In re Mallinckrodt PLC

• Decision Date: 08 February 2022
• Docket Number: Case No. 20-12522 (JTD) (Jointly Administered)
• Citation: 639 B.R. 837
• Parties: IN RE: MALLINCKRODT PLC, et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

639 B.R. 837

IN RE: MALLINCKRODT PLC, et al., Debtors.

Case No. 20-12522 (JTD) (Jointly Administered)

United States Bankruptcy Court, D. Delaware.

Signed February 8, 2022

William J. Trach, Latham & Watkins LLP, Boston, MA, James A. Tomberlin, Washington, DC, Debra E. Schreck, Eric Shapland, Arnold & Porter Kaye Scholer LLP, New York, NY, Dan O'Meara, Ogletree, Deakins, Nash, Smoak & Stewart, Philadelphia, PA, Summer M. McKee, Cooley LLP, New York, NY, George Klidonas, Robert J. Malionek, Elizabeth A. Morris, Hugh K. Murtagh, Arielle Nagel, Keith A. Simon, Irina Y. Sivachenko, Randall Carl Weber-Levine, Anupama Yerramalli, Latham & Watkins LLP, New York, NY, Jason B. Gott, Garrett S. Long, Jason Moehlmann, Kelsey Zottnick, Latham & Watkins LLP, Chicago, IL, Andre Geverola, Arnold & Porter Kaye Scholer LLP, Chicago, IL, Rosa Jean Evergreen, Arthur Luk, Adam M. Pergament, Sonia Kuester Pfaffenroth, Ryan Z. Watts, Matthew Wolf, Arnold & Porter Kaye Scholer LLP, Washington, DC, Mark D. Collins, Robert Charles Maddox, Michael Joseph Merchant, Brendan Joseph Schlauch, Sarah Silveira, Robert J. Stearn, Jr., Amanda R. Steele, Richards, Layton & Finger, P.A., Wilmington, DE, Andrew J.H. Cheung, Victor Goldfield, Emil A. Kleinhaus, Kiet Lam, John F. Lynch, Phillip Mindlin, Wachtell, Lipton, Rosen & Katz, New York, NY, Sara A. Brown, Liza L. Burton, Christopher R. Harris, Justin S. Kirschner, Latham & Watkins LLP, New York, NY, Jeffrey E. Bjork, George A. Davis, Amy Christine Quartarolo, Latham & Watkins LLP, Los Angeles, CA, Michael B. Bernstein, Amy DeWitt, Arnold & Porter Kaye Scholer LLP, Washington, DC, Justin A. Allen, Ogletree, Deakins, Nash, Smoak & Stewart, Indianapolis, IN, Gregory B. in den Berken, Anna M. Rathbun, Melissa Arbus Sherry, Laura Shores, Andrew Sorkin, Marguerite M. Sullivan, Latham & Watkins LLP, Washington, DC, for DebtorMallinckrodt PLC.

James F. Lathrop, Goodwin & Procter, New York City, NY, Jamie Lynne Edmonson, Ryan Michael Messina, I, Natalie D. Ramsey, Robinson+Cole LLP, Wilmington, DE, Robert E. Earles, Cooley, LLP, Chicago, IL, Michael Klein, David H. Kupfer, Evan M. Lazerowitz, Lauren Reichardt, Erica Richards, Reed Smith, Aric H. Wu, Cooley LLP, New York, NY, Jonathan J. Kim, New York, NY, Michael H. Cassel, Neil M. Snyder, Wachtell, Lipton, Rosen & Katz, New York, NY, Joseph W. Brown, Weiru Fang, Allegra Flamm, Dana Moss, Joshua Siegel, Cullen Drescher Speckhart, Cooley, LLP, Washington, DC, Phillip M. Bowman, Rusell Capone, Cathy Hershcopf, Michael Klein, Ian Shapiro, Cooley LLP, New York, NY, Patrick M. Birney, John D. Cordani, Jr., Robinson & Cole, Hartford, CT, for CreditorCommittee.

Jane M. Leamy, Richard L. Schepacarter, Office of the U.S. Trustee, Wilmington, DE, for U.S. Trustee.

Re: D.I. 6067 & 6347

REVISED¹OPINION²

JOHN T. DORSEY, U.S.B.J.

Debtors seek approval of the Fourth Amended Joint Plan of Reorganization of Mallinckrodt PLC and Its Debtor Affiliates Under Chapter 11 of the Bankruptcy Code(the "Plan ").³Hearings to consider the Plan and the objections to confirmation were held over sixteen days between November 2021 and January 2022(the "Confirmation Hearings " or "Confirmation ").I have reviewed the Plan and the evidence presented in support and in opposition, and, except for the below-described modifications to the exculpation provision, I find that the Plan satisfies all the requirements of the Bankruptcy Code, and it is therefore confirmed.

FACTUAL BACKGROUND

I. Pre-Petition

Debtors and their non-debtor affiliates operate a global specialty biopharmaceutical company that produces and sells both generic and branded pharmaceutical products including specialty products for the treatment of rare diseases and controlled substances, such as opioids.⁴The Mallinckrodt global enterprise operates as two separate business: (1) the specialty brands business ("Specialty Brands ") and (2) the specialty generics business ("Specialty Generics ").The Specialty Brands business focuses on autoimmune and rare diseases in specialty areas such as neurology, rheumatology, and nephrology, among others.The Specialty Generics business offers a portfolio of over twenty generic product families, most of which are controlled substances such as opioids.

