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Meningitis outbreak: Court officer accuses NECC of 'gross mismanagement'

10:41 AM, Jan 9, 2013   |    comments
October 2012: Tennessee is one of the hardest states hit after a meningitis outbreak is traced back to contaminated medicine from a Massachusetts facility.
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Walter F. Roche Jr., The Tennessean

A federal bankruptcy court official has charged that "gross mismanagement" by officers of a Massachusetts drug compounding firm led to a nationwide fungal meningitis outbreak that has killed 40 patients, including 14 in Tennessee.

In a filing Tuesday in U.S. Bankruptcy Court in Boston, U.S. Trustee Edward K. Harrington said an independent trustee should be appointed to oversee the liquidation of the New England Compounding Center, the company blamed for the outbreak.

He said NECC's pending petition to hire one of its newly appointed board members and his company as accountant and financial advisers in the bankruptcy would create a conflict of interest.

Cited by Harrington was the fact that NECC's agreement with the proposed adviser, Keith Lowey, includes a provision allowing the current management of the company to fire him at any time without cause. As a result, he said, Lowey would be "hopelessly conflicted."

"Under such circumstances, the bankruptcy code requires that an independent Chapter 11 trustee and not a handpicked chief restructuring officer be appointed," Harrington stated in the filings.

"NECC plans to oppose the motion for appointment of a trustee. We have been told that many of the claimants will oppose the motion as well," said Dan Cohn, an attorney for NECC.

Harrington also cited NECC's officers and directors with "gross mismanagement," which he said led to the "voluntary suspension of the company's license to operate a pharmacy or compounding facility in Massachusetts."

Lawyers for NECC have asked the court to approve the appointment of Lowey and his firm, Verdolino & Lowey, at rates of up to $415 an hour.

State and federal officials have charged that NECC, based in Framingham, Mass., distributed thousands of vials of fungus-tainted spinal steroid vials to hospitals and clinics across the country, including the Saint Thomas Outpatient Neurosurgery Center in Nashville.

Figures released Monday by the Centers for Disease Control and Prevention show 664 patients have become infected from the tainted methylprednisolone acetate, 140 of them in Tennessee.

As Harrington noted, Lowey was appointed to NECC's board just prior to the filing of the bankruptcy petition late last year. He was also named as chief restructuring officer and charged with overseeing a compensation fund that would be used to pay claims of victims and their families.

Harrington cited the fact that when NECC's former president, Barry J. Cadden, was called before a congressional committee investigating the outbreak, Cadden "asserted his Fifth Amendment privilege" against self-incrimination.

The petition also notes that none of the NECC board members has resigned, "despite advising state regulators that some members of the board would do so."

Harrington wrote that Ameridose, another drug firm with the same owners, paid retainer fees for the Verdolino firm and its law firm to serve a role in the NECC bankruptcy. There is a $299,102 balance remaining on that retainer, court records show.

NECC is also seeking court approval to hire the Harris Beach law firm to act as its national coordinating defense counsel in the more than 180 pending cases. According to the petition, the Harris Beach fees and expenses will be covered by the company's insurance carrier, Pharmacists Mutual Insurance Co. The same policy covers NECC's owners, but the terms and limits of that policy were not disclosed.

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