Pfizer granted 30-day discovery on claims it is delaying Quigley bankruptcy case

By Reshmi Basu

New York, June 12 - A U.S. bankruptcy judge granted Pfizer Inc. a 30-day discovery period to explore allegations that it has not sought a quick resolution to the Chapter 11 exit of Quigley Co. Inc.

The accusations claim the pharmaceutical company is delaying the process in order to avoid losing its protection from asbestos lawsuits.

Judge Stuart M. Bernstein postponed his ruling on several motions, which included a request that the court name a chapter 11 trustee as well as another request asking for the dismissal of the case.

The ad hoc committee of tort victims and the U.S. Trustee argued separately in court Tuesday that the interests of creditors as well as some asbestos victims had been subordinated to the needs of parent company Pfizer. In addition, they claimed it was economically advantageous for the New York-based drug company to keep Quigley in chapter 11 for an indefinite period.

In Tuesday's hearing, Quigley disputed the allegations, calling them baseless and saying it had made substantial progress in negotiations with creditors in particular, the addition of new funds to Quigley's coffers, which was upped from $18 million.

"There is now an additional $100 million contribution from Pfizer," Quigley's attorney Michael Cook of Schulte Roth & Zabel told the court.

"That in a nutshell is a good thing."

Under the plan, all current and future asbestos personal injury claims against Quigley will be channeled to a fund. According to the modified version of that plan, Pfizer agreed to make another $100 million contribution, including an additional $50 million cash contribution to the asbestos PI trust on the effective date and $45.1 million in annuities to be paid over a period of 41 years, with the first installment payable of the fifth anniversary of the effective date.

Quigley favoring Pfizer, trustee argues

However, attorney Greg M. Zipes from the office of the U.S. Trustee disagreed with the companies' claim that Pfizer and Quigley had been playing fair.

In the motion to the court, the trustee asked that the case be dismissed, noting that creditors would not get a fair shake since the interests of both Quigley and its parent company are aligned.

Moreover, Pfizer's interests have been placed above anyone else's and that Quigley's strategy has been to secure the best deal for the New York-based pharmaceutical company and not for the creditors, Zipes argued.

As evidence of this conflict, Zipes pointed out to the make up of Quigley's three-member board, which he alleged has ties to Pfizer.

In particular, Zipes criticized the president and chairman of Quigley's board, Paul A. Street, for his lack of involvement in the negotiation process. He said Street acted as a proxy for Pfizer's needs instead of looking out for creditors' best interests.

Of Street, Zipes told the court: "He has not been involved in the case as much as an individual who makes $900,000 a year should be."

During the negotiation over the asbestos personal interest trust, Zipes noted that Quigley was not involved in addressing the additional $100 million funding from Pfizer.

"He [Street] was not in the room saying we need more for Quigley."

"Why would Quigley miss the boat on $100 million?" asked Zipes, adding this was "an example how the debtor has not been acting in the best interest of Quigley."

"This is not a zero sum gain as in other cases," he told the court.

However, judge Bernstein asked Zipes, "You want to dismiss the case because Pfizer wants to put in more money? Seems to me this is what the vote is for," he said, referring to the vote in which at least 75% of asbestos personal injury claimants who vote on the plan must vote to approve it

"Is it not better for creditors to get an open check book?" the judge asked.

Creditors question independence

In a separate motion, the ad hoc committee asked for the appointment of a trustee "to ensure the integrity of the process" and also questioned whether Quigley was an independent entity.

Similar to the U.S. Trustee's arguments, the committee also noted the absence of Quigley's board in the negotiation process.

In particular, the committee's lawyer questioned not only the validity of Quigley as a business entity but also argued that it had offloaded its "work" to its parent company Pfizer.

"To the extent that they had a board, it was a paper board...made all of Pfizer employees," said Edward S. Weisfelner of Brown Rudnick Berlack Israels.

"The board of directors did not meet, did not consider, did not vote on the May 18 plan," noted Weisfelner.

Under the earlier plan that was filed two and a half years ago in 2005, the Quigley's asbestos trust generates a 7½% dividend, which took into account scheduled claims, he told the court.

"7½ cents was what they were predicting when they had 90% claims.

"When you add 172,000 claimants to the pot against Quigley, you have to add [funds] to keep the 7½% dividend," argued Weisfelner, who noted that the equation the drug maker used to come up with the $100 million figure was to plug any number that maintained the 7½% cash dividend.

But he said the $100 million contribution by Pfizer is "not real dollars when only half of it comes over 46 years," he said.

"That may be enough for future claims...but not a fair recovery, as we contend, for the present.

"This entire proceeding...has been an exercise in Pfizer's strategy to gerrymander or rig the vote," argued Weisfelner.

Quigley 'does not exist'

The ad hoc committee's attorney also contended that a major problem with Quigley is that it "does not exist" since the entity had been sold 15 years ago, with the parent company pocketed an undisclosed amount of proceeds.

Instead Pfizer has used it as protective shell to shield the drug maker from asbestos lawsuits.

"We have to give it a business. We'll give it handling claims," Weisfelner told the court was Pfizer's strategy.

He proceeded to paint a picture in which he said Pfizer moved its claim handing unit out of its main headquarters, but that "the guts and brains owned by Pfizer stayed at Pfizer".

"Day 1: Pfizer employees. Day 2: Quigley employees."

Because Pfizer's economic interests have been placed above anyone else, the ad hoc committee has asked for a trustee so that Pfizer "doesn't get all of the benefits of chapter 11."

"Pfizer saw a chance to get out on the cheap," remarked Weisfelner.

In a separate motion, the judge ruled that on June 29 there will be an evidentiary hearing on an injunction to relieve Pfizer of its Pfizer-only claims.

Pfizer argued that some sort of an injunction must remain in place or the pharmaceutical company will face countless numbers of repetitive lawsuits.

A hearing on approval of the disclosure statement is scheduled for July 12, and the plan confirmation hearing will begin on Oct. 11.

Quigley, a unit of Pfizer Inc., filed for bankruptcy on Sept. 3, 2004. Its Chapter 11 case number is 04-15739.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.