Case 1:12-cv FDS Document 38 Filed 11/21/12 Page 1 of 7 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS

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1 Case 1:12-cv FDS Document 38 Filed 11/21/12 Page 1 of 7 MICHELE ERKAN, on behalf of herself, her minor child, and all others similarly situated, Plaintiffs, v. NEW ENGLAND COMPOUNDING PHARMACY, INC d/b/a NEW ENGLAND COMPOUNDING CENTER, et al., Defendants. ROBERT COLE, on behalf of himself and all others similarly situated, Plaintiffs, v. NEW ENGLAND COMPOUNDING PHARMACY, INC d/b/a NEW ENGLAND COMPOUNDING CENTER, et al., Defendants. UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS Civil Action No FDS Civil Action No FDS

2 Case 1:12-cv FDS Document 38 Filed 11/21/12 Page 2 of 7 PRELIMINARY INJUNCTION ORDER SAYLOR, J. These cases are, in essence, product liability claims asserting serious personal injuries arising out of the administration of injectable steroids manufactured and sold by defendant New England Compounding Pharmacy, Inc., d/b/a New England Compounding Center ( NECC. At present, approximately one dozen such cases are pending in this Court, and similar cases have been filed in state and federal courts across the country. On November 15, 2012, plaintiffs Michele Erkan and Robert Cole, on behalf of themselves and others similarly situated, each moved for a preliminary injunction and prejudgment attachment restraining the assets of defendants NECC, two related companies (Medical Sales Management Inc. ( MSM and Ameridose LLC ( AMD, and six individual directors, officers, shareholders, and/or employees (Barry Cadden, Lisa Conigliaro Cadden, Gregory Conigliaro, Douglas Conigliaro, Carla Conigliaro and Glenn A. Chin up to an amount of $461 million. Among other things, plaintiffs seek a preliminary injunction to prevent all defendants from conveying or concealing assets, other than in the ordinary course of business, in an attempt to avoid judgment in this case. This Court held a hearing on the motion on November 20. Fed R. Civ. P. 64 permits the Court to grant every remedy that, under the law of the state where the court is located, provides for a seizing of person or property to secure satisfaction of the potential judgment. See Metro. Prop. & Cas. Ins., Co. v. Boston Reg l Physical Therapy, Inc., 550 F. Supp. 2d 199, 201 (D. Mass The Supreme Court s ruling in Grupo Mexicano De Desarrollo v. Alliance Bond Fund holding that Fed R. Civ. P. 65 does not grant a district 2

3 Case 1:12-cv FDS Document 38 Filed 11/21/12 Page 3 of 7 court authority under its equitable powers to issue a preliminary injunction freezing a defendant s assets does not foreclose the availability of a similar injunction pursuant to state law. 527 U.S. 308, 319 n. 3 (1999 (noting that the Court considered only the validity of the injunction pursuant to federal equity principles, not the law of the forum state. The First Circuit has in fact indicated that such relief might be permissible under Massachusetts law. See Micro Signal Research, Inc. v. Otus, 417 F.3d 28, 33 n. 3 (1st Cir (citing R.G. v. Hall, 37 Mass. App. Ct. 410 (Mass. App. Ct (upholding such relief. In order to obtain an order of pretrial attachment under Massachusetts law, a plaintiff must demonstrate (1 a reasonable likelihood of success on the merits, and (2 a reasonable likelihood of recovering judgment equal to or greater than the amount of the attachment sought over and above any liability insurance shown by defendant to be available to satisfy judgment. Mass. R. Civ. P., Rule 4.1(c. To obtain a preliminary injunction under Massachusetts law, a plaintiff must generally establish (1 that he is likely to succeed on the merits, (2 that he is likely to suffer irreparable harm in the absence of preliminary relief, and (3 that the balance of equities tips in his favor. Loyal Order of Moose, Inc. v. Board of Health of Yarmouth, 439 Mass. 597, 601 (2003. See Peoples Fed. Sav. Bank v. People s United Bank, 2012 WL , at *6 (1st Cir. Feb. 10, 2012 (quoting Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 (2008 (federal standard. Although each of these factors must be considered independently, the movant s likelihood of success on the merits weighs heaviest in the decisional scales. Coquico, Inc. v. Rodriguez-Miranda, 562 F.3d 62, 66 (1st Cir (citations omitted. The factual record in this matter is, at this stage, very limited. Plaintiffs have submitted an 3

