Connect with us

News

Test case looms for companies seeking US bankruptcy protection

Published

on

Test case looms for companies seeking US bankruptcy protection

Unlock the Editor’s Digest for free

On a Sunday afternoon about a year ago, a partner at a major Texas law firm walked into a suburban Houston UPS Store. There she set up a post office box for a California-based pharmaceuticals company.

The seemingly unremarkable errand is now at the centre of a legal controversy over just how much leeway companies have in shopping for the best place to file for bankruptcy protection.

Scintilla Pharmaceuticals and its larger parent, Sorrento Therapeutics, used the UPS Store PO box to together file for Chapter 11 bankruptcy in a Houston federal court just 10 hours later.

Advertisement

The Houston federal bankruptcy court had become a hotbed for complicated cases as its judges were considered sophisticated and speedy arbiters of the law but also friendly to the wishes of debtors. Houston was so attractive to debtors and their lawyers that even the likes of Sorrento with a reed-thin nexus to Texas were determined to get in.

Sorrento’s reorganisation was eventually approved by the court after a messy fight between the company and various creditors. Its emergence from Chapter 11 is mere weeks away. But this month, the origins of its Texas mailing address have suddenly drawn the interest of the US Department of Justice.

The DoJ’s bankruptcy court affiliate, the Office of the US Trustee, in a court filing now argues that Sorrento deployed “an abusive venue manufacturing scheme” to improperly land in Houston.

The controversy is the latest in a string of incidents that demonstrate the aggressive legal advice that law firms are deploying to win business where top partners can charge above $2,000 an hour.

The Sorrento dust-up comes also amid a broader scandal that has engulfed the Houston federal bankruptcy court. Its chief judge David R Jones resigned in October after admitting an undisclosed, long-standing romantic relationship with a lawyer who appeared frequently in cases he oversaw. Prior to his departure, Jones had overseen the Sorrento case. The fallout from the scandal is now a forensic examination into the at-times ruthless way big bankruptcy gets done in America.

Advertisement

“Law is supposed to be a profession with an ethical foundation, not just trying to check the technical boxes, but to practise those values,” said Melissa Jacoby, a law professor at the University of North Carolina. “At stake is more than the reputation of these firms, but the legitimacy of the system overall.”

The US trustee motion came just two weeks after an individual claimant in the case, Timothy Culberson, filed his own motion to move or dismiss the Sorrento case. The postal box had been included in the original bankruptcy petition from February 2023. But what made Culberson’s filing suddenly explosive were the physical receipts from the UPS Store he collected showing that the box was opened just 10 hours before the overnight bankruptcy filing.

A lawyer from the Texas firm Jackson Walker had paid the fees with a credit card. The bankruptcy code states that a company must be in the district for 180 days prior to the filing. Culberson has asked the court to claw back the $2mn in fees paid to Jackson Walker and the $26mn paid to Sorrento’s primary counsel, the international powerhouse Latham & Watkins.

In response to the motion from the US trustee and Culberson, Sorrento, Latham and Jackson filed a response denying any wrongdoing. Their primary defence states that since Scintilla was designated as a “non-operating entity”, the mailbox along with a Texas bank account with a $60,000 deposit opened three days before the bankruptcy was enough to satisfy the letter, if not the spirit, of the bankruptcy code. Sorrento and its lawyers tartly suggested that those unhappy with its tactics take their grievance to the US Congress.

As it happens, Jackson Walker’s credibility as a law firm is already in question. Judge Jones’s secret romantic partner was a Jackson Walker lawyer. The US trustee is seeking to reverse more than $13mn in fees the firm was paid in about two dozen cases where it failed to disclose the relationship to the bankruptcy court. Jackson has denied wrongdoing and is contesting those efforts.

Advertisement

In the meantime, Sorrento’s remarkable position — that any company can file for bankruptcy far afield from their headquarters, operations or legal domicile by merely opening a bank account and PO box immediately before the moment it completes its court petition — will now be litigated.

sujeet.indap@ft.com

News

Map: 5.1-Magnitude Earthquake Strikes off the Coast of California

Published

on

Map: 5.1-Magnitude Earthquake Strikes off the Coast of California

Advertisement

Note: Map shows the area with a shake intensity of 3 or greater, which U.S.G.S. defines as “weak,” though the earthquake may be felt outside the areas shown.  All times on the map are Pacific time. The New York Times

Advertisement

A moderately strong, 5.1-magnitude earthquake struck in the North Pacific Ocean on Wednesday, according to the United States Geological Survey.

