Kirschner v. JP Morgan Chase Bank, N.A.

Facts

Millennium Health LLC, a California-based urine drug testing company, obtained a $310 million loan in March 2012 from JP Morgan Chase and other financial institutions under a credit agreement. Two days before closing, the Department of Justice issued a subpoena to Millennium investigating potential violations of federal health care laws. Millennium was also involved in litigation with competitor Ameritox Ltd. regarding alleged violations of federal anti-kickback statutes. By February 2014, JP Morgan determined that refinancing required a large institutional financing to eliminate the approximately $300 million still owed under the 2012 Credit Agreement. On March 16, 2014, JP Morgan and other Initial Lenders agreed to provide Millennium a $1.775 billion term loan and $50 million revolving loan. Millennium planned to use the term loan proceeds to pay the outstanding 2012 debt ($304 million), make shareholder distributions ($1.27 billion), redeem warrants and stock options ($196 million), and pay transaction fees ($45 million). The Initial Lenders agreed to syndicate the loan to other lenders identified by Lead Arrangers JP Morgan Securities and Citigroup Global Markets. A Confidential Information Memorandum was prepared for potential lenders, containing numerous disclaimers and warnings that recipients should perform independent investigations and represented they were sophisticated in extending credit. On April 15, 2014, JP Morgan notified potential lenders of their allocations, which became irrevocable commitments. Sixty-one Parent Lenders received allocations, with fifty-nine domestic and two foreign entities, who then sub-allocated to approximately 400 Child Lenders, roughly half of which were foreign entities. The transaction closed April 16, 2014, with JP Morgan initially funding 100% of the term loan and then assigning rights to the lenders. The Credit Agreement required quarterly payments over seven years and created a perfected first priority security interest in Millennium’s assets as collateral. Assignment restrictions prohibited transfers to natural persons, required written consent from Millennium and JP Morgan (with exceptions), and required minimum assignment amounts of $1 million unless to existing lenders or approved funds. A secondary market for the notes began trading as early as April 15, 2014. In June 2014, a jury found Millennium violated federal anti-kickback statutes and awarded damages to Ameritox. In December 2014, DOJ informed Millennium it would intervene in qui tam litigation, doing so in March 2015. Millennium reached a $256 million settlement with the government in October 2015 and filed for Chapter 11 bankruptcy on November 10, 2015.