A recent Law 360 story by Justin Wise, “3 Firms Give Up $1M in Fees From Purdue Ch. 11,” reports that Skadden Arps Slate Meagher & Flom LLP, WilmerHale and Dechert LLP have agreed to a settlement with the U.S. Department of Justice to relinquish $1 million in fees earned in their representation of Purdue Pharma in its ongoing bankruptcy cases, after concerns were raised about the adequacy of the firms' disclosures.
The DOJ Trustee Program said that the firms failed to disclose a joint defense and common interest agreement between Purdue and the Sackler family, the company's owners, in their retention applications. The agreement created obligations for the firms to the Sacklers in their defense of hundreds of lawsuits relating to Purdue's opioid sales, the DOJ said. Purdue had invoked the agreement in an effort to avoid turning over documents to unsecured creditors reviewing debtors' conduct. The settlement is subject to approval by the Bankruptcy Court for the Southern District of New York.
"These disclosure violations are particularly concerning because a central question in these cases has been the independence of Purdue from the Sackler families," Cliff White, director of the DOJ's Trustee Program, said in a statement. "This agreement reflects the USTP's ongoing efforts to police law firms and other bankruptcy professionals who fail to disclose connections that may raise questions about their ability to perform their duties free of conflicts of interest."
Law firms are required under bankruptcy laws to disclose their connections to other parties who may have a stake in a case. The three firms did not consider the common interest agreement to represent a "connection" requiring disclosure at the time of their applications, but agreed to the settlement to resolve a dispute with the U.S. Trustee, according to a court filing. The U.S. Trustee first raised concerns about the firms' disclosures in early March.
The U.S. Trustee said it discovered no "evidence that the failure to disclose in this case was intentional or that there was an effort by any of the firms to mislead." Under the settlement, Skadden, WilmerHale and Dechert will collectively reduce their pending or future fees by $1 million and file supplemental retention applications to reflect any agreements entered on behalf of debtors and other parties.