K-V Pharmaceutical Owes United States $67.1M In Fines, Settlement, Lawsuit Says

by Tara Arick on November 30, 2012 · 0 comments

in Bankruptcy

- From LexisNexis® Mealey’s™ Daily Legal News.

A U.S. attorney on Nov. 26 sued K-V Pharmaceutical Co., telling a New York federal court that the bankrupt company’s $ 67.1 million debt of criminal fines and civil settlements are nondischargeable (In Re: K-V Discovery Solutions, Inc., et al., No. 12-13346, S.D. N.Y. Bkcy., United States of America v. K-V Pharmaceutical Company, No. 12-13346, S.D. N.Y.).

Parent company K-V Discovery Solutions Inc. in October filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court for the Southern District of New York. At the heart of the company’s financial troubles is its inability to make scheduled payments to Hologic Inc. for the rights to the Makena preterm labor drug due to alleged market price resistance.

In its complaint filed in the U.S. District Court for the Southern District of New York, the U.S. attorney for the Southern District of New York says that in March 2010, K-V subsidiary Ethex Corp. pleaded guilty to two felony charges for failing to issue field alerts about oversized drug tablets. As part of the judgment, Ethex was ordered to pay a criminal fine of $ 23.4 million in four installments.

Installment Plan

Ethex was subsequently shut down by K-V.

The government says that K-V paid the first installment of $ 2.3 million, after which the parties modified the payment schedule with the next payment due Dec. 15. The government says that the total unpaid balance of the criminal fine is $ 16.1 million.

In addition to the criminal action, the government says that Ethex violated the False Claims Act by misrepresenting the regulatory status of certain drugs that were paid for by Medicare and Medicaid. It says that K-V and Ethex settled the whistle-blower lawsuit for payments totaling about $ 17 million.

Obligations Not Dischargeable

The government says both the criminal plea and settlement agreement provided that neither the fine nor the settlement would be dischargeable in the event Ethex or K-V filed for bankruptcy. It says that in the civil settlement, K-V agreed not to contest that the United States has a valid claim against K-V for $ 51 million.

The government says its position is that it does not have to file an adversary proceeding to obtain a determination of nondischargeability of K-V’s debts to the government. It says it filed the adversary proceeding to preserve its rights in the event the court determines such a filing is necessary to obtain an exemption from discharge.

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