*

Sorrento used a new PO Box and bank account to justify

Texas

filing

*

DOJ watchdog said Sorrento case showed extreme "venue

shopping"

*

Judge ruled DOJ objection came too late to transfer the

case

By Dietrich Knauth

March 11 (Reuters) - Sorrento Therapeutics ( SRNEQ ) may continue

its Chapter 11 case in Texas, a U.S. judge ruled Monday,

rejecting arguments that the pharmaceutical company manipulated

bankruptcy venue rules by claiming a just-opened P.O. box as a

subsidiary's primary address.

U.S. Bankruptcy Judge Christopher Lopez in Houston, Texas,

said at a hearing on Monday that the U.S. Department of Justice

had waited too long before arguing that the case should be

transferred to Delaware, where Sorrento was incorporated, or San

Diego, California, where it was headquartered.

Sorrento filed for bankruptcy in February 2023, and

transferring the case now, as the company nears a final sale of

its assets, would be inefficient, Lopez ruled.

"The interest of justice mandates that this case stays

here," Lopez said.

Sorrento's lawyers filed paperwork to open a P.O. box for a

non-operating subsidiary, Scintilla, just 10 hours before

Sorrento filed for bankruptcy, then used it to justify filing a

Chapter 11 petition in Texas, according to court documents.

Sorrento then used Scintilla's filing as a justification for its

own Chapter 11 petition in Texas.

The Department of Justice's bankruptcy watchdog, the office

of the U.S. Trustee, has argued that Sorrento's actions were

"venue manipulation taken to a new and unprecedented extreme."

Allowing Sorrento to exploit a loophole in U.S. bankruptcy law's

venue rules would undermine public confidence in the bankruptcy

system, the U.S. Trustee argued.

Aubrey Thomas, representing the U.S. Trustee, said at

Monday's hearing that a company's "principal place of business"

could not be a just-opened P.O. Box.

Thomas asked Sorrento's chief restructuring officer Mohsin

Meghji "Can you hold meetings inside a P.O. Box?"

"Not to my knowledge, no," Meghji answered.

Sorrento's CEO, Henry Ji, had never visited the P.O. Box,

and Meghji could not recall whether Scintilla received any mail

at the P.O. Box, Thomas later said.

"There isn't a scintilla of evidence that the company was

based in Texas," Thomas told Lopez. "Instead, all of the

activities of Scintilla were directed from San Diego."

Lopez ruled the U.S. Trustee should have raised a venue

argument much sooner in the case. Transferring the case would

imperil Sorrento's efforts to sell its assets and repay

creditors, he said.

The case has already been reassigned once, after the sudden

resignation of U.S. Bankruptcy Judge David Jones, and a further

transfer could potentially derail Sorrento's effort to sell its

assets before it runs out of cash, Lopez said. Another judge

would have to spend long hours getting up to speed on the case,

something that Lopez said took him at least 40 late-night hours

when he took the case in October.

"I know what it takes, because I had to do it," Lopez said.

Lopez had previously rejected a Sorrento shareholder's

demand to sanction the law firms that helped Sorrento file in

Texas, Jackson Walker and Latham & Watkins, for their efforts to

ensure that Sorrento's bankruptcy ended up in Texas.

The case is Sorrento Therapeutics ( SRNEQ ), U.S. Bankruptcy Court for the

Southern District of Texas, No. 23-90085

For Sorrento: Caroline Reckler, Ebba Gebisa, Jeff Bjork,

Kimberly Posin of Latham & Watkins

For the U.S. Trustee: Aubrey Thomas of the Office of the U.S.

Trustee

Read more:

Ethics probe into Texas bankruptcy judge ends following

resignation

Bankruptcy "judge shopping" under fire from creditors,

professors

Latham, Jackson Walker avoid sanctions over bankruptcy forum

shopping dispute

(Reporting by Dietrich Knauth in New York)