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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