In the years leading up to the commencement of these bankruptcy cases, Debtors faced an onslaught of litigation arising out of their production of certain drugs.On the one hand, certain Debtors, primarily those on the Specialty Generics side of the business, were named in over 3,000 lawsuits stemming from their production and sale of opioid medications (the "Opioid Litigation ").⁵As of the Petition Date, Debtors had spent more than $100 million defending these suits and $30 million to settle just two of them.Litigation expenses were averaging a million dollars every week.⁶On the other hand, Debtors’ Specialty Brands business faced more than two dozen lawsuits and government investigations arising out of its marketing and sale of a drug called Acthar H.P. Gel ("Acthar"), including a rebate-related litigation with the Centers for Medicare and Medicaid Services ("CMS ")⁷ , a related qui tamFalse Claims Act action in which the Department of Justice("DOJ ") had intervened,⁸ and a separate qui tam action concerning Debtors’ charitable donations in which the DOJ had also intervened (collectively, the "Federal/State Acthar Litigation ").⁹Debtors were also named in multiple private actions and putative class actions asserting claims arising out of the pricing of Acthar, which alleged, among other things, violations of antitrust and consumer protection laws as well as unfair trade practices and securities law violations.¹⁰Managing the litigation ultimately became untenable and Debtors realized that they would need to file for chapter 11 protection and reorganize the enterprise.¹¹

In February 2020, Debtors announced that they had reached the principal terms of a comprehensive opioid settlement with the Attorneys General of more than forty states and U.S. territories which was later finalized following negotiations with the Plaintiffs’ Executive Committee,¹² the Guaranteed Unsecured Notes Ad Hoc Group, and each of their advisors (the "Original Opioid Settlement ").¹³The Original Opioid Settlement provided for the creation of one or more trusts (the "Opioid Trust(s) ") for the benefit of opioid claimants, which would be funded with $1.6 billion in structured cash payments, warrants to acquire 19.99% of the public common stock of the reorganized debtor, Mallinckrodt plc, and certain of Debtors’ other assets.¹⁴All opioid claims would then be channeled to the Opioid Trust(s), which would in turn liquidate all claims asserted by opioid claimants.

In March 2020, the Court in the CMS Litigation issued a judgment adverse to Debtors that established an approximately $650 million near-term liability, retroactively increasing back to 2013 the Medicaid rebates paid by ARD to state Medicaid programs.¹⁵

In September 2020, Debtors reached an agreement in principle with CMS and the DOJ, contingent on a chapter 11 filing by Mallinckrodt plc, that resolved most of the Acthar-related claims and investigations held by the federal government.Debtors also reached an agreement in principle with each of the 50 states, Washington D.C., and Puerto Rico that would resolve claims asserted in the rebate related qui tam action (collectively, the "Federal/State Acthar Settlement ").¹⁶The Federal/State Acthar Settlement provides for Debtors to pay a total of $260 million to the DOJ and various states in return for a release by the relevant governmental agencies of their Acthar-related claims.¹⁷

By this time, Debtors had also begun negotiating with several creditor groups including the Guaranteed Unsecured Notes Ad Hoc Group, the Ad Hoc First Lien Term Lender Group, an ad hoc group of Debtors’ revolving lenders, and the administrative agent under Debtors’ credit facility, which ultimately resulted in an agreement on a comprehensive restructuring (the "Noteholder Restructuring Agreement "), whereby Debtors would reinstate their secured debt and issue new secured takeback second lien notes and equity interests in reorganized Mallinckrodt to the holders of Debtors’ fulcrum unsecured notes.The Original Opioid Settlement and Noteholder Restructuring Agreement were memorialized in a Restructuring Support Agreement (the "RSA "), which contemplated a comprehensive restructuring of Debtors’ enterprise.¹⁸

II.Post-Petition

On October 12, 2020(the "Petition Date "), Debtors commenced these cases under chapter 11 of the Bankruptcy Code(the "Code ").Debtors continued to operate their business and manage their property as debtors in possession pursuant to Sections 1107(a)and1108 of the Code.On October 27, 2020, an official committee of unsecured creditors (the "Unsecured Creditors’ Committee " or "UCC ") and an official committee of opioid claimants(the "Opioid Claimants’ Committee " or "OCC ")(together the "Committees ") were appointed.¹⁹On March 16, 2021, Roger Frankel was provisionally appointed as the legal representative of the future claimants(the "FCR "), and finally appointed on June 11, 2021.²⁰The Chapter 11cases are jointly administered for procedural purposes only pursuant to Rule 1015(b).

On November 30, 2020, I entered an order establishing certain deadlines for the filing of proofs of claim (the "Bar Date Order ").²¹The Bar Date order established (i)February 15, 2021, as the General Bar Date for all non-governmental entities to file proofs of claim (other than opioid claims); and (ii)April 12, 2021, as the Governmental Bar Date for all proofs of claim (other than opioid claims).²²

On April 20, 2021, Debtors filed their first iteration of the Plan and Disclosure Statement (the "Original Plan ").²³On June 18, 2021, Debtors filed the solicitation versions of the Plan and Disclosure Statement.²⁴Plan supplements were filed in August and September 2021.²⁵

O...