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Test case looms for companies seeking US bankruptcy protection

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Test case looms for companies seeking US bankruptcy protection

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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.

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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.

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“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.

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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

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How Trump’s Iran Blockade Is Complicating a High-Stakes Trip to China

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How Trump’s Iran Blockade Is Complicating a High-Stakes Trip to China

President Trump’s declaration that he is willing to maintain a blockade on Iranian shipping until the Iranians surrender to his demands almost assures that the Strait of Hormuz will remain closed by the time he arrives in Beijing in two weeks.

That is exactly what Mr. Trump was seeking to avoid when he delayed his trip to China six weeks ago. And it vastly complicates a critical meeting with President Xi Jinping, forcing White House officials to rethink how Mr. Trump approaches the effort to engineer a rapprochement with China.

In public and private, Mr. Xi has demanded that the United States reopen the waterway through which China imports about a third of its oil and gas.

When Mr. Trump initially envisioned the trip as the first in a series of carefully scripted meetings, the possibility of a war with Iran was not on the radar of most administration officials. When he delayed it in early April, he was confident the war would be over quickly.

At the time of that decision, members of Mr. Trump’s national security team said they hoped that forcing Iran into a nuclear deal after a relatively short bombing campaign would be a demonstration of American power and reach. They also saw it as a warning to Beijing as Mr. Trump sought a rapprochement with the country that is America’s largest military, technologic and economic competitor.

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But that assumption, like so many about the course of the war with Iran, has now gone badly awry.

If Mr. Trump flies to China as planned, with an intensive, two-day visit starting on May 14, the primary topic will clearly be the rippling economic effects of a war that China has made clear it viewed as unnecessary. Mr. Xi went further recently, warning that the world may be returning to the “law of the jungle,” though he made no specific reference to Iran or the strait at that time.

More than a week ago the Chinese leader directly called for the reopening of the strait, telling Crown Prince Mohammed bin Salman of Saudi Arabia, according to Chinese state media, that it “should remain open to normal navigation, which is in the common interest of regional countries and the international community.”

Mr. Trump clearly rejected that strategy on Wednesday when he reinforced his determination to keep the blockade on shipments from and to Iranian ports in place. “The blockade is genius, OK,” he told reporters during an event with the Artemis II astronauts. “The blockade has been 100 percent foolproof.”

The White House did not address the clear difference in strategy when asked about the effect of the blockade on the coming trip. The visit is supposed to focus on a trade deal and, to a lesser degree, security issues such as Beijing’s squeeze on Taiwan, China’s territorial claims in the South China Sea, rising Chinese cyberactivity against the United States and its growing nuclear program.

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But in a statement, Anna Kelly, a White House spokeswoman, said that “President Trump has a positive relationship with President Xi, and he looks forward to visiting China later this year. Thanks to the successful blockade of Iranian ports and crippling impacts of Operation Epic Fury, the United States maintains maximum leverage over the Iranian regime as negotiations continue.”

She added, “The president has been clear that Iran can never possess a nuclear weapon, and he always keeps all options on the table.”

Mr. Trump has repeatedly expressed frustration that neither the bombing that the United States and Israel conducted for 38 days, nor the economic strangulation that he is attempting by having the Navy intercept ships leaving or bound for Iranian ports, is achieving the desired effect.

“Now they have to cry uncle,” Mr. Trump said. “That’s all they have to do, just say: ‘We give up. We give up.’”

Mr. Trump has used variants of his “cry uncle” test over the past month, despite warnings from his own intelligence agencies and outside experts that the White House has consulted that nothing in Iran’s history or the nature of its constantly competing power centers suggests the country would offer what Mr. Trump had earlier called “unconditional surrender.” It was more likely, they have said, that Tehran would double down in its resistance.

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In fact, even as Mr. Trump has swung from praise of Iran’s new leaders as more “reasonable” than their predecessors, to threats to resume bombing, to the blockade, the Iranian strategy appears to have remained steady. It has imposed a blockade of its own, in the Persian Gulf, that has prevented Arab states from risking sailing their tankers through the straits.

The president on Wednesday publicly rejected Iran’s latest proposal to reopen the strait and end the war. Iran offered to delay negotiations over the nuclear issues until later, but Mr. Trump told aides this week that he was not satisfied with that option, believing that the blockade is the most effective leverage the United States holds if the ultimate goal is to get Iran to ship its 11 tons of enriched uranium out of the country and to halt all nuclear activity for a number of years.

“Suffice it to say that the nuclear question is the reason why we’re in this in the first place,” Secretary of State Marco Rubio said on Fox News this week. “If Iran was just a radical country run by radical people, it would still be a problem, but they are revolutionary.”

