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Business

U.S. court rejects J&J bankruptcy strategy for thousands of talc lawsuits

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Jan 30 (Reuters) – A U.S. appeals court on Monday shot down Johnson & Johnson’s (JNJ.N) attempt to offload tens of thousands of lawsuits over its talc products into bankruptcy court. The ruling marked the first major repudiation of an emerging legal strategy with the potential to upend U.S. corporate liability law.

J&J is among four major companies that have filed so-called Texas two-step bankruptcies to avoid potentially massive lawsuit exposure. The tactic involves creating a subsidiary to absorb the liabilities and to immediately file for Chapter 11.

The court ruled the healthcare conglomerate improperly placed its subsidiary into bankruptcy even though it faced no financial distress. J&J’s two-step sought to halt more than 38,000 lawsuits from plaintiffs alleging the company’s baby powder and other talc products caused cancer. The appeals court ruling revives those lawsuits.

Reuters last year detailed the secret planning of Texas two-steps by Johnson & Johnson and other major firms in a series of reports exploring corporate attempts to evade lawsuits through bankruptcies.

Monday’s decision by the U.S. 3rd Circuit Court of Appeals in Philadelphia dismissed the bankruptcy filed by the J&J subsidiary in 2021. Before the filing, J&J had faced costs of $3.5 billion in verdicts and settlements.

J&J shares closed down 3.7% – the biggest one-day percentage decline in two years. The company said in a statement that it would challenge the ruling and that its talc products are safe.

Plaintiffs attorneys and some legal experts have argued the two-step could set a dangerous precedent, providing a blueprint for any corporation to easily avoid undesirable litigation. The appeals court decision could force companies considering the strategy to more carefully consider its risks, two legal experts said.

“It is a push back on the notion that any company anywhere can use the same tactic to get rid of their mass tort liability,” said Lindsey Simon, a professor at University of Georgia School of Law.

Bankruptcy filings typically suspend litigation in trial courts, forcing plaintiffs into often time-consuming settlement negotiations while leaving them unable to pursue their cases in the courts where they originally sued.

The 3rd Circuit ruling does not directly impact three other Texas two-step bankruptcies, filed by subsidiaries of Koch Industries-owned Georgia Pacific, global construction giant Saint-Gobain(SGOB.PA), and Trane Technologies (2IS.F). Those cases fall under the jurisdiction of the 4th Circuit appeals court. 3M (MMM.N) attempted a similar maneuver, which is currently pending in the 7th Circuit.

Those companies did not comment on the 3rd Circuit ruling or did not immediately respond to inquiries. All have previously defended the bankruptcies as the best way to fairly compensate claimants. Plaintiffs’ attorneys have countered that the Texas two-step is an improper manipulation of the bankruptcy system. The strategy uses a Texas law to split an existing company in two, creating the new subsidiary meant to shoulder the lawsuits.

New Jersey-based Johnson & Johnson, valued at more than $400 billion, said its subsidiary’s bankruptcy was initiated in good faith. J&J initially pledged $2 billion to the subsidiary to resolve talc claims and entered into an agreement to fund an eventual settlement approved by a bankruptcy judge.

“Resolving this matter as quickly and efficiently as possible is in the best interests of claimants and all stakeholders,” J&J said.

A three-judge panel on the appeals court rejected J&J’s argument, finding the company’s subsidiary, LTL Management, was created solely to file for Chapter 11 protection but had no legitimate need for it. Only a debtor in financial distress can seek bankruptcy, the panel ruled. The judges pointed out that J&J assured that it would give LTL plenty of money to pay talc claimants.

“Good intentions – such as to protect the J&J brand or comprehensively resolve litigation – do not suffice alone,” the judges said in a 56-page opinion. “LTL, at the time of its filing, was highly solvent with access to cash to meet comfortably its liabilities.”

‘PROJECT PLATO’

The decision could force J&J to fight talc lawsuits for years in trial courts. The company has a mixed record fighting the suits so far. While the firm was hit with major judgments in some cases before filing bankruptcy, more than 1,500 talc lawsuits have been dismissed and the majority of cases that have gone to trial have resulted in verdicts favoring J&J, judgments for the company on appeal, or mistrials, according to its subsidiary’s court filings.

A December 2018 Reuters investigation revealed that J&J officials knew for decades about tests showing that the company’s talc sometimes contained traces of carcinogenic asbestos but kept that information from regulators and the public. J&J has said its talc does not contain asbestos and does not cause cancer.

