Health Care Service Corp. v. Mallinckrodt ARD LLC

Background

Health Care Service Corp. sued Mallinckrodt ARD LLC and Mallinckrodt plc over the manufacturing, marketing, and sale of the prescription drug H.P. Acthar Gel. The complaint alleged a monopolistic scheme that was fraudulent, unjustly enriched Mallinckrodt, and violated various states’ antitrust, trade-practice, and insurance laws, as well as New Jersey’s Racketeer Influenced and Corrupt Organizations Act. Health Care Service sought damages for allegedly inflated prices it paid for Acthar.

Health Care Service filed the action in Alameda County Superior Court. After Mallinckrodt filed for Chapter 11 bankruptcy, Mallinckrodt removed the action to federal court under bankruptcy-jurisdiction statutes. Mallinckrodt then moved to transfer the case to the District of Delaware. Health Care Service moved to remand, meaning to return the case to the state court where it began.

The federal Judicial Panel on Multidistrict Litigation separately denied a request to centralize this and related actions. The court therefore proceeded to decide the remand and transfer motions.

Order of Decision

The court decided to address remand before transfer. It reasoned that the case was not part of an active multidistrict proceeding, was not a class action, and that deciding remand first could make the transfer motion unnecessary. Transferring the case first could instead require another court to reconsider remand.

Bankruptcy Jurisdiction

The court held that the action was not a “core” bankruptcy proceeding. A core proceeding depends on bankruptcy law or can arise only in a bankruptcy case. This action did not depend on the Bankruptcy Code, predated Mallinckrodt’s bankruptcy, and could proceed outside bankruptcy court. Health Care Service’s filing of a proof of claim in the bankruptcy case did not convert the action into a core proceeding.

The court nevertheless found that the action was “related to” the bankruptcy case because its outcome could conceivably affect administration of the bankruptcy estate. That relationship gave the federal court jurisdiction to hear the removed action and meant that remand was not mandatory for lack of jurisdiction.

Equitable Remand

Even when bankruptcy jurisdiction permits removal, federal law allows remand on equitable grounds. The court considered factors including the effect on the bankruptcy estate, the predominance of state-law issues, the relationship between the action and the bankruptcy, the burden on the bankruptcy court, the parties’ litigation choices, and the state court’s prior involvement.

The court concluded that equitable remand was appropriate. The claims arose exclusively under state law; the action was non-core and relatively remote from the bankruptcy proceeding; and the effect of the case on Mallinckrodt’s estate was uncertain, particularly because there was no confirmed bankruptcy plan and Health Care Service’s proof of claim was one of thousands. The California court had also managed the case and addressed substantive issues before removal. The court noted that Mallinckrodt was not forum shopping, but the multidistrict litigation panel had denied consolidation of the related actions.

Disposition

The court GRANTED Health Care Service’s motion to remand. It therefore DENIED Mallinckrodt’s motion to transfer venue as moot. The action was remanded to the Superior Court for the County of Alameda, and the order disposed of both pending motions.