary and boosted the value of the settlement to the benefit of all its creditors, while averting years of uncertain litigation.

An attorney for the Boy Scouts of America told a Delaware judge on Thursday that the group’s national board never adopted a resolution approving an $850 million agreement that is the linchpin of the Boy Scouts’ proposed bankruptcy plan, the Associated Press reported. Despite that acknowledgment, the Boy Scouts are asking the judge to rule that the organization properly exercised its business judgment in entering into the agreement and should be allowed to proceed with it as the foundation of a final bankruptcy plan. The agreement involves the national Boy Scouts organization, the roughly 250 local Boy Scout councils, and law firms representing some 70,000 men who claim they were molested as youngsters by Scoutmasters and others. It also includes the official victims committee appointed by the U.S. bankruptcy trustee. The agreement is opposed by insurers that issued policies to the Boy Scouts and local councils, other law firms representing thousands of abuse victims, and various church denominations that have sponsored local Boy Scout troops. The Boy Scouts, based in Irving, Texas, sought bankruptcy protection in February 2020 amid an onslaught of lawsuits by men who said they were sexually abused as children. The filing was part of an attempt to reach a global resolution of abuse claims and create a compensation fund for victims. Under the agreement presented to U.S. Bankruptcy Judge Laura Selber Silverstein, the Boy Scouts have proposed contributing up to $250 million in cash and property to a fund for abuse victims. Local councils, which run day-to-day operations for Boy Scout troops, would contribute $600 million. The national organization and councils also would transfer their rights to Boy Scout insurance policies to the victims fund. In return, they would be released from further liability for abuse claims.

Six months before Los Angeles-based Shepherd University collapsed into bankruptcy in 2017, accounting firm BW CPA Group Inc. gave the school’s finances a clean bill of health, the Wall Street Journal reported. State regulators called the audit “grossly deficient,” saying it missed red flags for potential fraud and left numerous errors in the financial statements uncorrected. The year before, BW CPA Group failed its second every-three-year peer review in a row, state regulators said. Until regulators took disciplinary action in 2019, there was no way for the public to know that a fellow auditing firm twice took the rare step of giving a failing grade to BW CPA. The firm was banned from auditing last year. Firms that audit private entities essentially police each other, often with no public disclosure. A Wall Street Journal analysis of the system shows that auditors give top grades to one another, hardly ever find fault with the biggest accounting firms and often don’t disclose failures among smaller auditors. Of the firms that disclosed their results, 91% got the highest “pass” grade and only 4% the worst “fail” score on the three-grade scale, the analysis found. None of the biggest 100 firms failed, and 99% of them got the top “pass” score, according to the analysis.

Purdue Pharma LP and its owners, members of the Sackler family, are nearing the end of their decades-long association with opioids, seeking court approval to pay billions of dollars and walk away from the business that helped make their fortune, Bloomberg News reported. U.S. Bankruptcy Judge Robert Drain today will begin what’s expected to be an 11-day trial -- the longest in his career -- to review a proposal the company values at more than $10 billion to settle trillions of dollars in liabilities over its addictive painkiller OxyContin. If Purdue’s plan is approved, the family will pay $4.5 billion over nine or 10 years and essentially hand over the keys to the business, with almost all future proceeds benefiting states, counties and cities hit hard by the opioid epidemic. In exchange, the Sacklers get lifetime immunity from a broad array of opioid-related lawsuits. If the settlement is rejected, family members would likely find themselves ensnared in costly litigation that would drag on for years.

A sprawling Northern California wildfire has now destroyed more than 1,000 buildings, crossing a key threshold that puts PG&E Corp. at risk of heightened regulatory scrutiny and ultimately could set the utility further down a path toward a state takeover, Bloomberg News reported. The Dixie Fire, which PG&E says may have been sparked by its equipment, is the second-largest blaze in state history, according to the California Department of Forestry and Fire Protection. If PG&E is found to have started it, the number of burned buildings is now high enough to allow regulators to place the utility into the second level of a six-step enforcement process that could lead to a state takeover for repeated safety violations. It could take months for state officials to determine whether PG&E caused the fire, considering the blaze is only 30% contained. For the utility to be placed into the next level of enforcement, regulators would also need to find that it didn’t follow state rules or prudent management practices. There would be multiple opportunities for the company to correct course before even reaching higher enforcement levels, let alone losing its license to operate. The California Public Utilities Commission has made no findings or opened any proceedings related to the Dixie Fire, PG&E spokeswoman Lynsey Paulo said in a statement.