Facing unrelenting litigation, J&J enlisted law firm Jones Day, which had helped other companies execute Texas two-step bankruptcies to address asbestos-related lawsuits.

J&J’s effort, as Reuters reported last year, was internally dubbed “Project Plato,” and employees working on it signed confidentiality agreements. A company lawyer warned them to tell no one, including their spouses, about the plan.

Jones Day did not immediately respond to a request for comment.

The Texas two-step has garnered criticism from Democratic lawmakers in Washington, and inspired proposed legislation that would severely restrict the practice.

Senator Sheldon Whitehouse, a Democrat from Rhode Island, cheered Monday’s appeals court decision. Whitehouse chaired the first congressional hearing scrutinizing two-step bankruptcies in February of last year.

“Bankruptcy is meant to give honest debtors in unfortunate circumstances a fresh start,” he said, not to allow “large, highly profitable corporations” to avoid accountability for wrongdoing with a legal “shell game.”

Reporting by Tom Hals in Wilmington, Delaware; Mike Spector in New York; and Dan Levine in San Francisco; additional reporting by Dietrich Knauth and Chuck Mikolajczak in New York; editing by Bill Berkrot and Brian Thevenot

Our Standards: The Thomson Reuters Trust Principles.

Tom Hals

Thomson Reuters

Award-winning reporter with more than two decades of experience in international news, focusing on high-stakes legal battles over everything from government policy to corporate dealmaking.

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Business

U.S. asks Tesla about Musk tweet on driver monitoring function

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WASHINGTON, Jan 9 (Reuters) – The National Highway Traffic Safety Administration (NHTSA) Monday said it was in contact with Tesla (TSLA.O) about a tweet Chief Executive Elon Musk wrote about a driver monitoring function.

A Dec. 31 tweet suggested drivers with more than 10,000 miles using Tesla’s “Full Self-Driving” (FSD) software system should be able to disable the “steering wheel nag,” an alert that instructs drivers to hold the wheel to confirm they are paying attention. Musk responded: “Agreed, update coming in Jan.”

NHTSA Monday said it “is in contact with Tesla to gather additional information.” The Associated Press reported NHTSA’s statement earlier. Tesla did not immediately comment.

The auto safety agency confirmed the questions about Musk’s tweet are in connection with its ongoing defect probe into 830,000 Tesla vehicles with driver assistance system Autopilot and involving crashes with parked emergency vehicles.

NHTSA is reviewing whether Tesla vehicles adequately ensure drivers are paying attention, and previously said evidence suggested drivers in most crashes under review had complied with Tesla’s alert strategy that seeks to compel driver attention, raising questions about its effectiveness.

Tesla sells the $15,000 FSD software as an add-on which enables its vehicles to change lanes and park autonomously. That complements its standard “Autopilot” feature, which enables cars to steer, accelerate and brake within their lanes without driver intervention. Both systems use the steering wheel monitoring function.

Last month, NHTSA said it had opened two new special investigations into crashes involving Tesla vehicles where advanced driver assistance systems are suspected to have been in use. Since 2016, NHTSA has opened more than three dozen Tesla special crash investigations where advanced driver assistance systems such as Autopilot were suspected of being used with 19 crash deaths reported.

In December 2021, NHTSA opened a probe into Tesla’s decision to allow games to be played by passengers on the front center touchscreen covering 580,000 vehicles over the vehicle’s “Passenger Play” over driver distraction concerns.

Soon after the investigation was opened, Tesla told NHTSA it would stop allowing video games to be played on vehicle screens while its cars are moving, the agency said.

Reporting by David Shepardson
Editing by Nick Zieminski

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Business

Congressional report: U.S. FDA broke own protocols in approving Biogen Alzheimer’s drug

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WASHINGTON, Dec 29 (Reuters) – The U.S. Food and Drug Administration failed to adhere to its own guidance and internal practices during the approval process for Biogen’s (BIIB.O) Alzheimer’s drug Aduhelm, which was “rife with irregularities,” a congressional report showed on Thursday.

The FDA’s interactions with Biogen were “atypical” and did not follow the agency’s documentation protocol, according to a staff report on the findings of an 18-month investigation conducted by two House of Representatives committees into the drug’s regulatory review, approval, pricing, and marketing.

The FDA approved Aduhelm in June 2021 under an accelerated approval pathway over the objections of its panel of outside advisers, who did not believe data definitively proved the drug’s benefit to patients.

It was authorized based on evidence that it could reduce brain plaques, a likely contributor to Alzheimer’s, rather than proof that it slowed progression of the lethal mind-wasting disease.

