Healthcare News This Week| February 18, 2020
Sterigenics Accused of Funneling Cash to Avoid Lawsuit Payments
Sterigenics and its parent company, Sotera, which are being sued for polluting the air in Willowbrook, Illinois with toxic ethylene oxide (EtO) and causing at least 75 cases of cancer, have been accused of funneling cash and assets worth $1.3 billion to avoid paying victims affected by pollution.
The group of lawyers representing the plaintiffs filed an amended legal complaint showing that Sterigenics began draining its assets in 2016. These financial transactions transferred $1.3 billion dollars from corporate holdings to investors.
In a statement, the lawyers said the funds that had been moved will no longer be available to provide justice to the victims in this case. They added that Sterigenics and Sotera’s behavior was disturbing and called the company’s motives into question.
“It demonstrates a willful disregard for the health of the community. They shed more than a billion dollars in assets that would and could be used to provide justice to the families whose lives were tragically changed by the poison they emitted. We are committed to holding Sterigenics accountable for all of their conduct in the court of law,” said Antonio Romanucci of Romanucci & Blandin, LLC and Lead Counsel for the legal group.
How the money is allegedly moved
The lawyers filed the amended complaint in Cook County at the end of January. They allege that Sterigenics and Sotera “played an indispensable role in the carefully orchestrated funneling of nearly $1.3 billion to shareholders in the last 27 months, with the intention of ensuring that these funds will not be available to compensate victims when they secure judgments against them in court.”
“By doing so, Sterigenics and Sotera effectively admit, but hope to avoid accountability for, their culpability in exposing Willowbrook area residents (including plaintiffs) to the extraordinarily dangerous ethylene oxide, which seriously damaged the health of many, and even claimed the lives of some,” the statement says.
In detailing the allegations, the lawyers say:
- In October, 2016, Sterigenics-Nordion Topco, LLC, a parent of defendants Sterigenics and Sotera, borrowed $350 million, for the purpose of funding a $340 million cash distribution to Topco’s shareholders. Sterigenics and Sotera were necessary to this borrowing, upon information and belief, since they each guaranteed its repayment by granting the lender group a security interest in their tangible and intangible assets, thus making these assets unavailable to plaintiffs as Sterigenics and Sotera’s unsecured creditors.
- In October, 2017, Sotera Health Holdings, LLC, also a parent of Sterigenics and Sotera, and Topco, together increased their borrowings by some $175 million. They added to these increased borrowings some $28 million in free cash, which together funded a $203 million distribution to their shareholders. As with the borrowing of one year earlier, upon information and belief, the repayment of these borrowings, too, was guaranteed by Sterigenics and Sotera granting the lender group a security interest in their tangible and intangible assets, thus making these assets unavailable to plaintiffs, as Sterigenics’ and Sotera’s unsecured creditors.
- In August, 2018, Sotera itself made a $95 million cash distribution to shareholders, thus making this cash unavailable to plaintiffs.
- In July, 2019, Health Holdings borrowed an additional $320 million, which was used in its entirety to fund a $320 million cash distribution to shareholders. Upon information and belief, once again, Sterigenics and Sotera each guaranteed the repayment of this borrowing by granting the lender group a security interest in their tangible and intangible assets, thus making these assets unavailable to plaintiffs as Sterigenics and Sotera’s unsecured creditors.
- In December, 2019, Health Holdings completed a refinancing of, inter alia, previous borrowings, obtaining nearly $3.28 billion in new debt financing, or access thereto. This borrowing was used, in part, to fund a $309 cash million distribution to shareholders in December of 2019. As with previous borrowings by their parents, Sterigenics and Sotera guaranteed the repayment of this new borrowing, by granting to the lender group security interests in their tangible and intangible assets.
Inaccurate and misleading
However, Sterigenics told the Chicago Sun-Times that the accusations were inaccurate and misleading.
“The companies regularly take actions to maintain and enhance their financial strength for the benefit of all stakeholders as they invest in the future and continue to deliver vital services and products to customers. Assertions that the companies took actions with respect to capital structure in response to ongoing litigation are false,” a company representative was quoted as having said.
The representative insisted that operations at the Willowbrook facility were not responsible for causing the illnesses alleged in any lawsuit.
In 2018 the state of Illinois sued Sterigenics, which focuses on the sterilization of medical devices, accusing the facility of harming both the environment and nearby residents by emitting high levels of EtO. The lawsuit said Sterigenics released more than 254,000 pounds of the chemical into surrounding neighborhoods between 1993 and 2017.
Sterigenics began operations in Willowbrook in 1999. Last year, the Illinois Environmental Protection Agency ordered the facility to be closed, but a judge later said it could reopen if it met certain standards. However, Sterigenics announced in September that it was permanently closing the plants, it was reported.
EtO is a colorless, odorless gas that has been linked to lymphoma, leukemia, breast and stomach cancers.