Disruption in the energy and retail industries will not wane as the calendar flips to 2020, as a strain on oil and gas prices and changing consumer habits will continue to force companies into bankruptcy court. But some of the biggest cases restructuring attorneys should keep an eye on are already in court, with billions of dollars in liabilities at stake.
Here, Law360 takes a look at cases to watch in 2020.
Purdue Pharma LP
OxyContin maker Purdue Pharma LP hit Chapter 11 in September after reaching terms on a settlement framework with a group of states, Native American tribes and local governments that would wipe away thousands of suits over the company’s role in stoking the national opioid crisis.
At the end of 2019, the company was working to finalize the deal, which envisions having Purdue’s owners — the Sackler family — turn over their stake in the company to a public beneficial trust that would continue to make and sell its products, with the profits being funneled into programs aimed at addiction prevention and treatment. The Sacklers also plan to pay $3 billion of their personal fortunes into the trust and to sell off Purdue’s foreign entities.
Purdue came to court with 24 states signed on to the deal, but support wavered from at least one of those states soon after the petition date as political pressure mounted. The early months of 2020 will see Purdue try to lock down support and bring along the other plaintiffs suing it in the multidistrict litigation over the costs of responding to the crisis.
Purdue successfully sought an injunction early in its Chapter 11 case that paused existing litigation against not just the debtor and its affiliates, but also the Sackler family.
As the case progresses, the way in which Purdue handles settlement negotiations and presents any global deal to the court could create a framework for mass tort cases going forward.
While cases involving asbestos liability have a specific section of the Bankruptcy Code to govern the treatment of existing and unknown future claims through channeling injunctions, other industries don’t enjoy that special treatment.
Opioid makers may begin looking to Section 524(g) as a framework for dealing with their liability. The section applies to asbestos cases only and allows claims to be channeled into a debtor-funded trust.
When facing mass tort claims, a plan using this strategy might make sense for some drug companies, though the hurdle to employing such a strategy is that Section 524(g) applies only to asbestos cases. Some courts have allowed the channeling framework to be employed in cases dealing with other types of liability.
Making this strategy an easier pill to swallow is that the extent of the opioid companies' liability is most likely known at the time they file for bankruptcy, whereas asbestos injury can take decades to manifest in those exposed to the material.
The first few months of 2020 will give Purdue the chance to show court watchers whether its negotiation strategy is an effective method to resolve its liability or whether some other tactics, like the use of a 524(g) framework, may be viable alternatives.
Another element of the Purdue case to keep an eye on involves the political maneuvering inherent in dealing with an issue as publicly facing as the opioid crisis. The Arizona attorney general has already pulled back from the proposed settlement after initially signing on, saying Purdue was acting in bad faith as negotiations continued post-petition.
Brian Schartz of Kirkland & Ellis LLP said as the negotiations stretch into 2020, the pressure may mount on attorneys general and other government officials to beg off of the deal and continue to fight the drug company.
“One of the most important things to watch is the political overlay,” Schartz told Law360. “Purdue filed and had a settlement with a number of states. But as the settlement was made public and there was political pressure put on the politicians who made those deals, some of them got loose in the saddle.
California utility provider PG&E hit Chapter 11 in January 2019 as it faced billions in liability for its alleged role in causing a series of wildfires that destroyed hundreds of homes and led to numerous deaths over the past few years.
The company retreated into court without a plan to deal with that liability and spent most of the year fending off attempts by creditors to wrest control of the case away from it. Along the way, PG&E negotiated settlements with various groups of claimants, the latest coming in the form of a $13.5 billion deal with wildfire victims which received court approval Dec. 17. PG&E has also floated a $1.6 billion agreement with the California Public Utilities Commission.
The late 2019 developments helped to bolster the debtor’s prospects of meeting a June 1 deadline to confirm a Chapter 11 plan so it can participate in a $21 billion state-administered wildfire insurance fund.
California Gov. Gavin Newsom has repeatedly attacked PG&E’s efforts in the case, most recently calling its plans “woefully short” of the requirements to participate in the insurance fund created by the California State Assembly. In response, the debtor struck language from its proposed Chapter 11 plan that requires the governor to sign off on the plan before it can be confirmed.
A year after filing for bankruptcy protection, the company has another six months to lock down a plan. Its efforts to come to a global resolution in a case that began as a free-for-all should be closely watched.
Bumble Bee Tuna
Canned seafood distributor Bumble Bee Tuna filed for Chapter 11 protection in November after spending tens of millions of dollars defending itself against antitrust lawsuits related to its admitted role in a price-fixing scheme with competitors. Its former CEO was recently found guilty on a charge of fixing the price of tuna in conjunction with other well-known seafood sellers.
The federal government also levied a $25 million criminal fine against the company before its bankruptcy.
Bumble Bee is looking to sell its assets and operations as a going concern through the Chapter 11 process and is on track to hold a mid-January auction to test its $925 million stalking horse bid. Tuna supplier FCF Ltd., a Taiwanese company with a large fleet of fishing vessels, has made the baseline offer.
An auction is scheduled for Jan. 10, but some opposition to the timing of the sale may push that back a week or so.
Murray Energy Corp.
The country’s largest privately owned coal producer is looking to sell its assets in a Chapter 11 case filed to deal with obligations associated with $2.7 billion in secured debt.
In early December, the company filed its proposed bidding procedures that included a $1.7 billion stalking horse offer from a group of senior term loan lenders and contemplates a sale by May 2020.
Murray is the largest in a string of coal producers to seek refuge in the bankruptcy court in recent years, many pushed in by crushing debt loads in the midst of an industry-wide downward trend in consumption as cheaper and cleaner alternatives become more popular.