The Medicare program restricted its coverage, which has led to severely limited use of the Biogen drug.

Biogen set an “unjustifiably high” price by initially setting Aduhelm’s price at $56,000 per year despite a lack of demonstrated clinical benefit in a broad patient population, the report said, adding that the company’s own internal projections showed it expected the drug to be a burden to Medicare and costly to patients.

“The findings in this report raise serious concerns about FDA’s lapses in protocol and Biogen’s disregard of efficacy and access in the approval process for Aduhelm,” the report, prepared by the staffs of the House Committee on Oversight and Reform and House Committee on Energy and Commerce, concluded.

The agency should ensure that all substantive interactions with drug sponsors are properly memorialized, establish a protocol for joint briefing documents with drug sponsors, and update its industry guidance on the developments and review of new Alzheimer’s Drugs, the report recommended.

Biogen and other drugmakers should communicate to the FDA any concerns over safety and efficacy to the FDA as well as take value and patient access into consideration when setting prices, the report said.

An FDA spokesperson said the FDA’s decision to approve Aduhelm was based on scientific evaluation of the data contained in the application.

He pointed to the FDA’s internal review finding its staff’s interactions with Biogen appropriate.

“It is the agency’s job to frequently interact with companies in order to ensure that we have adequate information to inform our regulatory decision-making. We will continue to do so, as it is in the best interest of patients,” he said, adding that the agency will continue to use the accelerated approval pathway whenever appropriate.

The FDA has already begun implementing some of the report’s recommendations, the spokesperson said.

“Biogen stands by the integrity of the actions we have taken,” the Cambridge, Mass.-based biotech company said in an emailed statement.

“As stated in the congressional report, an (FDA) review concluded that, ‘There is no evidence that these interactions with the sponsor in advance of filing were anything but appropriate in this situation,'” Biogen said.

Documents obtained by the committees show that FDA staff and Biogen held at least 115 meetings, calls, and email exchanges over a 12-month period starting July 2019.

The total number of meetings is unknown because the FDA failed to keep a clear record of informal meetings and interactions between its staff and Biogen representatives. The investigation identified an additional 66 calls and email exchanges that were not memorialized.

The FDA inappropriately collaborated with Biogen on a joint briefing document for the Peripheral and Central Nervous System (PCNS) Advisory Committee, the report said, with FDA and Biogen staff working closely for months ahead of the Nov. 6, 2020 meeting to prepare the document, which failed to adequately represent differing views within the agency.

“Using a joint briefing document afforded Biogen advance insight into FDA’s responses and direct guidance from the agency in drafting the company’s own sections. For example, in an exchange of the draft briefing document on October 9, 2020, FDA staff asked Biogen to move a paragraph drafted by the agency into Biogen’s section of the memorandum—a change reflected when the document was finalized,” the report made public to media organizations said.

When none of the advisory panel members voted to approve Aduhelm, the FDA pivoted to using its accelerated approval pathway – typically used for rare diseases or small patient populations that lack access to effective treatments – despite having considered the drug under the traditional approval pathway for nine months, the report said.

It did so on a substantially abbreviated timeline, approving it after three weeks of review, and for a broad label indication of “people with Alzheimer’s disease” that was unsupported by clinical data, the report said.

Internal documents obtained by the investigation showed that Biogen accepted the indication despite its own reservations over the lack of evidence Aduhelm could help patients at disease stages outside of its clinical trials.

Reporting by Ahmed Aboulenein; editing by Diane Craft

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Ahmed Aboulenein

Thomson Reuters

Washington-based correspondent covering U.S. healthcare and pharmaceutical policy with a focus on the Department of Health and Human Services and the agencies it oversees such as the Food and Drug Administration, previously based in Iraq and Egypt.

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Entertainment

Alec Baldwin files lawsuit in deadly ‘Rust’ shooting

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Nov 11 (Reuters) – Actor Alec Baldwin filed a lawsuit on Friday against the armorer and three other crew members over the deadly shooting on the set of the Western movie “Rust,” in which a gun that Baldwin was using during rehearsal killed cinematographer Halyna Hutchins.

Baldwin’s suit was filed in Los Angeles County Superior Court as a cross complaint stemming from a previous suit in which a different member of the crew named Baldwin and the others as defendants.

It is one of many pieces of litigation stemming from the tragedy of Oct. 21, 2021, which is also under criminal investigation and could result in New Mexico state charges.

Baldwin’s cross complaint names armorer Hannah Gutierrez-Reed, first assistant director Dave Halls, prop supplier Seth Kenney and prop master Sarah Zachry.

