New England Compounding Center, blamed for meningitis outbreak, files for bankruptcy

By Zachary T. Sampson, Globe Correspondent

New England Compounding Center, the pharmacy accused of distributing tainted steroids that have killed 39 people and afflicted hundreds more nationwide with meningitis, filed for bankruptcy on Friday.

The filing was expected as the Framingham-based compounding pharmacy faces heavy litigation costs in personal injury lawsuits from around the country. Compounding Center officials hope to set up a fund in the bankruptcy process to pay victims with claims against the pharmacy, the company said in a statement Friday.

“We recognize the need to compensate those affected by the meningitis outbreak fairly and appropriately,” said Keith D. Lowey, who was named the center’s chief restructuring officer in the bankruptcy, in the statement.

According to the Centers for Disease Control and Prevention’s latest figures, there have been 620 cases of meningitis nationwide tied to the outbreak, which began in September. The cases span 19 states, including New Hampshire. The highest case count is 223, in Michigan, according to the CDC.

Fredric ­Ellis, a Boston attorney who is representing several people from Michigan with claims, said the bankruptcy filing will stay any litigation against New England Compounding.

“When you file for bankruptcy that stays all litigation -- stops it in its tracks -- against you,” Ellis said.

That leaves lawyers suing the pharmacy with two options, Ellis said. The plaintiffs could file claims against companies tied to the compounding center facility in Framingham, where the tainted drugs were processed. Ellis said such suits against primarily Massachusetts-based companies would have to be litigated in the Commonwealth.

The other option, according to Ellis, is for attorneys to sue the hospitals and pain clinics that administered injections of the steroids wherever those medical facilities are located.

Ellis is pursuing the option to file a claim against companies associated with the center, including the Oklahoma-based lab that tested the steroids and the landlord that leased a building in Framingham to New England Compounding.

He said the pharmacy itself does not have many assets, and therefore may not provide significant compensation for victims. But the third party companies likely have insurance policies that will add to payments for plaintiffs.

Because the bankruptcy filing was expected, Ellis said he has searched for weeks for outside companies that may have some tie to the compounding center.

“Basically we’re looking for other defendants that had involvement with this facility,” he said.

Though the cases against New England Compounding are stayed by the bankruptcy filing, Ellis said the claims against third-party defendants are not.

William Baldiga, a Massachusetts-based attorney with the firm Brown Rudnick, which is representing several victims, said claims against third parties could also be resolved through the bankruptcy court.

“One of things that’s going to have to be resolved in the coming weeks is whether all of those types of claims should be handled by the bankruptcy court, and that’s a real possibility,” he said.

If the litigation was handled in the bankruptcy, Baldiga said, the court would essentially serve as a vehicle for compensating victims. Any third parties that were sued as part of the case could agree to a single, lump settlement that would be distributed to all victims, Baldiga said.

“In a bankruptcy proceeding there will be one judge to resolve all of these claims in a way that’s equitable to all of the victims,” he said.

A creditors committee will likely be set up to represent all plaintiffs in bankruptcy court, the attorneys said. Each victim or family would then be compensated according to how severely they were affected.

The meningitis outbreak started after the pharmacy produced contaminated vials of steroids that were distributed to hospitals and clinics in several states for injections intended to treat pain, health officials have said. Some patients, many of whom received shots in the back, were stricken by fungal meningitis.

Though the bankruptcy process can be lengthy, the filing is a step forward for victims.

“I would say that a distribution to victims in late 2013 is possible,” Baldiga said. “That is fairly aggressive but is possible that a distribution would be made next year.”