Mon 03/11/2024 19:04 PM
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Relevant Documents:
Order Denying UST Motion
Order Denying Culberson Motion

Following trial today on motions from the Office of the U.S. Trustee and shareholder Timothy Culberson asking to transfer venue or dismiss the Sorrento debtors’ chapter 11 cases, Judge Christopher Lopez denied both motions, finding that they were not “timely” and that transferring venue was not “otherwise in the interests of justice.” Judge Lopez also found that the debtors’ venue in the Southern District of Texas was proper.

The venue transfer motions stem from Sorrento’s use of a Houston bank account and post office box for dormant and non-operating debtor entity Scintilla Pharmaceuticals Inc.’s filing of the debtors’ cases in Houston. The debtors and the official committee of unsecured creditors had objected to the venue transfer motions, defending the propriety of the filing and challenging the timeliness of the venue transfer requests. The equityholder committee, which had not taken a position on the transfer requests until today’s hearing, made a statement for the first time today in favor of the venue transfer motions.

Judge Lopez also denied Culberson’s motion for reconsideration of an order denying Culberson’s discovery request against debtors’ counsel Latham & Watkins.

The judge prefaced his ruling by parsing the Bankruptcy Rules to find that he had discretion to determine the venue transfer motions, irrespective of whether venue in the Southern District of Texas was proper itself or not, and focused on a provision of the statute that required that any venue transfer request should be brought on a “timely” motion of a party in interest.

Reciting a litany of matters that had occurred since the case had been filed - including entry of over 60 orders, four separate DIP orders, a number of asset sales, a mediated settlement between the debtors and the Nant parties (their largest unsecured creditors), and confirmation of the debtors’ plan - the judge stressed that the history of the “very complicated case” had to be taken into consideration when considering the timeliness of the venue transfer requests.

The judge noted the facts relevant to the venue challenge - namely the creation of a P.O. box in Houston and the establishment and funding of debtor Scintilla Pharmaceuticals Inc.’s bank account (its sole asset) at a local Houston office of Signature Bank - were disclosed at the outset of the cases and were “readily available” to any party who sought to challenge the debtors’ chosen venue.

Judge Lopez noted that the face of the Scintilla’s petition itself listed a P.O. box as its principal place of business while including a separate mailing address in San Diego. Judge Lopez also pointed out that counsel for the Nant parties appeared at the 341 meeting and asked a number of questions related to venue. Judge Lopez stressed that he was not faulting the UST for its actions in not bringing a venue challenge earlier, but that the UST cannot play “Monday morning quarterback” at a late stage of the case when they had the opportunity to ask the relevant questions in the initial stages of the case.

The judge reiterated his previous position - outlined at a hearing where the judge rejected Culbertson’s motion for sanctions related to the venue machinations - that although he was “aligned” with judges across the country in “disfavoring” the maneuvers taken by the debtors in establishing venue, he did not believe these types of “maneuvers” were “rampant, “improper” and not otherwise “ new or unique.”

The judge emphasized that he had strong concerns regarding “duplication of efforts” if the case were to be transferred, noting that although he had the utmost confidence in his judicial colleagues to handle the case, it had taken him at least 40 hours to “get up to speed” when it had been transferred to him from former judge David R. Jones in October 2023.

Judge Lopez added that there were still a number of pending matters in the case that he would be in the best position to resolve. The judge added that he had taken into account the fact that the movants had provided him with “zero evidence” as to whether a venue transfer to Delaware or the Southern District of California would be more convenient to the parties.

Caroline Reckler of Latham & Watkins argued for the debtors, Mark Schinderman of Milbank argued for the UCC, Aubrey Thomas argued for the U.S. Trustee and Timothy Culbrson appeared on behalf of himself. Margaret Lovric of Glenn Agre Bergman & Fuente appeared on behalf of the equity committee.
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