An attorney for Gutierrez-Reed, Jason Bowles, said in an email on Saturday that, “Baldwin is responsible for this tragedy.”

Attorneys for Halls and Kenney did not immediately respond to requests for statements in their clients’ defense. Reuters could not locate an attorney for Zachry.

All four were also named as defendants along with Baldwin in the original lawsuit filed by a script supervisor who claimed the shooting caused her severe emotional distress.

Baldwin’s cross complaint alleges negligence and seeks damages to be determined at trial for the “immense grief” he endures.

“This tragedy happened because live bullets were delivered to the set and loaded into the gun, Gutierrez-Reed failed to check the bullets or the gun carefully, Halls failed to check the gun carefully and yet announced the gun was safe before handing it to Baldwin, and Zachry failed to disclose that Gutierrez-Reed had been acting recklessly off set and was a safety risk to those around her,” Baldwin’s cross complaint said.

The suit was written by Luke Nikas, an attorney for Baldwin who is with the firm Quinn Emanuel.

Hutchins was killed when a revolver Baldwin was rehearsing with during filming in New Mexico fired a live round that hit her and movie director Joel Souza, who survived.

In a television interview, the actor said he did not pull the trigger of the Colt .45 revolver and it fired after he cocked it.

An FBI forensic test of the single-action revolver found it “functioned normally” and would not fire without the trigger being pulled.

Reporting by Daniel Trotta; Editing by Leslie Adler and Daniel Wallis

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Business

Exclusive: Tesla faces U.S. criminal probe over self-driving claims

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Oct 25 – Tesla Inc (TSLA.O) is under criminal investigation in the United States over claims that the company’s electric vehicles can drive themselves, three people familiar with the matter said.

The U.S. Department of Justice launched the previously undisclosed probe last year following more than a dozen crashes, some of them fatal, involving Tesla’s driver assistance system Autopilot, which was activated during the accidents, the people said.

As early as 2016, Tesla’s marketing materials have touted Autopilot’s capabilities. On a conference call that year, Elon Musk, the Silicon Valley automaker’s chief executive, described it as “probably better” than a human driver.

Last week, Musk said on another call Tesla would soon release an upgraded version of “Full Self-Driving” software allowing customers to travel “to your work, your friend’s house, to the grocery store without you touching the wheel.”

A video currently on the company’s website says: “The person in the driver’s seat is only there for legal reasons. He is not doing anything. The car is driving itself.”

However, the company also has explicitly warned drivers that they must keep their hands on the wheel and maintain control of their vehicles while using Autopilot.

The Tesla technology is designed to assist with steering, braking, speed and lane changes but its features “do not make the vehicle autonomous,” the company says on its website.

Such warnings could complicate any case the Justice Department might wish to bring, the sources said.

Tesla, which disbanded its media relations department in 2020, did not respond to written questions from Reuters on Wednesday. Musk also did not respond to written questions seeking comment. A Justice Department spokesperson declined to comment.

Musk said in an interview with Automotive News in 2020 that Autopilot problems stem from customers using the system in ways contrary to Tesla’s instructions.

Federal and California safety regulators are already scrutinizing whether claims about Autopilot’s capabilities and the system’s design imbue customers with a false sense of security, inducing them to treat Teslas as truly driverless cars and become complacent behind the wheel with potentially deadly consequences.

The Justice Department investigation potentially represents a more serious level of scrutiny because of the possibility of criminal charges against the company or individual executives, the people familiar with the inquiry said.

As part of the latest probe, Justice Department prosecutors in Washington and San Francisco are examining whether Tesla misled consumers, investors and regulators by making unsupported claims about its driver assistance technology’s capabilities, the sources said.

Officials conducting their inquiry could ultimately pursue criminal charges, seek civil sanctions or close the probe without taking any action, they said.

The Justice Department’s Autopilot probe is far from recommending any action partly because it is competing with two other DOJ investigations involving Tesla, one of the sources said. Investigators still have much work to do and no decision on charges is imminent, this source said.

The Justice Department may also face challenges in building its case, said the sources, because of Tesla’s warnings about overreliance on Autopilot.

For instance, after telling the investor call last week that Teslas would soon travel without customers touching controls, Musk added that the vehicles still needed someone in the driver’s seat. “Like we’re not saying that that’s quite ready to have no one behind the wheel,” he said.

The Tesla website also cautions that, before enabling Autopilot, the driver first needs to agree to “keep your hands on the steering wheel at all times” and to always “maintain control and responsibility for your vehicle.”

