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A beachfront home in Southampton, New York, appraised at $63 million — half of an estate marketed as “La Dune” — recently landed in bankruptcy court just days before a foreclosure auction, court papers show, Bloomberg News reported. The house at 366 Gin Lane is wrapped up in foreclosure proceedings stemming from an unpaid $26 million mortgage that has ballooned to about $40 million since 2019, according to Suffolk County Court records. The house is adjacent to another, larger waterfront mansion that is also in default. Both homes are controlled by once-ascendant art publisher and philanthropist Louise Blouin, bankruptcy court papers show. The entire compound was listed for sale at $140 million as recently as January 2020, according to real estate website Out East. The smaller home brought in $750,000 of rental income in 2021 and $250,000 in 2020, bankruptcy papers show. The estate boasts 22,000 square feet (2,044 square meters) of interior between the two homes and is situated on 4.2 acres that includes 400 feet of bulkhead beachfront, according to a listing from Sotheby’s International Realty. Buyers could also enjoy two custom gunite pools and an all-weather tennis court. The smaller home was set to be auctioned on May 2 to repay the mortgage. Blouin signed off on the property’s bankruptcy filing on Saturday, just two days before the scheduled auction. Bankruptcy filings typically halt lender efforts to collect on unpaid debts.

A former Chicago-based paralegal for Saul Ewing Arnstein & Lehr pleaded not guilty Thursday to charges that she illegally transferred funds intended for bankruptcy creditors to her own account and used them to pay off expenses such as a mortgage and student loans, Reuters reported. The indictment dated April 20 did not include the name of Becky Louise Sutton's law firm, but a spokesperson for Saul Ewing confirmed that she had worked there. "We have cooperated with law enforcement and ensured that any impacted client did not suffer any losses," the spokesperson said in an April 21 statement. In an arraignment in Chicago federal court before Magistrate Judge Maria Valdez, prosecutors said Sutton is charged with multiple counts of embezzlement and wire fraud for siphoning off $682,980 from bankruptcy estate accounts. Sutton worked with a Saul Ewing partner, assisting them with chapter 7 and chapter 11 bankruptcy cases from 2009 to 2018, according to the indictment. The partner's name has not been disclosed in the filings nor by the firm. The indictment said Sutton did not pay creditors that were owed money from bankruptcy estate accounts and instead transferred the funds to credit card and personal bank accounts, paid her mortgage and student loan payments, and sent money to a PayPal account. Sutton agreed to post $5,000 for bond. Each count of wire fraud could result in 20 years in prison and each count of embezzlement could result in five, according to a U.S. Department of Justice statement.

The World Class-controlled company that owns the Offices at Braker filed for chapter 11 protection on May 2, just days after a subsidiary of Karlin Real Estate scooped up the senior mortgage loan tied to the properties, the Austin Business Journal reported. The properties, owned by Nate Paul's World Class Holdings through an entity called WC Braker Portfolio LLC, are part of the sprawling North Austin office park near the intersection of Metric Boulevard and West Braker Lane in North Austin. Karlin's involvement adds an additional layer of intrigue, as the Los Angeles-based development firm has feuded in the past with World Class and is increasingly invested in the Texas capital. The WC Braker portfolio consists of nearly 45 acres valued for tax purposes at roughly $163 million, according to Travis Central Appraisal District records. It includes 13 single-story office buildings comprising 546,823 rentable square feet, according to court documents recently filed in New York. The true value of the properties could far exceed the taxable value. Legal disputes have been fought over the Braker portfolio since at least 2019. World Class is an Austin-based real estate investment firm that owns prominent development sites across the city. The embattled firm has faced a series of lawsuits, bankruptcies and foreclosures in the wake of a 2019 raid of its headquarters by federal investigators. No charges have resulted from the raid.