(The United States has demanded 20 years in negotiations, and the Iranians’ last public position was three to five years. More recently, Mr. Trump has said 20 years is “not enough.”)

Some aides thought Mr. Trump should take the Iranian offer to reopen the Strait, believing Iran’s positions have hardened and seeing little evidence that the country’s leaders will make further concessions.

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Mr. Trump has insisted that is unacceptable.

“There will never be a deal unless they agree that there will be no nuclear weapons,” he said on Wednesday. In fact, the Iranians have already agreed never to produce a nuclear weapon — they even made that commitment in writing when they ratified the Nuclear Nonproliferation Treaty and again as part of the 2015 nuclear accord with the Obama administration. But what they will not agree to, so far, is ending what they call a “right” to enrich uranium for peaceful purposes under the treaty.

Inside the White House, officials have prepared a range of options for the future of the conflict, including maintaining the blockade for months and resuming military activity inside Iran. But Mr. Trump has looming constraints on his ability to restart the war. The 60-day window to use force without congressional authorization expires this week, and some Republicans have already signaled they will not support an extension.

Members of Mr. Trump’s party, and some of his own aides, are growing anxious about the political impact of the war, especially as gas prices remain inflated. Republicans were already facing political headwinds going into November’s midterm elections, and a prolonged military conflict could exacerbate those.

In the next two weeks, China’s role in the conflict may prove crucial.

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Among Asian nations it has by far the largest reserves of oil, so shortages are not an issue yet. But with oil suddenly above $110 a barrel, some of the highest prices since the opening of the war, the economic effect on the Chinese economy will be huge, most likely far higher than Mr. Trump’s tariffs.

China is Iran’s largest customer by far, and administration officials are betting that pressure from Beijing could force the Iranians into concessions.

Chinese officials played a critical role in persuading Iran to accept the first two-week cease-fire this month after Mr. Trump threatened to wipe Iranian civilization off the map. They asked their Iranian counterparts to show more flexibility in the negotiations over the strait and warned that the cease-fire might be Tehran’s only opportunity to prevent calamity, according to Iranians officials.

Now that negotiations seem to be at an impasse again, a number of officials and analysts say China may have an opportunity to steer toward a lasting peace — or at least a pathway toward reopening the critical waterway. In addition to the commercial relationship between the two countries, there is limited military cooperation. American intelligence agencies have assessed that China may have sent a shipment of shoulder-fired missiles to Iran for the war, though Mr. Trump said two weeks ago that he communicated with Mr. Xi to cut off further help.

At least in public, Mr. Trump has played down China’s assistance to Iran.

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“I was a little surprised because I have a very good relationship and I thought I had an understanding with President Xi,” he told CNBC this month of the suspected Chinese shipment to Iran. “But that’s all right. That’s the way war goes.”

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New Orleans sheriff indicted after investigation into escape of 10 inmates

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New Orleans sheriff indicted after investigation into escape of 10 inmates

A Louisiana sheriff was indicted Wednesday over her office’s role in a notorious jailbreak that sparked outrage last year. The brazen escape saw 10 inmates flee from a New Orleans jail, prompting a massive manhunt involving hundreds of officers from federal, state and local law enforcement agencies.

Orleans Parish Sheriff Susan Hutson faces a 30-count grand jury indictment, charging her with malfeasance, obstruction of justice and falsifying public records. Although Hutson is not accused of helping the inmates break out of jail — through a hole behind a toilet — a state investigation found her poor management of the jail led to their escape. All of the inmates were eventually recaptured after a monthslong search.

“While Sheriff Hutson did not personally open the doors of the jail for the escapees, her refusal to comply with basic legal requirements and to take even minimal precautions in the discharge of her duties directly contributed to and enabled the escape,” Murrill said in a statement.

Huston’s office did not immediately respond to phone calls, text messages and emails seeking comment. Court records did not list a personal attorney for Huston, who lost her reelection campaign and is set to leave office on Monday.

The sheriff told CBS News in an exclusive interview last August that understaffing and “major design flaws” at the jail played a significant part in the inmates’ escape. At the time, she said those flaws at the Orleans Parish Justice Center “make it unsafe for those who are housed here and make it unsafe for those who work here.”

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In a farewell address Tuesday, Hutson said her office faced numerous challenges and said the jailbreak “tested us to the limit.” She added her office “responded with professionalism, urgency and resilience, and we came out stronger because of it.”

Court records show bond for Hutson was set at $300,000 and that she was ordered to turn in her passport and not leave the state. Bianka Brown, the chief financial officer of the sheriff’s office, was also indicted on 20 similar charges. She did not immediately respond to phone calls and text messages sent to numbers associated with her.