The temblor happened at 5:45 a.m. Pacific time about 40 miles west of Petrolia, Calif., data from the agency shows.

Advertisement

As seismologists review available data, they may revise the earthquake’s reported magnitude. Additional information collected about the earthquake may also prompt U.S.G.S. scientists to update the shake-severity map.

Advertisement
Advertisement

Aftershocks detected

Subsequent quakes have been reported in the same area. Such temblors are typically aftershocks caused by minor adjustments along the portion of a fault that slipped at the time of the initial earthquake.

Quakes and aftershocks within 100 miles

Advertisement

Aftershocks can occur days, weeks or even years after the first earthquake. These events can be of equal or larger magnitude to the initial earthquake, and they can continue to affect already damaged locations.

Advertisement

When quakes and aftershocks occurred

 All times are Pacific time. The New York Times

Advertisement

Sources: United States Geological Survey (epicenter, aftershocks, shake intensity); LandScan via Oak Ridge National Laboratory (population density) | Notes: Shaking categories are based on the Modified Mercalli Intensity scale. When aftershock data is available, the corresponding maps and charts include earthquakes within 100 miles and seven days of the initial quake. All times above are Pacific time. Shake data is as of Wednesday, June 3 at 6:03 a.m. Pacific time. Aftershocks data is as of Wednesday, June 3 at 8:01 a.m. Pacific time.

Advertisement

Continue Reading

News

California’s primary for governor is undecided as candidates vie to be in the top two

Published

on

California’s primary for governor is undecided as candidates vie to be in the top two

Xavier Becerra, Democratic gubernatorial candidate for California, and Steve Hilton, Republican gubernatorial candidate for California, shake hands while arriving for a gubernatorial debate at KRON Studios in San Francisco in April.

Jason Henry/Getty Images North America


hide caption

toggle caption

Advertisement

Jason Henry/Getty Images North America

SAN FRANCISCO — The primary election for California governor is too close to call, with vote counting continuing Wednesday. Democrat Xavier Becerra and Republican business executive Steve Hilton lead the field with Democrat Tom Steyer in third place.

In California’s unusual primary system, all candidates, regardless of party, appear on a single ballot open to any registered voter. The top two candidates then move on to the general election, even if they’re from the same party. This year, voters had 60 names for governor to choose from.

Advertisement

The winner will lead the country’s most populous state, where leaders often take on national political prominence. Incumbent Gov. Gavin Newsom is at his two-term limit and could be a Democratic contender for president.

Becerra, former Health and Human Services secretary under President Joe Biden, pitched himself to voters as an experienced political leader who isn’t afraid of President Trump, but his lead caps one of the most surprising and dramatic comebacks in recent state political history. As recently as April, polls were showing Becerra — also a former member of Congress and California attorney general — languishing in single digits in a crowded field.

In his remarks at his watch party in Los Angeles, Becerra noted his underdog status.

“Here in Hollywood’s hometown, we love a good underdog success story,” he said, drawing parallels between his campaign and his immigrant parents’ success story in California. “Guess what? The underdog stayed in the fight. Like my parents, I never gave up. Never stopped putting one foot in front of the other. Never stopped believing in the beacon-like goodness of California. And thankfully, neither did you.”

Hilton is a former Fox News commentator who also served as a political adviser to former British Prime Minister David Cameron. He was endorsed by President Trump in April, helping him to pull ahead of Riverside County Sheriff Chad Bianco, the other major Republican in the race. Hilton has campaigned on the idea that California needs change after 16 years under total Democratic control.

Advertisement

The race is narrowing down after a tumultuous campaign

At his watch party in Huntington Beach, the British-born candidate — who became an American citizen five years ago — said it was the “honor of his lifetime” to receive over 1 million votes so far.

“Change is coming to California and it’s long overdue,” Hilton said. “We’re not there yet, but it’s looking good. It looks very much as if Californians really will have the chance to vote for change in November and take our state in a new direction.”

Democratic billionaire activist Steyer spent more than $213 million of his own money to boost his candidacy and push a progressive, populist message. While he was trailing Becerra and Hilton on Tuesday night, he said at his watch party in San Francisco that he remains confident he can close the gap in the days ahead.

“Together, we’ve scared the hell out of the corporate interests used to getting their way,” Steyer said. “It might take some time to figure out where this is going. We’re going to wait until every ballot is counted. We’re gonna give democracy a time to work. And we know we finished really strong.”

The early results are not certain to hold, in part because of unusual voting patterns in this primary election: Ballot-tracking data heading into Tuesday evening showed that Republicans were more likely to vote early by mail, while Democratic voters in this deep-blue state held onto their mail-in ballots or chose to vote in person. That’s the reverse of recent elections, which saw more Democrats voting by mail and Republicans tending to vote in person on Election Day.