U.S. states that claim that Johnson & Johnson violated consumer protection laws should mediate their dispute with a unit of the drugmaker separately from individuals who claim that Johnson & Johnson talc products cause cancer, a Bankruptcy Judge Michael Kaplan said yesterday, Reuters reported. The subsidiary, LTL Management LLC, was formed in October to resolve thousands of lawsuits against J&J in bankruptcy court. Judge Kaplan approved the controversial strategy in February, allowing J&J to assign the lawsuits to LTL and then place LTL in bankruptcy. J&J maintains that its baby powder and talc products are safe and asbestos-free, and it has argued that the bankruptcy case is the fairest and most efficient way to resolve the 38,000 lawsuits alleging that the products cause cancer. In March, Judge Kaplan ordered LTL and talc plaintiffs to begin mediation on a potential settlement of the cancer claims. The attorneys general of 40 states sought to join the mediation, saying that no settlement can succeed without the states' input. The states have asserted claims far in excess of the $2 billion that J&J initially set aside for a future bankruptcy settlement. The magnitude of those claims could allow the states to crowd out other stakeholders during negotiations to resolve LTL's bankruptcy. Judge Kaplan said during a court hearing yesterday that the states' claims should be mediated separately and that he intends to appoint a mediator for those claims by May 24. The new mediator will be able to work with the talc victim mediators toward a comprehensive bankruptcy settlement, Kaplan said. Talc plaintiffs have argued that the bankruptcy filing was an abuse of the legal system, and they are appealing Kaplan's decision to allow the case to remain in bankruptcy court.

Junior creditors of LATAM Airlines Group SA are challenging its proposed reorganization plan, saying it improperly benefits the carrier's existing shareholders, such as Delta Air Lines, at their expense, Reuters reported. Objections were filed on Monday in Manhattan bankruptcy court ahead of a May 17 hearing at which LATAM’s lawyers will ask U.S. Bankruptcy Judge James Garrity to approve the proposal. The airline is seeking to raise $5.4 billion through its plan to exit chapter 11, which it filed two years ago as world travel halted amid the COVID-19 pandemic. If approved, the plan would put a group of creditors including Sixth Street Partners in control of the company. The committee representing unsecured creditors in the case has long opposed the airline’s restructuring strategy and has frequently urged it to consider alternative sources of financing. In an objection filed on Monday, the committee accused LATAM of conducting “a fundamentally flawed process” that violates bankruptcy law by elevating the rights of shareholders. It argued that the plan offers shareholders, including Delta and Qatar Airways, overly beneficial treatment in the form of discounted equity options and an "outsized role" in LATAM's corporate governance.

Washington has reached a $518 million settlement with drug distributors McKesson Corp, AmerisourceBergen Corp and Cardinal Health, ending a months-long trial over the companies' alleged role in fueling the opioid epidemic in the state, McKesson announced yesterday, Reuters reported. Washington opted out of a $26 billion nationwide opioid settlement involving the three drug distributors and Johnson & Johnson. It would have received up to $417.9 million from McKesson, Cardinal Health and AmerisourceBergen under that settlement, which was finalized in February. The state had accused the drug distributors of failing to prevent prescription pills from being diverted for illegal use. It had sought $38.2 billion to fund treatment. The distributors, who deny wrongdoing, said the settlement would provide meaningful relief to communities impacted by the opioid epidemic in the United States. Opioid overdoses have caused more than 500,000 deaths in the United States over the past two decades, according to the U.S. Centers for Disease Control and Prevention.

