The Department of Justice’s U.S. Trustee Program (USTP) has entered into a settlement with three law firms representing Purdue Pharma (Purdue) in its ongoing bankruptcy cases. The firms are Skadden, Arps, Slate, Meagher & Flom LLP; Wilmer Cutler Pickering Hale and Dorr LLP; and Dechert LLP (the Firms).
The settlement, which is subject to approval by the Bankruptcy Court for the Southern District of New York, resolves the USTP’s concerns about the adequacy of the Firms’ disclosures in the Purdue bankruptcy cases. Under the settlement, the Firms, collectively, will relinquish $1 million in fees earned in the cases and are required to supplement their prior disclosures so that the court and other parties can make a determination as to their sufficiency.
According to the USTP, the Firms failed to adequately disclose a Joint Defense and Common Interest Agreement (the Agreement) between Purdue and the Sackler families that created obligations for the Firms to the Sacklers related to the defense against hundreds of lawsuits involving potentially billions of dollars of liability related to the manufacture, sale, and distribution of the prescription pain medication OxyContin. During the course of the bankruptcy cases, Purdue invoked the Agreement to avoid turning over documents to the official committee of unsecured creditors as it conducted its review of the debtors’ conduct.
“These disclosure violations are particularly concerning because a central question in these cases has been the independence of Purdue from the Sackler families,” said USTP Director Cliff White. “This agreement reflects the USTP’s ongoing efforts to police law firms and other bankruptcy professionals who fail to disclose connections that may raise questions about their ability to perform their duties free of conflicts of interest.”
Due to the multiplicity of interests in a bankruptcy case, the Bankruptcy Code and Bankruptcy Rule 2014 mandate that law firms and other professional firms disclose their connections to other parties in a case. The USTP reviews applications to employ firms that seek payment from a chapter 11 bankruptcy estate under sections 327 and 1103 of the Bankruptcy Code and advocates for strict compliance with the law to ensure that the interests of all stakeholders are protected. Where there has been a failure to disclose a connection in an application, even when inadvertent, the bankruptcy court may remedy the failure to disclose by, among other remedies, requiring all or part of the fees earned by counsel to be disgorged. In this settlement, the parties have agreed to disgorgement.
The USTP’s work on this matter has been handled by U.S. Trustee William Harrington, Assistant U.S. Trustee Linda Riffkin, Associate General Counsel for Chapter 11 Practice Nan Eitel, and Trial Attorney Paul Schwartzberg.
The U.S. Trustee Program is the component of the Justice Department that protects the integrity of the bankruptcy system by overseeing case administration and litigating to enforce the bankruptcy laws. The Program has 21 regions and 90 field office locations. Learn more information on the Program at: https://www.justice.gov/ust.