Barbara McQuade, a former U.S. attorney in Detroit who prosecuted automotive companies and employees in fraud cases and is not involved in the current probe, said investigators likely would need to uncover evidence such as emails or other internal communications showing that Tesla and Musk made misleading statements about Autopilot’s capabilities on purpose.

SEVERAL PROBES

The criminal Autopilot investigation adds to the other probes and legal issues involving Musk, who became locked in a court battle earlier this year after abandoning a $44 billion takeover of social media giant Twitter Inc, only to reverse course and proclaim excitement for the looming acquisition.

In August 2021, the U.S. National Highway Traffic Safety Administration opened an investigation into a series of crashes, one of them fatal, involving Teslas equipped with Autopilot slamming into parked emergency vehicles.

NHTSA officials in June intensified their probe, which covers 830,000 Teslas with Autopilot, identifying 16 crashes involving the company’s electric cars and stationary first-responder and road maintenance vehicles. The move is a step that regulators must take before requesting a recall. The agency had no immediate comment.

In July this year, the California Department of Motor Vehicles accused Tesla of falsely advertising its Autopilot and Full Self-Driving capability as providing autonomous vehicle control. Tesla filed paperwork with the agency seeking a hearing on the allegations and indicated it intends to defend against them. The DMV said in a statement it is currently in the discovery stage of the proceeding and declined further comment.

Additional reporting by Hyunjoo Jin and David Shepardson; Editing by Deepa Babington

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Business

Rivian shares skid after EV maker recalls nearly all vehicles

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Oct 10 (Reuters) – Shares of Rivian Automotive Inc (RIVN.O) fell about 9% on Monday after the electric-vehicle maker recalled nearly all its vehicles, exacerbating investor concerns that the company may not be able to meet its 2023 production target.

The Amazon.com Inc-backed (AMZN.O) firm on Friday recalled about 13,000 vehicles due to a possible loose fastener that could cause the driver to lose steering control.

Rivian started selling its EVs in the third quarter of last year, and has so far delivered 13,198 vehicles. read more

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“We have greater concerns on 2023 production expectations,” RBC Capital Markets said in a note on Monday. The addition of battery packs and motors as well as downtime required at the plant to ramp up capacity could derail Rivian’s pace of production, it said.

While the broad recall could hurt the brand and cause lingering credibility issues for future production, Wedbush Securities said in a note, it does not believe the recall would impact Rivian’s production or delivery goals for the year.

Shares of the company fell to $30.79 in early trading – the lowest in over a month. They have fallen 67.3% this year due to a selloff in equities driven by an uncertain macro-economic environment and a production forecast cut.

The company in March cut its 2022 production forecast in half to 25,000 due to sticky supply-chain issues. read more

Wall Street expects Rivian to make 23,590 vehicles this year, according to Visible Alpha.

Reuters Graphics

A local court in Georgia, where Rivian is building its $5-billion manufacturing plant, last week rejected a joint proposal by the state’s Department of Economic Development and the company to secure local incentives for its project in the state.

The local development authority had said in May the company would gain incentives of $1.5 billion from the state.

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Reporting by Akash Sriram and Savyata Mishra in Bengaluru; Editing by Shinjini Ganguli

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Business

Toyota restarts output of first EV after fixing safety issues

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TOKYO, Oct 6 (Reuters) – Toyota Motor Corp said it would restart production of its first electric vehicle, the bZ4X, on Thursday after fixing potential safety problems that had halted sales of the new battery-powered model for more than three months.

Japan’s largest automaker, a laggard in the EV market, recalled 2,700 bZ4Xs globally in June after discovering that there was a risk the car’s wheels could come loose.

Subaru Corp (7270.T), a fifth owned by Toyota, also had to recall units of the related Solterra model that it jointly developed with Toyota.

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A recall notice submitted to Japan’s transport ministry by Toyota in June said that sharp turns and sudden braking could cause a hub bolt to loosen, raising the risk of a wheel coming off the vehicle.

The automaker on Thursday said in a filing to the ministry that it would make sure hub bolts were replaced and properly tightened in new versions of the bZ4X.

In addition, Toyota said it had identified and fixed a potential problem with airbags in the car. Some airbags had been improperly installed at the factory and were at risk to fail or cause injury because of the placement of a strap inside the airbag assembly.

Toyota had not previously disclosed that problem.

2023 Toyota bZ4X all-electric SUV is displayed during the 2021 LA Auto Show in Los Angeles, California, U.S. November, 17, 2021. REUTERS/Mike Blake

Masahiko Maeda, Toyota’s chief technology officer, told a briefing the automaker only became aware of the airbag issue in the last month or two.