A San Antonio bankruptcy judge has dismissed two former Alliance of American Football players’ remaining claims in a lawsuit against the defunct league’s majority owner, the San Antonio Express-News reported. U.S. Bankruptcy Judge Craig Gargotta dropped the claims on Monday at the request of all of the parties. Their motion to dismiss stated the two plaintiffs — Reggie Northrup and Colton Schmidt — “no longer desire to pursue” any of their remaining claims against league majority owner Thomas Dundon of Dallas. Dundon, owner of the National Hockey League’s Carolina Panthers, agreed to the dismissal, which doesn’t affect a settlement — reached earlier this year — involving unpaid wages for the players. The Alliance of American Football, or AAF, started in 2019 but its inaugural season came to a halt after eight games when Dundon suspended operations. The league filed for bankruptcy liquidation about two weeks later in San Antonio. The San Antonio Commanders, one of the teams in the league, played its games at the Alamodome. Northrup and Schmidt sued the league, Dundon and AAF co-founder and CEO Charlie Ebersol for fraud, breach of contract and other claims stemming from the league’s collapse. The lawsuit, which the former players filed in a California court as a proposed class action, later became part of the bankruptcy case. The players alleged in their complaint that Ebersol launched the AAF as a technology business rather than as a football league. The league was developing gambling technology intended to allow viewers to bet on each player during a game using their mobile devices. It planned to license the technology to other leagues, the suit said. The AAF was established to use the players as “lab rats” to test the technology, the players said. MGM Resorts International, which invested $7 million to finance development of the technology, ended up with it under a 2019 sale approved by the judge.

Creditors of bankrupt Sears Holdings Corp. have run out of money to continue litigating billion-dollar claims against former chairman Eddie Lampert and a host of other defendants who they say stripped the company of valuable brands and real estate assets as the retailer spiraled into insolvency, Reuters reported. The Sears bankruptcy plan called for the estate to set aside $25 million to pursue the claims, but that money is gone, along with another $7.1 million owed to Akin Gump Strauss Hauer & Feld, lead counsel for the liquidating trust. Billions in claims and no money to litigate? That’s what litigation finance is for, according to an April 21 motion by the Sears creditors committee. The motion asks U.S. Bankruptcy Court Judge Robert Drain of White Plains, New York, to approve an agreement between Sears, the creditors’ committee and the litigation funder Bench Walk Advisors LLC for up to $35 million in financing to continue prosecuting two adversarial proceedings, one against Lampert and his alleged allies, the other against 139 former Sears shareholders. The deal would put Bench Walk first in line to collect from any recovery from the cases but limits the litigation funder’s initial entitlement to its principal plus 15% annualized interest. Bench Walk will only receive additional returns on its investment if the recovery is enough to pay off administrative, priority and secured claims against the Sears estate.

Armstrong Flooring Inc. stock tumbled more than 50% in premarket trading Monday after the company warned it has yet to reach a deal to sell itself and the company will likely seek bankruptcy protection, MarketWatch.com reported. The Lancaster, Pa.-based company said it has amended some of its credit agreements while engaging with interested third parties to potentially sell itself. The company said that it has received expressions of interest and has until May 8 to enter into a deal. However, Armstrong said that it appears unlikely that any interested party will be in a position to enter into a deal by then. As a result, it's likely the company will file for chapter 11 bankruptcy protections, it said. The company warned in November that worsening supply chain disruptions, as well as inflationary pressures expected to continue into 2022 on transportation, labor and raw materials, would likely put it out of compliance with certain covenants in its credit agreements. At the time, the company warned about significant doubts about whether it could continue as a going concern longer-term.

Medley Management Inc. is accusing law firm Lowenstein Sandler LLP of malpractice and professional negligence, alleging the investment business was poorly served when a subsidiary filed for bankruptcy and its longtime attorneys became “intoxicated” by fees, WSJ Pro Bankruptcy reported. Lowenstein had been representing Medley Management in corporate and securities matters for years, and said the law firm could also counsel subsidiary Medley LLC on its 2021 bankruptcy, according to a complaint filed Friday in New York state court. Medley Management said the potential conflicts “should have been apparent to any reasonable and prudent lawyer.” The lawsuit said Lowenstein should have told Medley Management that the parent and its bankrupt subsidiary needed separate independent directors and counsel, not just a restructuring subcommittee of the Medley Management board. The restructuring subcommittee’s fiduciary duties were to Medley Management shareholders, whose interests conflicted with those of Medley LLC creditors, according to the complaint. Lowenstein said yesterday that the lawsuit is without merit.