4 Case 1:12-cv FDS Document 38 Filed 11/21/12 Page 4 of 7 attorney affidavit that attaches various media articles about NECC and related companies, as well as certain materials from public health agencies, including the Massachusetts Department of Public Health and the Centers for Disease Control and Prevention. Although there appears to be liability insurance, there is no evidence, at this stage, of the amount and scope of the coverage. And although this case is styled as a class action, it is unclear at best whether any plaintiff class will ever be certified. As to NECC, it appears that the individual plaintiffs have set forth sufficient facts to meet the burden of demonstrating a reasonable likelihood of success on the merits of their claims, and that they are likely to recover judgment equal to or greater than the amount of the attachment sought over and above any liability insurance shown by defendant to be available to satisfy judgment. The standard under Mass. R. Civ. P. 4.1 for obtaining an attachment of property has therefore been met. The question then becomes what property may be attached. It does not appear that NECC owns any real estate; in any event, plaintiff have offered no such evidence. It appears undisputed that NECC owns certain other physical assets, such as medical equipment, computers, and furniture. NECC is, however, still in operation at least in some limited form, such as to participate in the recall of certain of its products and the actual seizure of its physical assets would undoubtedly put it out of business immediately. Because it does not appear that such a result is necessary either to protect the public health or to make assets available against a future judgment, the Court will not issue an order that would effectively require the complete cessation of operation of NECC. Accordingly, the Court will order that plaintiffs shall have an attachment as to the physical property of NECC; provided, however, that those assets may remain in the 4

5 Case 1:12-cv FDS Document 38 Filed 11/21/12 Page 5 of 7 physical custody of NECC, may be used in the ordinary course of business, and may not be sold or otherwise transferred, pending further order of the Court. The appropriate amount of the attachment is far from clear, as the demand for $461 million was a class demand; pending further order, each plaintiff shall have a jointly-held attachment in the amount of $5 million, representing a more reasonable amount attributable to the actual claims of the particular plaintiffs. As to the intangible assets of NECC, the record is limited at best. Presumably, the company has bank accounts necessary to meet payroll and conduct operations, and it may have accounts receivable and other typical assets of an ongoing operation. Attachment of bank accounts and similar assets in Massachusetts is normally accomplished by trustee process pursuant to Mass. R. Civ. P. 4.2, which was not sought here. If a pretrial restraint is to be imposed, it would have to be in the form of a preliminary injunction that would otherwise be available under Massachusetts law. The Court finds that the Massachusetts standard has in fact been met, at least to a certain extent, as described in greater detail below. In particular, plaintiffs have established (1 that they are likely to succeed on the merits, (2 that they are likely to suffer irreparable harm in the absence of preliminary relief, and (3 that the balance of equities tips in their favor. Again, the Court does not see a reason on the present record to seize the intangible assets immediately and put the company out of operation entirely. If nothing else, it appears that public health and the balance of equities favor an orderly and proper recall of the company s products. Nonetheless, it appears that some limited restraint of assets is appropriate in order to prevent any extraordinary transfer of cash out of the company to avoid future judgments. Accordingly, the Court will order that NECC be preliminarily enjoined from issuing any dividends to its 5

6 Case 1:12-cv FDS Document 38 Filed 11/21/12 Page 6 of 7 stockholders, paying any officer or employee bonuses not awarded in the ordinary course of business prior to the date of this order, or making any extraordinary transfer of cash or assets, other than in the ordinary course of business, pending further order of the Court. As to the remaining defendants, the Court finds that plaintiffs have not, at this early stage, met the burden of demonstrating a substantial likelihood of success on the merits with respect to their claims against the individual defendants, MSM, or AMD. Accordingly, the motion for a preliminary injunction with respect to these defendants will be denied. Furthermore, to the extent that plaintiffs seek pretrial relief as class representatives, rather than individuals, the relevant standards have not been met, and the motion will be denied. Conclusion For the foregoing reasons, plaintiffs motions for a preliminary injunction and prejudgment attachment are GRANTED in part and DENIED in part. It is hereby ORDERED that: 1. Pursuant to Mass. R. Civ. P. 4.1 and 65, a writ of attachment shall issue as to the physical property of defendant New England Compounding Pharmacy, Inc., d/b/a New England Compounding Center, not including any intangible assets, in the amount of $5 million, in order to satisfy the potential claims of plaintiffs Michele Erkan and Robert Cole, to be held jointly by both plaintiffs; provided, however, that those assets may remain in the physical custody of NECC, may be used in the ordinary course of business, and may not be sold or otherwise transferred, pending further order of the Court; and 2. Pursuant to Mass. R. Civ. P. 65, defendant New England Compounding Pharmacy, Inc., d/b/a New England Compounding Center, is preliminarily enjoined from issuing any 6

7 Case 1:12-cv FDS Document 38 Filed 11/21/12 Page 7 of 7 dividends to its stockholders, paying any officer or employee bonuses not awarded in the ordinary course of business prior to the date of this order, or making any extraordinary transfer of cash or assets, other than in the ordinary course of business, pending further order of the Court. So Ordered. /s/ F. Dennis Saylor F. Dennis Saylor IV United States District Judge Dated at Boston, Massachusetts, November 21, 2012, at 12:30 p.m. 7