“We apologise again for the concern, anxiety, and inconvenience we have caused to our customers, our dealers and our stakeholders,” Maeda said.

He declined to comment on how much the recall had cost.

Toyota has faced criticism from environmental groups and investors who want the company to expand faster into battery EVs. Toyota has pushed back, saying it needs to offer car choices to suit different markets and customers.

Hybrids such as the Prius remain far more popular in Toyota’s home market. Pure battery-electric vehicles accounted for just 1% of the passenger cars sold in Japan last year, according to industry data.

The bZ4X is available for lease only in Japan – a service which will resume on Oct. 26, Maeda said. He did not specify when U.S. sales would recommence.

Only 232 units of crossover, pitched as Toyota’s answer to Tesla’s (TSLA.O) Model Y and the Volkswagen’s (VOWG_p.DE) ID.4, have been sold this year in the United States.

Last year, the Japanese automaker committed about $30 billion to develop battery electric vehicles. It expects the company’s annual sales of such cars to reach only 3.5 million vehicles by the end of the decade, about one-third of current annual sales of its gasoline-powered cars.

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Reporting by Satoshi Sugiyama and Maki Shiraki; Editing by Kevin Krolicki and Edwina Gibbs

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Business

3M combat earplug lawsuits to proceed, judge rules, despite bankruptcy case

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The logo of Down Jones Industrial Average stock market index listed company 3M is shown in Irvine, California April 13, 2016. REUTERS/Mike Blake

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Aug 26 (Reuters) – 3M Co must face more than 230,000 lawsuits accusing it of selling defective earplugs to the U.S. military, after a U.S. judge on Friday ruled that the bankruptcy of a subsidiary did not stop lawsuits against the non-bankrupt parent company.

Companies that file for bankruptcy typically receive an immediate reprieve from lawsuits, and 3M subsidiary Aearo Technologies LLC argued that extending those protections to 3M would buy Aearo time to address its debts and restructuring goals.

Aearo and 3M had argued that bankruptcy offered a faster and fairer way to compensate veterans who say that earplugs made by Aearo caused hearing loss.

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But bankruptcy Judge Jeffrey J. Graham in Indianapolis said that Aearo’s bankruptcy restructuring could proceed in parallel with the lawsuits.

While the “sheer size” of the consolidated litigation may have spurred 3M and Aearo to seek “additional leverage” through the bankruptcy proceedings, that did not create a legal need to protect 3M, Graham ruled.

Attorneys representing the veterans with hearing loss said they looked forward to continuing their lawsuits against 3M in other courts.

“Judge Graham’s decision is a complete rejection of 3M’s attempt to evade accountability and hide in bankruptcy,” plaintiff attorneys Bryan Aylstock and Christopher Seeger said in a statement.

A spokesman for 3M said it intended to appeal.

“Continuing to litigate these cases one-by-one over the coming years will not provide certainty or fairness for any party,” 3M spokesman Sean Lynch said.

3M subsidiary Aearo Technologies LLC filed for bankruptcy protection in Indiana on July 26, seeking to resolve lawsuits alleging that 3M’s Combat Arms Earplugs Version 2 (CAEv2) caused hearing loss.

Aearo will continue in the chapter 11 proceedings and 3M will continue to defend its position in the litigation, the company said in a statement late on Friday.

“3M continues to expect to complete the pending separation of its food safety business on the targeted closing date of September 1,” 3M added.

The lawsuits have been consolidated in federal court in Florida and have grown into the largest mass tort litigation in U.S. history. Aearo placed $1 billion in a trust to settle them and agreed to indemnify 3M for all liability related to CAEv2.

3M has denied liability, saying its earplugs offered protection to soldiers while allowing them to hear on the battlefield.

The Florida judge overseeing the earplug lawsuits, U.S. District Judge M. Casey Rodgers, has admonished 3M for “naked duplicity” in attempting to dump its liabilities into a bankrupt subsidiary.

3M and Aearo have in turn criticized Rodgers for allowing the consolidated litigation to balloon, pointing out that earplug cases now account for a whopping 30% of all cases pending in U.S. federal courts.

3M has lost 10 of the 16 cases that have gone to trial so far, with about $265 million being awarded in total to 13 plaintiffs.

3M’s stock price was down 12% Friday to $129.

Companies have in recent years increasingly used bankruptcy proceedings to protect non-bankrupt owners and affiliates from litigation, with Johnson & Johnson’s effort to offload lawsuits alleging that its talc-based baby powder caused cancer a recent example.