Advertisement

The uncertainty on election night capped a race that remained crowded and unsettled to the end. To some extent, the race was defined by who wasn’t running.

Some of the state’s most high-profile Democrats — former Vice President Kamala Harris, U.S. Sen. Alex Padilla and California Attorney General Rob Bonta — all passed on a potential bid to succeed Newsom.

The race was disrupted in April when then-U.S. Rep. Eric Swalwell’s campaign for governor imploded amid allegations of sexual assault and harassment. Swalwell resigned from Congress shortly after the accusations surfaced and has denied assault allegations.

Swalwell had been gaining in polls and racking up high-profile endorsements, and his exit seemed to primarily benefit Becerra, who had been stuck in single digits in many polls. Ultimately, it quieted fears among Democrats who worried that the messy Democratic field could result in Bianco and Hilton winning the top spots in the June primary.

Marisa Lagos covers California politics at KQED and co-hosts the Political Breakdown show and podcast.

Advertisement
Continue Reading

News

Supreme Court reinstates Republican-favored Alabama congressional districts

Published

on

Supreme Court reinstates Republican-favored Alabama congressional districts

The U.S. Supreme Court

Tasos Katopodis/Getty Images


hide caption

toggle caption

Advertisement

Tasos Katopodis/Getty Images

The Supreme Court on Tuesday cleared the way for Alabama to use a congressional district map favored by Republicans.

The court, in an unsigned order, overturned a three-judge district court panel that found that the map is “tainted by intentional race-based discrimination.” The court’s three liberals publicly dissented.

The ruling means that Alabama’s 2026 midterm elections will feature six Republican-leaning districts and one Democratic-leaning one, as opposed to a map with only five safe Republican seats. Democrat Shomari Figures, who represents Alabama’s Second District, will likely lose his seat as a result of the high court’s ruling.

Advertisement

The story of Alabama’s congressional map is long and tortured. It began in 2021, when the state implemented a new map to account for population changes in the census. The map featured only one majority-black district out of seven, even though the state is more than one-quarter Black.

Voters immediately sued, claiming the map illegally diluted minority votes in violation of the Voting Rights Act and the Constitution. Lower court judges agreed, ruling that the state must draw a map with two districts where Black voters have a realistic chance of electing their candidate of choice. The Supreme Court more than once has ordered Alabama to draw a compliant map.

But the state has refused and instead continued to litigate the case. On Tuesday, that tactic paid off.

What changed? In April, the Supreme Court’s conservative supermajority all but gutted what remains of the Voting Rights Act, ruling that states cannot purposefully draw districts that are majority-minority.

Alabama then asked the high court to reinstate the state’s old map, under the theory that this new ruling meant that it was permissible to use a map with only one majority-Black district. In an unsigned, unexplained order in May, the high court essentially reversed its previous opinions, and allowed Alabama to use the old map for the upcoming midterm elections.

Advertisement

This set off a flurry of activity in Alabama. By the time the Supreme Court issued its May order, absentee balloting had already begun, using the court-drawn map. So Republican Governor Kay Ivey cancelled elections and scheduled a special primary for August for the affected congressional races.

The case, however, was not over.

In its ruling, the Supreme Court had ordered a lower court panel to continue evaluating Alabama’s map in light of its recent Voting Rights Act decision. And just 15 days after that order, the panel, composed of three Republican judges—two of them Trump appointees—concluded unanimously that even under the Supreme Court’s new standards, the plan for a single black district was “intentionally discriminatory.”

So, once again, Alabama returned to the Supreme Court, arguing that the map was partisan, not racially discriminatory. In short, that the Republican legislature simply drew the map to elect more Republicans. And that under the Supreme Court’s new interpretation of the Voting Rights Act, the GOP map should be allowed to stand.

The court’s conservative agreed, writing that the lower court “did not heed the presumption of legislative good faith.”

Advertisement

The court’s three liberals publicly dissented, castigating the conservative majority for failing to abide by its 2006 decision in the case of Purcell v. Gonzalez. That decision declared that courts should not change election rules too close to an election.

Justice Sonia Sotomayor, in her dissent, said the court “debases the democratic process” and “corrodes the rule of law by rewarding Alabama’s gamesmanship and outright defiance of court orders.”

Tuesday’s decision is the latest in a series of Supreme Court rulings that could well reshape the 2026 midterm elections, making it much harder for Democrats to prevail.

Continue Reading
Advertisement

Trending