Acthar Ins. Claimants v. Mallinckrodt PLC (In re Mallinckrodt PLC)
| Docket Number | 21-1093-TLA,20-12522-JTD |
| Decision Date | 18 August 2022 |
| Parties | IN RE MALLINCKRODT PLC, et al., Debtors. v. MALLINCKRODT PLC, et al., Appellees. ACTHAR INSURANCE CLAIMANTS, Appellants, |
| Court | U.S. District Court — District of Delaware |
Attestor Limited and its affiliated entities, including Avon Holdings I, LLC, and Humana, Inc., (“Humana”) (collectively, the “Acthar Claimants”), appeal the Bankruptcy Court's disallowance of their claims against all but two of the debtors in these consolidated cases. As the record supports the Court's decision, I affirm.
This appeal stems from Chapter 11 bankruptcy petitions filed in October 2020 by pharmaceutical company Mallinckrodt plc (“plc”) and 63 of its subsidiaries (collectively the “Debtors”). The filings were motivated primarily by a deluge of litigation relating to certain Debtors' manufacturing and distribution of opioids. But there were other costly lawsuits to contend with, including one brought by Humana (a healthcare insurer) against Mallinckrodt ARD LLC (“ARD”) in August 2019. Humana's allegations related to the Mallinckrodt drug Acthar Gel, and its complaint asserted claims under §§ 1 and 2 of the Sherman Antitrust Act, the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1961 et seq. and other laws.
The Bankruptcy Court ordered all non-opioid creditors to submit their claims against the Debtors by February 16, 2021 (a deadline known as the “bar date”). The Acthar Claimants filed duplicate proofs of claim against all 64 Debtors. In support, they attached various documents including Humana's pre-petition complaint, and asserted that their claims “ar[ose] under or relate[d] to” the Acthar Gel litigation. App. 8. See App. 14-72. But those documents referenced only two Debtor entities, plc and ARD, and did not make any allegations as to the other 62 Debtors against which proofs of claim were filed.
The Acthar Claimants sought no discovery from the Debtors until a week after the bar date, sending them, on February 25, 2021, some informal document requests. In March, the Acthar Claimants joined in a motion filed by another creditor-the Official Committee of Unsecured Creditors (the “Creditors Committee”)-seeking discovery against the Debtors under Bankruptcy Rule 2004. Because the Debtors and the Creditors Committee resolved their discovery disputes prior to the Court ruling on the motion, the Acthar Claimants' joinder was mooted. Still, the Debtors gave them approximately 500,000 discovery documents.
In April 2021, the Debtors filed an objection to the Acthar Claimants' proofs of claim, arguing that the vast majority were unsubstantiated. The Debtors identified “duplicate” claims filed against all 64 Debtor entities even though the attached materials only related to ARD and plc. The Acthar Claimants responded that their claims were entitled to prima facie validity and, alternatively, that they were entitled to discovery.
After receiving myriad documents, the Acthar Claimants filed a revised opposition, including factual assertions about several non-defendant Debtors. The Debtors again submitted that the unsubstantiated proofs of claim should be disallowed and noted that the Acthar Claimants failed to move to amend their proofs of claim. The Debtors further argued that, given the long delay in seeking discovery and the prejudice that would result if amendment were permitted, leave to amend should be denied.
The Bankruptcy Court disallowed all but two proofs of claim. It recognized that the Acthar Claimants had made specific allegations against ARD and plc (and that Debtors did not challenge the proofs of claim against those entities) but held that the other proofs of claim failed to allege any activity by the other 62 non-defendant Debtors. The Court also held that the Acthar Claimants' proofs of claim failed to provide the Debtors with fair notice, explaining: App. 6850.
It also concluded that the Acthar Claimants' conduct-in particular, their failure to seek timely discovery relevant to their claims or request leave to amend those claims- amounted to bad faith and resulted in undue delay. The Court viewed their approach in filing the duplicate proofs of claim against every Debtor as a means of thwarting the plan of reorganization. Consequently, the Court informed the parties that at that juncture it did not “need to hear evidence as to whether or not there [were] claims against” any of the Debtors aside from plc and ARD. App. 6821. But for those two entities, it disallowed the proofs of claim without providing leave to amend or an opportunity for the Acthar Claimants to file late claims. That decision prompted this appeal, in which the Acthar Claimants ask to reinstate 11 of their disallowed proofs of claim.