Both Hutson and Brown turned themselves into the Jefferson Parish Correctional Center and have been released on bond, CBS affiliate WWL reported.

Sheriff Susan Hutson speaks at a City Council meeting in New Orleans on May 20, 2025, following the escape of 10 inmates from the Orleans Parish Justice Center.

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Sophia Germer/The Times-Picayune/The New Orleans Advocate via AP, File


The escapees left behind graffiti that read “To Easy LoL” after crawling through a hole behind a jail toilet and scaling a barbed wire fence. The jail did not realize the inmates were missing for more than seven hours.

State officials and some city leaders accused Hutson of poor management and criticized her for not alerting police and other authorities in a timely manner. Hutson initially blamed political opponents for being behind the jailbreak without providing any evidence to support her claim. She also said faulty door locks enabled the escape and added she had been seeking funding to improve the jail’s ailing infrastructure.

The Orleans Parish jail system had been plagued by violence, corruption and dysfunction for decades and was placed under federal oversight in 2013. But problems persisted despite tens of millions of dollars in investment and the opening of a new jail facility in 2015. 

Federally appointed monitors warned of the jail’s inadequate staffing, lax supervision and a skyrocketing number of “internal escapes” in the two years leading up to the jailbreak.

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House Adopts Budget to Unlock $70 Billion for Immigration Enforcement

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House Adopts Budget to Unlock  Billion for Immigration Enforcement

The House on Wednesday narrowly adopted a Republican budget blueprint that would allow the G.O.P. to blow past Democratic opposition and pour an additional $70 billion into immigration enforcement through the remainder of President Trump’s second term.

The measure is a crucial step in Republicans’ plan to reopen the Department of Homeland Security, ending a shutdown that has lasted for nearly 11 weeks.

Republicans pushed through the plan, which the Senate adopted last week, on a party-line vote of 215 to 211, with one independent lawmaker voting “present.” That set the stage for the G.O.P. to begin working on a special budget measure, shielded from a filibuster in the Senate, to fund Immigration and Customs Enforcement and Customs and Border Protection, the two agencies charged with carrying out the Trump administration’s immigration crackdown.

“This is the moment we take the keys, and we say, no more of this nonsense,” said Representative Jodey C. Arrington, Republican of Texas and chairman of the Budget Committee. “And we open up the people’s government and we restore the safety and security of the American people.”

The budget plan — which stalled in the House for more than five hours as Republicans fought among themselves over measures on agriculture and ethanol that had nothing to do with immigration — was part of the two-track strategy that Republicans agreed to earlier this month to reopen the Department of Homeland Security, whose funding lapsed on Feb. 14.

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Democrats had refused to fund the department without new restrictions on federal immigration agents’ conduct, and Republicans had refused to agree to any. Then last month, Senate Republicans struck a deal with Democrats to allow the spending measure for the Department of Homeland Security to pass with no funding for or restrictions on immigration enforcement. The G.O.P. would then seek to fund ICE and C.B.P. through a process known as reconciliation, which exempts certain budget bills from a filibuster and allows them to pass the Senate on a simple-majority vote.

Approval of the budget plan was a crucial first step for Republicans to begin the reconciliation process, which will deprive Democrats of the ability to block the bill funding ICE and C.B.P. President Trump has directed Congress to pass that measure by June 1.

The spending bill to fund the rest of the department, which has passed the Senate twice without objection, has remained stalled in the House, where Speaker Mike Johnson has yet to bring it to the floor, even as the White House has urged swift passage.

Several rank-and-file House Republicans said they would not vote for the spending bill without seeing progress on the bill funding immigration enforcement. It was not clear whether adoption of the budget blueprint would be enough to sway them.

The budget resolution would allow the two Senate committees that oversee immigration enforcement agencies to write legislation that increases government spending by up to $70 billion each. Republican leaders have said that they expect the total spending amount to be closer to $70 billion in total.

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Democrats attacked Republicans for giving more money to immigration agencies that already received a large fund as part of Mr. Trump’s signature domestic policy bill. They argued that such money would be better utilized to address Americans’ concerns over affordability and health care.

“Republicans refuse to address the rising costs that Americans are dealing with because this administration refuses to put the people first,” said Representative Pramila Jayapal, Democrat of Washington. “Americans of every political stripe do not want more money to go to ICE’s slush fund.”

Some rank-and-file Republicans had been concerned about such attacks, and they sought to expand the scope of the budget bill to include priorities that they argued would be felt more directly by most Americans.

But the White House and congressional Republican leaders rebuffed those efforts, worried that adding other priorities to the bill would slow its passage and could prolong a record shutdown.

Megan Mineiro contributed reporting.

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