J&J has denied liability and said its talc-based baby powder is safe. The J&J affiliate’s bankruptcy case is under review, after cancer victims appealed a court ruling that blocked their lawsuits against J&J.

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Reporting by Dietrich Knauth; Additional reporting by Ann Maria Shibu in Bengaluru; Editing by Josie Kao, Alexia Garamfalvi and Rosalba O’Brien

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Business

Philips parts ways with CEO in midst of massive recall

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  • Van Houten to leave after almost 12 years at helm
  • To be replaced on Oct. 15 by Connected Care head Jakobs
  • Shares up 2%, but down more than 50% since product recall

AMSTERDAM, Aug 16 (Reuters) – Philips (PHG.AS) Chief Executive Frans van Houten will leave the company in October, the Dutch health technology firm said on Tuesday, after a key product recall cut its market value by more than half over the past year.

Philips said Van Houten would be replaced on Oct. 15 by Roy Jakobs, head of the company’s Connected Care businesses. Van Houten’s third term as CEO had been due to end in April.

Jakobs, 48, is currently overseeing the company’s recall of millions of ventilators and machines for the treatment of sleep apnea. That process has lopped almost $30 billion off Philips’ value as investors fear large claims.

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“The time is right for the change in leadership,” Philips said in a statement.

Philips shares were up 2% in afternoon trading, but are still down almost 60% since its warning in June 2021 that foam used for sound dampening might release toxic gases that could carry cancer risks. read more

When it started the recall in September last year, Philips said it expected to complete the replacement and repair of all affected machines within a year.

But after broadening the scope of the operation to around 5.5 million devices worldwide, Philips in June said the work was only around halfway done.

ADDITIONAL TESTS

The U.S. Food and Drug Administration (FDA) in January classified the recall as Class 1, or the most serious type, posing a threat of injury or death.

The FDA said on Tuesday it had received 48,000 new Medical Device Reports containing complaints about potential injuries related to the Philips devices, including 44 deaths, between May 1 and July 31 this year. read more

That is more than twice as many reports as it received for the entire year to April 30, 2022, which totalled over 21,000. They included 124 deaths.

CEO Frans van Houten from the Dutch health technology company Philips presents the company’s financial results for the fourth quarter and full year 2018, in Amsterdam, Netherlands, January 29, 2019. REUTERS/Eva Plevier

The FDA said it would analyse the reports and examine the possible reasons for the increased number.

The complaints do not prove causality, but are an indicator of the severity of the problem.

Philips in June said it had supplied the FDA with evidence from independent tests on the recalled devices which showed foam degradation was mainly linked to the use of aggressive, unauthorised ozone-based cleaning products. read more

It has promised to run additional tests to determine the potential toxicity of degraded foam parts, even though the tests so far had shown that the parts did not leave the machine.

Philips estimated the costs of the recall at 900 million euros ($915 million). That sum does not cover the possible costs of litigation. The company is facing more than a hundred class action suits.

“If you have three recalls in 10 years, it’s too much. His (Van Houten’s) position had become untenable,” said analyst Jos Versteeg of InsingerGilissen. He was referring to a defibrillator recall in 2017 and problems with medical scanners in 2014.

“This situation is not really under control, I think, because we’re still waiting for the definite conclusion of the (safety) studies.”

Although the blow to Philips’ reputation could have led it to pick an outsider for the top job, supervisory board chairman Feike Sijbesma said Jakobs was the right man to fix the company’s problems.

“He led the ramp up of production following the recall and knows very much about patient safety and product quality, so also from that perspective he is the right person,” he said.

During his almost 12 years at the helm, 62-year old Van Houten oversaw the disposal of Philips’ lighting and consumer electronics divisions.

Philips now focuses on medical imaging, monitoring and diagnostic equipment and competes against General Electric (GE.N) and Siemens Healthineers (SHLG.DE).

($1 = 0.9833 euros)

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Reporting by Bart Meijer; Additional reporting by Ahmed Aboulenein in Washington; Editing by Matt Scuffham, Emelia Sithole-Matarise and Richard Pullin

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Exclusive: Cassava Sciences faces U.S. criminal probe tied to Alzheimer’s drug, sources say

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WASHINGTON, July 27 (Reuters) – The U.S. Justice Department has opened a criminal investigation into Cassava Sciences Inc (SAVA.O) involving whether the biotech company manipulated research results for its experimental Alzheimer’s drug, two people familiar with the inquiry said.