The Bankruptcy Court had jurisdiction under 28 U.S.C. §§ 157(a) and 1334(a). This Court has jurisdiction over appeals from the Bankruptcy Court per 28 U.S.C. § 158(a). In re Woodbridge Grp. of Cos., 617 B.R. 796, 801 (D. Del. 2020). I review the Bankruptcy Court's legal determinations de novo, its factual findings for clear error, and its exercise of discretion for abuse thereof. In re Trans World Airlines, Inc., 145 F.3d 124, 131 (3d Cir. 1988).
The bar date for proofs of claim serves as an important deadline in bankruptcy cases. “Claims not filed by the bar date are typically discharged, meaning the claimant cannot recover from the debtor or the reorganized debtor.” Ellis v. Westinghouse Elec. Co., 11 F.4th 221, 232 (3d Cir. 2021). The burden to comply with the bar date is not high. Id. at 237. Protective proofs of claim are permitted, so a creditor who is uncertain of the amount or validity of its claim can still comply with the bar date without conceding any issues. Id. at 237-38.
A proof of claim filed in accord with the Bankruptcy Rules is prima facie evidence of the validity and amount of the claim. Fed.R.Bankr.P. 3001(f). It benefits from prima facie validity if it “alleges facts sufficient to support a legal liability.” In re Allegheny Int'l Inc., 954 F.2d 167, 173 (3d Cir. 1992).[1] Bankruptcy courts are required to consult applicable non-bankruptcy law in determining the validity and amount of a proof of claim, as the determination of property rights is generally left to that law. Travelers Cas. & Sur. Co. of Am. v. Pac. Gas & Elec. Co., 549 U.S. 443, 450-51 (2007).
To the extent a proof of claim fails to benefit from prima facie validity, most courts allow claimants to amend their claims if they can do so. In re Shank, 315 B.R. 799, 81314 (Bankr. N.D.Ga. 2004). Generally, “amendments to proofs of claim should be freely allowed where the purpose is to cure defects in a claim as originally filed, to describe a claim with greater particularity, or to plead new theories of recovery on facts set forth in the original claim.” In re Semcrude, L.P., 443 B.R. 472, 477 (Bankr. D. Del. 2011) (quoting In re Ben Franklin Hotel Assocs., 186 F.3d 301, 309 (3d Cir. 1999)). However, once the bar date passes, amendments to claims are closely reviewed to ensure they are not attempts to file a new claim. Id.
Courts typically apply a two-pronged inquiry when considering whether to allow post-bar-date amendments to proofs of claim. In re Enron Corp., 419 F.3d 115, 133 (2d Cir. 2005). First, they must determine whether there was a “timely assertion of a similar claim or demand evidencing an intention to hold the estate liable.” Id. (quoting In re Integrated Res., Inc., 157 B.R. 66, 70 (S.D.N.Y. 1993)). A post-bar-date claim satisfies this prong if it: “(1) corrects a defect of form in the original claim; (2) describes the original claim with greater particularity; or (3) pleads a new theory of recovery on the facts set forth in the original claim.” In re FLYi, Inc., No. 05-20011, 2008 WL 170555, at *3 (Bankr. D. Del. Jan. 16, 2008) (quoting In re McLean Indus., Inc., 121 B.R. 704, 708 (Bankr. S.D.N.Y. 1990)). “The focus of this test . . . is whether the initial claim provided the trustee or debtorin-possession with reasonable notice of the later claim.” McLean, 121 B.R. at 708.
If the first prong is satisfied, the court must then determine whether it would be equitable to allow the amendment. Enron, 419 F.3d at 133. Among the factors considered in deciding this issue are undue delay, bad faith, or a dilatory motive. See Valley Media Inc. v. Borders, Inc. (In re Valley Media), 288 B.R. 189, 192 (Bankr. D. Del. 2003). To avoid unnecessarily harsh results, a claimant can still file a claim after the bar date if it shows “excusable-neglect.” Fed.R.Bankr.P. 9006(b)(1). This also is an equitable determination; it takes into account all of the relevant circumstances regarding the movant's omission, including (1) prejudice to the debtor, (2) the length of the delay and its potential effect on judicial proceedings, (3) the reason for the delay, including whether it was in the movant's control, and (4) the movant's good faith. Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380, 395 (1993).
Here the Acthar Claimants allege that the Bankruptcy Court erred by: (1) refusing to hear evidence and disallowing their claims by relying on a sua sponte finding, unsupported by any evidence, that their filing of protective proofs of claims against all Mallinckrodt Debtors was procedurally improper and in bad faith; (2) dismissing their claims for lack of prima facie validity by not “alleg[ing] facts sufficient to state a claim;”...
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