Latest 2 Cases This Week: In re: Orexigen Therapeutics, Inc. (3d Cir.), SuVicMon Development, Inc. v. Morrison (11th Cir.)

Constitutional Problems With the Kentucky Proposal (Supported by Mitch McConnell) to Change the Way U.S. Senate Vacancies Are Filled

VIKRAM DAVID AMAR

In this second of a series of columns, Illinois Law dean and professor Vikram David Amar comments on the Kentucky proposal to change the way U.S. Senate vacancies are filled. Dean Amar argues that the Seventeenth Amendment precludes such a proposal, which would allow the state legislature to substantively constrain the governor’s choices in making a temporary appointment.

Read More

In re: Orexigen Therapeutics, Inc.

Court: US Court of Appeals for the Third Circuit

Docket: 20-1136

Opinion Date: March 19, 2021

Judge: Jordan

Areas of Law: Bankruptcy

Orexigen produced a weight management drug, Contrave. In June 2016, Orexigen agreed to sell Contrave to McKesson, which provided the drug to pharmacies. The Distribution Agreement permitted “each of [McKesson] and its affiliates … to set-off, recoup and apply any amounts owed by it to [Orexigen’s] affiliates against any [and] all amounts owed by [Orexigen] or its affiliates to any of [McKesson] or its affiliates.” MPRS and Orexigen entered into a “Services Agreement” weeks later; MPRS managed a customer loyalty discount program for Orexigen. MPRS would advance funds to pharmacies selling Contrave and later be reimbursed by Orexigen. The agreements did not reference each other. McKesson and MPRS were distinct legal entities. When Orexigen filed its 2018 Chapter 11 petition, it owed MPRS $9.1 million under the Services Agreement. McKesson owed Orexigen $6.9 million under the Distribution Agreement. With setoff, Orexigen would have owed MPRS $2.2 million; McKesson would have owed Orexigen nothing. McKesson objected to a sale of Orexigen's assets. McKesson agreed to pay the $6.9 million receivable; Orexigen agreed to keep that sum segregated pending resolution of the setoff dispute. Parties may invoke setoff rights when the debts they owe one another are mutual, 11 U.S.C. 553. The bankruptcy court, the district court, and the Third Circuit rejected McKesson’s request to set off its debt by the amount Orexigen owed MPRS. McKesson wanted a triangular setoff, not a mutual one, as allowable under section 553.

SuVicMon Development, Inc. v. Morrison

Court: US Court of Appeals for the Eleventh Circuit

Docket: 20-11681

Opinion Date: March 25, 2021

Judge: Tjoflat

Areas of Law: Bankruptcy, Securities Law

Plaintiffs sued Morrison in Alabama state court in 2006, alleging common-law fraud and Alabama Securities Act violations, later adding claims under the Alabama Uniform Fraudulent Transfer Act, alleging that Morrison had given property to his sons to defraud his creditors. Morrison filed for Chapter 7 bankruptcy. The bankruptcy court allowed the Alabama case to proceed but stayed the execution of any judgment. Plaintiffs initiated a bankruptcy court adversary proceeding, seeking a ruling that their state-court claims were not dischargeable. The bankruptcy court entered Morrison’s discharge order with the adversary proceeding still pending. In 2019, the Alabama trial court entered judgment ($1,185,176) against Morrison on the common-law fraud and Securities Act claims but rejected the fraudulent transfer claims. In the adversary proceeding, the bankruptcy court held that the state-court judgment was excepted from discharge, 11 U.S.C. 523(a)(19), as a debt for the violation of state securities laws, and later ruled that the discharge injunction barred appeals against Morrison on the fraudulent transfer claims. The court found the "Jet Florida" doctrine inapplicable because Morrison would be burdened with the expense of defending the state-court suit. The district court and Eleventh Circuit affirmed, rejecting arguments that the fraudulent transfer suit is an action to collect a non-dischargeable debt (securities-fraud judgment) or that Plaintiffs should be allowed to proceed against Morrison as a nominal defendant, to seek recovery from the fraudulent transferees. The bankruptcy court has discretion in deciding whether to allow a suit against a discharged debtor under Jet Florida.