Bankruptcy courts are facing a backlash among congressional Democrats over the growing practice of authorizing legal protection to accused wrongdoers who haven’t sought chapter 11 protection themselves, WSJ Pro Bankruptcy reported. While filing for chapter 11 protects a corporation or nonprofit from its creditors, bankruptcy judges often extend those same legal protections to affiliates, owners and other parties with interests at stake. Shielding these third parties from liability, in exchange for settlement payments, has become an increasingly common feature of large chapter 11 cases, according to bankruptcy specialists. Some members of Congress now believe that the practice has gone too far and have proposed forbidding bankruptcy courts from signing away legal claims against third parties, unless every affected creditor agrees. The Democratic legislation on releases would outlaw a critical component of Purdue’s plan while also limiting bankruptcy courts’ power to pause litigation against third parties while a repayment plan is being formulated. The sponsoring lawmakers will face obstacles, including garnering support from Republicans and overcoming concerns that releases can facilitate fair settlements and avoid costly litigation.

A bankruptcy judge said building-products maker CertainTeed LLC appears to have disadvantaged asbestos-injury claimants by placing its asbestos liabilities in chapter 11, spotlighting a corporate maneuver that some congressional Democrats want to curb, WSJ Pro Bankruptcy reported. Bankruptcy Judge J. Craig Whitley said yesterday that the company may have defrauded injury claimants when it used a corporate affiliate with no employees or operations as a “vessel designed to ferry…asbestos liabilities into bankruptcy.” The judge’s ruling didn’t address whether CertainTeed’s move to silo its asbestos liabilities ahead of a bankruptcy filing did in fact defraud asbestos claimants. Other companies have used a similar strategy in an effort to drive settlements of asbestos-injury litigation, and Johnson & Johnson has told injury lawyers in settlement talks it is considering such a move for liabilities related to its talcum-based baby powder. The judge’s decision stopped short of allowing asbestos litigation to resume against CertainTeed, a U.S. unit of France-based Compagnie de Saint-Gobain SA that makes roofing, siding, insulation and drywall for homes. In 2019 CertainTeed, facing roughly 60,000 asbestos lawsuits, with others likely to be filed, divided itself into two entities. The first retained the brand name and business assets. The second, dubbed DBMP LLC, was a vehicle to carry asbestos-related liabilities into chapter 11, while the rest of the company stayed out of bankruptcy.

The Archdiocese of Santa Fe will be auctioning nearly 140 parcels of property next month as it seeks to settle a raft of sex abuse claims, the Associated Press reported. Church officials announced yesterday that an online auction will begin Sept. 21. Opening bids will start as low as $500 for vacant pieces of property that are spread throughout three counties in central New Mexico. Another auction is planned for November. The archdiocese filed for bankruptcy reorganization in 2018 to deal with a surge of claims. A U.S. bankruptcy judge ruled last October that lawyers for clergy sex abuse survivors can file lawsuits alleging the archdiocese fraudulently transferred millions of dollars in property and other assets to avoid bigger payouts to victims. That decision in the chapter 11 reorganization case opened the door to what could be a multimillion-dollar settlement to hundreds of victims who filed claims. It also could result in costly legal appeals that would tap funds that would otherwise be used to pay claims.

A year after PG&E Corp. funded a trust to compensate victims of California wildfires with company stock, most have yet to be paid, and the shares have fallen in value after the utility acknowledged it might have started this year’s worst fire, the Wall Street Journal reported. As part of its plan to exit bankruptcy last year, the San Francisco-based company agreed to use cash and stock to fund a $13.5 billion trust to compensate roughly 70,000 individuals who lost homes, businesses and family members in fires sparked by its equipment. Some victims expressed concern at the time that the deal carried steep risks for them, noting that the shares weren’t guaranteed to rebound and could fall if PG&E started more fires. Those concerns so far have proved prescient. PG&E shares are worth approximately the same as when the trust was funded, threatening victims’ ability to receive full compensation. Their value is down roughly 25% this year and fell steeply last month when the company disclosed that its equipment might have ignited this summer’s continuing Dixie Fire, which has consumed nearly 490,000 acres in the Sierra Nevada foothills and destroyed the town of Greenville.