The shifting of liabilities between shell companies has left thousands of women harmed by transvaginal mesh implants with no one to sue for proper compensation. By Rick Morton.
Exclusive: Legal ultimatum a ‘slap in the face’ for mesh victims
Thousands of women fighting for justice after being maimed or otherwise harmed by transvaginal mesh implants have been warned by the company they are suing to take a one-time offer of $27 million or risk getting nothing at all.
Last month, the Federal Court of Australia ordered a notice be given to members of a class action lawsuit against Astora Women’s Health LLC, which makes it clear the settlement offer will not last and, if it is rejected, that the company will defend the proceedings and is willing to threaten bankruptcy if it loses.
The notice said that Astora has provided information indicating that it and its listed indirect parent company, Endo International, faced financial challenges and risks that made it possible it couldn’t pay compensation even if the court demanded it.
“This means,” the court notice said, “that in the event the settlement offer is not accepted, there is a substantial risk that Astora will be unable to meet any judgments obtained by class members against it.”
Endo International – which is domiciled in Ireland – has used a blueprint exploited by James Hardie in Australia to gradually avoid or shift its obligations. Essentially, it has undertaken a series of corporate restructures involving shell companies to shift liabilities until there are no assets to sue against.
Endo purchased American Medical Systems LLC for $US2.9 billion in 2011, three years after the United States-based federal drug regulator first issued warnings about complications arising from mesh products inserted to treat stress urinary incontinence (SUI) and pelvic organ prolapse (POP). In 2015, it sold the men’s health portion of the AMS business to Boston Scientific and the following year Endo’s board resolved to “wind down” the Astora subsidiary because “it did not align with the company’s strategic direction” and shuttering the business would “reduce the additional exposure to mesh-related product liability”.
Astora has operated as a shell company, an indirect subsidiary of Endo International, ever since. It is listed on the parent company’s financial reports as a “discontinued operation”.
In an extraordinary turn of events, however, the AMS company continued to exist in name until the Australian class action began in early 2018. By the second half of that year, the AMS structure was entirely dissolved. For two years neither the company nor its legal advisers sought to disclose this fact to the Federal Court of Australia or Shine Lawyers, which is representing the women in the class action. This finally happened in December 2020.
The court ordered in February that Astora be substituted for AMS in the matter as it had assumed the AMS liability.
A source familiar with the events said it was “highly unusual and highly inappropriate”. They added: “I’ve never seen anything like it in my career.”
During cross-examination of Astora’s legal representatives, Baker McKenzie, the firm said it was not told of the dissolution until October or November last year. As the source familiar with events says: “That means for two years they were acting for an entity that did not exist.” There is no suggestion Baker McKenzie was involved in the restructure.
One of the Astora class action group members, a woman who asked not to be identified, said the offer currently on the table from the company would mean people “won’t get anywhere near enough to even pay the basic medical expenses”.
In her case, an operation to remove the mesh implants was required because she suffered recurring infections that would eventually become resistant to antibiotics. “There are lots of women who have been through this. Women who are incontinent and those who are much worse off, much worse off, than me. They’ve lost their houses, their marriages, they’re in constant pain.”
Although she says she wasn’t surprised by the slipperiness of the corporate giant, she was still shocked by the ultimatum. “They are saying, ‘You either accept this money or we go bankrupt and you get nothing,’ ” she said. “It is unjust.”
As it stands, an offer of $27 million divided equally would mean individual compensation payments of just $10,000. By comparison, the lead applicants in the highly publicised Johnson & Johnson Ethicon litigation received between $500,000 and $1.2 million each in the November 2019 judgement.
Shine Lawyers class actions practice leader Rebecca Jancauskas told The Saturday Paper the offer was a “slap in the face” for the women who have suffered because of these mesh implants.
But the details are tricky.
“This offer must be viewed in the context of what we understand is Astora’s financial position and the very real risk of recovery that we face if this matter proceeds all the way to judgement,” she says.
“Our understanding is that Astora does not have any assets. In the event of a judgement, we understand that there is no compulsion or no requirement for Endo to indemnify or stand in the shoes of its subsidiary Astora and to meet any judgement that is against them.”
Endo has been keen to make its position known to the class action group members and did not request that the offer be made confidentially.
