{"id":5646,"date":"2023-10-31T23:57:34","date_gmt":"2023-11-01T04:57:34","guid":{"rendered":"https:\/\/blogs.luc.edu\/compliance\/?p=5646"},"modified":"2023-10-31T23:57:34","modified_gmt":"2023-11-01T04:57:34","slug":"the-legal-rights-of-rite-aids-creditors","status":"publish","type":"post","link":"https:\/\/blogs.luc.edu\/compliance\/?p=5646","title":{"rendered":"The Legal Rights of Rite Aid\u2019s Creditors"},"content":{"rendered":"

Tomer D. Elkayam<\/em><\/p>\n

Associate Editor<\/em><\/p>\n

Loyola University Chicago School of Law, JD 2024<\/em><\/p>\n

In the midst of a lawsuit brought by the Department of Justice (\u201cDOJ\u201d), Rite Aid Corporation announced it had filed<\/a> for Chapter 11 Bankruptcy protection after agreeing with creditors on a financial restructuring plan. Rite Aid, one of the \u201cbig three<\/a>\u201d pharmaceutical retailers alongside CVS and Walgreens, has previously attempted to revamp<\/a> its stores before ultimately deciding to file for bankruptcy protection. But what happens to lawsuits filed against the company? Like the DOJ<\/a>, there are thousands<\/a> of individuals, cities<\/a>, counties, and states that have filed lawsuits against the pharmaceutical giant for their alleged handling of the opioid crisis which has plagued the country.<\/p>\n

Rite Aid\u2019s fall from grace is significant<\/a> for a public company. At its peak, Rite Aid operated over 5,000<\/a> stores and employed over 100,000 people, which now stands at less than 2,500 stores and 50,000 employees. In its bankruptcy filing, the company listed $4 billion<\/a> of debt, and a nearly $1 billion gulf between assets and liabilities (pointing in the wrong direction). In an earnings report, it claimed losses<\/a> of over a billion dollars in the months leading up to the filing. Rite Aid owes over $1.1 billion<\/a> to its top five unsecured creditors, and the list of unsecured creditors is likely to grow.<\/p>\n

Rite Aid\u2019s creditors<\/strong><\/p>\n

In American bankruptcy law, claimants with open lawsuits against a corporation may become unsecured creditors<\/a> when that company files for bankruptcy. Under 11 U.S. Code \u00a7 362<\/a>, bankruptcy triggers an automatic stay<\/a> which is imposed against all open lawsuits, among other injunctions. The Internal Revenue Service calls<\/a> this process \u201crehabilitative,\u201d as it gives companies a \u201cbreathing period\u201d to create a plan to repay creditors.<\/p>\n

Chapter 11 stands out from chapters 7 and 13 of the bankruptcy code as it does not strictly require<\/a> a \u201cproof of claim\u201d to be listed as a creditor. A proof of claim<\/a> is a legal document<\/a> that must be filed by a claimant who is not listed in a company\u2019s schedule<\/a> as a creditor. As such, parties with open claims against Rite Aid must pay close attention to the company\u2019s schedule as it is released during bankruptcy proceedings. Individual claimants are not typically listed as creditors and must quickly consider submitting<\/a> their claims. Once the schedule of creditors is finalized, the company can ask the court to estimate<\/a> the value of claims that are \u201cnot apparent\u201d at the time of filing. Afterwards, a reorganization plan is approved, and claimants typically present their claims to a trust organized to oversee a settlement plan.<\/p>\n

Besides filing proofs of claim, lawsuits may also be removed<\/a> directly to bankruptcy court and in some cases may continue independently. Though typically, the cases that are allowed to continue amid Chapter 11 proceedings are those brought by the government to \u201cenforce police powers<\/a>.\u201d<\/p>\n

What similar cases show <\/strong><\/p>\n

A company representative said<\/a> Rite Aid is using Chapter 11 to \u201cresolve litigation claims in an equitable manner.\u201d But what does that look like on a practical level? Several notable bankruptcies help paint a picture.<\/p>\n

In 1995, Dow Corning, filed<\/a> for Chapter 11 bankruptcy amidst a wave of lawsuits claiming the company manufactured breast implants that created severe health problems. Dow Corning had agreed to settle a large number of claims but faced additional lawsuits outside the proposed settlement. After years of litigation attempting to oppose<\/a> a settlement plan, the Chapter 11 proceedings led to the establishment of a trust which paid out settlements to nearly 250,000 individuals.<\/p>\n

In 2019, the Pacific Gas & Electric Company (\u201cPG&E\u201d) filed<\/a> for Chapter 11 bankruptcy to restructure the company in the aftermath of fires that ravaged California, which were attributed to faulty equipment<\/a> operated by PG&E. All pending litigation against the company was automatically stayed, allowing the company to create a trust to settle claims that had mounted before bankruptcy. The \u201cFire Victims Trust<\/a>\u201d was funded by a mix of cash and company stock. It has since been claimed that the issuance of stock ultimately underfunded<\/a> the trust due to the company\u2019s low valuation.<\/p>\n

Questions remain<\/strong><\/p>\n

Unlike the bankruptcies of Purdue Pharma, Mallinckrodt, and Insys Therapeutics, Rite Aid made its filing without<\/a> an explicit settlement agreement with opioid plaintiffs. Some speculate this is due to the Supreme Court\u2019s decision to temporarily block<\/a> Purdue Pharma\u2019s own $6 billion settlement plan with victims of the opioid crisis. Nonetheless, as Rite Aid quickly closes hundreds<\/a> of stores and settles<\/a> with medical suppliers, plaintiffs of opioid cases wait with more questions than answers.<\/p>\n","protected":false},"excerpt":{"rendered":"

Tomer D. Elkayam Associate Editor Loyola University Chicago School of Law, JD 2024 In the midst of a lawsuit brought by the Department of Justice (\u201cDOJ\u201d), Rite Aid Corporation announced it had filed for Chapter 11 Bankruptcy protection after agreeing with creditors on a financial restructuring plan. Rite Aid, one of the \u201cbig three\u201d pharmaceutical …
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