The Justice Department personnel conducting the investigation into Austin, Texas-based Cassava specialize in examining whether companies or individuals have misled or defrauded investors, government agencies or consumers, according to the sources, who spoke on condition of anonymity. The sources did not provide details of the focus of the probe and whether the department was looking into any specific individuals.

As in any Justice Department investigation, this one could lead to criminal charges or be closed without any charges being brought.

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In an emailed statement, Kate Watson Moss, a lawyer representing Cassava, neither confirmed nor denied the existence of the Justice Department criminal probe.

“To be clear: Cassava Sciences vehemently denies any and all allegations of wrongdoing,” Watson Moss said, adding that the company “has never been charged with a crime, and for good reason – Cassava Sciences has never engaged in criminal conduct.”

Watson Moss added that Cassava Sciences has received confidential requests for information from government agencies, but declined to identify those agencies. Watson Moss said that “Cassava Sciences has provided information in response to these requests in full satisfaction of its legal obligations.” Watson Moss added that no government agency has accused the company of wrongdoing.

A Justice Department spokesperson declined to comment.

The company already was facing scrutiny from the U.S. Securities and Exchange Commission and investors after two physicians from outside Cassava last year made allegations of data manipulation and misrepresentation involving research underpinning the company’s Alzheimer’s drug, called simufilam.

Cassava, a small company with about two dozen employees, in a statement last year called the allegations of data manipulation and misrepresentation “false and misleading.”

Cassava on its website describes simufilam as taking an “entirely new approach” to treating Alzheimer’s, the most common form of dementia and a progressive brain disorder that affects nearly 6 million Americans. The oral medication restores the normal shape and function of a key protein in the brain, the company said.

A PETITION TO THE FDA

The criminal investigation began, according to the sources, sometime after a petition was filed in August 2021 with the U.S. Food and Drug Administration by a lawyer on behalf of two physicians asking the agency to halt clinical trials of simufilam. The physicians are David Bredt, a neuroscientist formerly at Johnson & Johnson’s Janssen, and Geoffrey Pitt, a cardiologist who serves as director of Weill Cornell Medicine’s Cardiovascular Research Institute in New York.

The petition filed by Jordan Thomas, a New York-based lawyer representing both doctors, said Cassava’s published studies on clinical trials involving simufilam in various journals contained data misrepresentation and images of experiments that appeared to have been manipulated by photo-editing software. The FDA denied the petition and let the trials proceed.

Bredt and Pitt disclosed last November in an article published by The Wall Street Journal that they shorted Cassava’s stock, betting that the price would go down once investors learned of the manipulation they alleged. They later told The New Yorker magazine that they no longer have a short position in Cassava, a claim Reuters could not independently verify.

The short-selling represents “a major conflict of interest,” Watson Moss said in her statement to Reuters.

“Cassava Sciences is interested in helping those with Alzheimer’s disease, not an easy payday,” Watson Moss added.

STOCK DROP

Cassava’s stock fell precipitously following the petition filed with the FDA by Thomas, presenting an opportunity for Bredt and Pitt to profit on their bet against the company.

Thomas declined to comment on the matter.

The FDA in February said the so-called citizen petition filed by the two physicians urging it to launch an investigation into simufilam was not a proper avenue for such a request. Requests for the FDA to initiate an enforcement action, meanwhile, are “expressly excluded from the scope of the FDA’s citizen petition procedures,” the agency said, adding that it exercises its own discretion on such matters.

An FDA spokesperson declined to comment.

Cassava shares rose on Nasdaq from around $7 in January 2021 to above $135 in July 2021 on investor hopes that the company was on the verge of a breakthrough in treating Alzheimer’s. The stock plunged weeks later following word of the petition questioning Cassava’s research results.

The company’s shares closed at $21.72 on Tuesday.

Cassava has received more than $20 million from the U.S. National Institutes of Health to support developing simufilam.

The NIH told Reuters it does not discuss potential cases of research misconduct related to grants but that officials “take research misconduct very seriously. Research misconduct may distort NIH funding decisions, the overall integrity of the research we support and the public’s trust in science and resulting outcomes.”

Cassava also is facing the SEC investigation, the sources said. The Wall Street Journal last November first reported on the SEC probe, saying the agency was examining the claims made in the FDA petition. Reuters was unable to determine what specific claims, if any, drew the agency’s scrutiny.

An SEC spokesperson said the agency “does not comment on the existence or nonexistence of a possible investigation.”

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Reporting by Marisa Taylor in Washington and Mike Spector in New York; Editing by Will Dunham and Michele Gershberg

Our Standards: The Thomson Reuters Trust Principles.

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