Peter D. Easton, an accountancy professor at Notre Dame University in the US, was hired by the company through lawyers Baker McKenzie to provide an independent audit of Endo’s accounts. His sworn affidavit before the court paints a bleak picture.
“At the end of 2019, Endo had total assets of $US9.39 billion and total liabilities of $US10.26 billion, yielding a negative net worth of $US0.87 billion at the end of year 2019,” he said.
Credit agencies have consistently rated the company as a “highly speculative investment” and the stock price has fallen almost 95 per cent since 2015. In addition to a litany of mesh lawsuits in the US, Canada, Australia and elsewhere, the company is also subject to more than 3000 opioid litigation cases in the US after the addiction epidemic there was spurred on by money-hungry pharmaceutical companies such as Purdue Pharma, which has now been dissolved as a result of multibillion-dollar settlements.
“Endo is also named in various other litigation, including product liability matters such as vaginal mesh, generic drug-pricing matters, securities litigation and other antitrust matters,” Easton says.
“Unsatisfied adverse judgements in any of these cases, or in multiple of them, against Endo or any of its significant subsidiaries, which are collectively in excess of $US150 million, will violate Endo’s debt covenants and will constitute an event of technical default.”
In other words, if the company is found liable for damages in excess of that figure some or all of its multibillion-dollar debt could become due immediately rather than over its current agreed time lines. But Easton’s analysis is based on older accounts and new filings have since been made to the Securities and Exchange Commission in the US.
Endo refinanced all of its existing debt in March this year, using a $US1 billion revolving credit facility and a $US2 billion term loan facility, and as of June estimated its long-term debt obligations were $US7.9 billion, a $US500 million reduction on its December update and almost $US2.4 billion less than the figure assessed by Easton. At the same time, revenues have been increasing after a low in 2019 and losses have been reduced in consecutive quarters.
According to the latest financial reports, the company has so far made cumulative mesh liability payments of about $US3.6 billion, of which $US102.8 million remains in “qualified settlement funds” such as the one being offered to Australian class action members.
In these new documents, there is a hint as to the lengths to which Endo is willing to go to avoid moral or ethical obligations as a result of mesh lawsuits.
“We will continue to vigorously defend any unresolved claims and to explore other options as appropriate in our best interests,” the company says. “As a result of the possibility or occurrence of an unfavourable outcome with respect to any legal proceeding, at any given time, we may be engaged in one or more strategic reviews of all or a portion of our business.
“Any such review or contingency planning could ultimately result in our pursuing one or more significant corporate transactions or other remedial measures, including on a preventive or proactive basis.”
Endo notes that these “preventative” measures could include anything from “reorganisation or restructuring activities of all or a portion of our business, asset sales or other divestitures … or other corporate realignments”.
It has already shown a propensity to do so, in light of the curious events with the AMS entity.
“In terms of what we do next, we will continue to explore the prospect of resolving this matter out of court with Astora and will continue to progress the litigation on behalf of the women that we represent,” Shine’s Rebecca Jancauskas says.
“We are mindful that any settlement needs to be fair and reasonable in all the circumstances. It is difficult to say what the value of the claims may be because we ultimately don’t know how many women may come forward and be eligible to participate in any settlement and we also don’t know the extent to which those women have been affected.
“But certainly if there are, as we understand there may be, several thousand Australian women who have been affected by these implants, and bearing in mind the judgements that were handed down in the mesh litigation against Johnson & Johnson and Ethicon in 2019, it is certainly easy to reach the position that an offer of $27 million is simply inadequate to compensate the women for the complications and the financial losses that they suffered.”
On Friday, the High Court heard an application from J&J–Ethicon for special leave to appeal that November 2019 decision.
For at least one of the class action group members, the bigger story here is about corporate malfeasance in the face of “long-term class actions” already under way.
“I think the underlying message in this, putting aside the needs of the women who have put the complaints in, is that if AMS and Astora can get away with this, then no company in the future can ever face a class action because they will just hive off that part of their company to a shell company and it will die. How is this legal? There is only one reason they are doing this and it is to get away from liability. I think there are long-term implications of this, it is not just about us.”
This article was first published in the print edition of The Saturday Paper on Nov 6, 2021 as "Exclusive: Mesh victims given ultimatum".
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