23ANDME HOLDING CO., et al.
Case No. 25-40976-357
UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF MISSOURI EASTERN DIVISION
June 27, 2025
Chapter 11 Jointly Administered Related to Doc. 30
The Debtors in these cases operate businesses centered around highly sensitive personal information. Their largest business unit involves the analysis of consumers DNA, and they currently have approximately 13 million customers. More than 80% of the Debtors customers also have elected to participate in the Debtors medical-research programs.1 Following an extensive marketing and sale process, the Debtors propose to sell substantially all of their assets to TTAM Research Institute (TTAM), a non-profit corporation headed by the Debtors co-founder and former chief executive officer. The transaction as currently structured involves the transfer of the Debtors assets, including genetic and other personally identifiable information (PII), from the Debtors to a newly formed subsidiary, which will then be sold to TTAM in an equity transaction.
More than 30 States and the District of Columbia initially objected to the proposed sale, largely on privacy-related grounds.2 Before the sale hearing and while it was underway, many of these States resolved their objections or otherwise acknowledged that they would not actively oppose the sale.3 California, Kentucky, Tennessee, Texas, and Utah remain actively
For the reasons discussed below, I will grant the Debtors sale motion and approve the proposed transaction.
I. Jurisdiction
The Court has subject-matter jurisdiction under
II. Background
I conducted a two-day evidentiary hearing to consider whether to approve the proposed sale. The Debtors and the States presented witness testimony, generally offering direct testimony in the form of declarations with attached exhibits. Other declarations were admitted into the record in earlier stages of these cases, including the bid-procedures hearing, and discussed undisputed background matters.
A. The Debtors Business and History
The Debtors operate a direct-to-consumer genetic-testing business. After creating an account, a customer sends a saliva sample to the company to be tested (Am. Lefkowitz Decl. ¶ 5). Customers can then learn about their personal genome, including their ancestry and susceptibility to certain illnesses (Id.). At the time of the sale hearing, the Debtors had approximately 13 million customers (Tr. 2:146).4
The Debtors also offer customers the opportunity to participate in medical research, and more than 80% of them have chosen to do so (Wojcicki Decl. ¶ 6). Data provided to researchers is deidentified, meaning that it is not associated with individual customers (Tr. 1:163). Customers may opt out of medical research at any time (Wojcicki Decl. ¶ 13). They
The Debtors maintain consumer-related assets in physical form—saliva samples housed in biobanks—and in electronic form—DNA testing results and other customer account information such as names and email addresses. The electronic data certainly qualifies as PII, and no party has suggested that the physical samples should be treated differently.
The Debtors cited several causes for their Chapter 11 filings, such as inflation and rising competition (Kvarda Decl. ¶ 4). Perhaps the biggest strain on the Debtors resources comes from legal actions commenced or threatened against them related to a 2023 data breach (Kvarda Decl. ¶ 64). During this incident, hackers obtained access to personal data of approximately 7 million of the Debtors customers (Id.).
Before turning to restructuring, the Debtors considered several alternative solutions to resolve their financial struggles (Am. Swift Decl. ¶ 7). Then-CEO and co-founder Anne Wojcicki considered taking the Debtors private (Walper Decl. ¶ 4). A special committee of the board of directors (Special Committee) was formed in March 2024 to consider Ms. Wojcicki‘s proposals and other options (Id.). The members of this committee resigned from the Debtors board in September 2024 (Walper Decl. ¶ 5). The Debtors reconstituted the Special Committee in October 2024 with new independent directors (Id.). Ms. Wojcicki is not a member of the Special Committee (Kvarda Decl. ¶ 89). The Special Committee sought out and received several proposals to purchase either the entire company or some of its assets, but it determined that none of these proposals were actionable (Am. Swift Decl. ¶¶ 8-9).
Having not received any adequate proposals to purchase the company and facing a worsening financial condition, the Special Committee sought to sell the Debtors assets in bankruptcy (Am. Swift Decl. ¶¶ 9-10). The Special Committee has authority over all matters related to restructuring, including these Chapter 11 cases (Walper Decl. ¶ 6).
B. The Debtors Privacy Policies
A customer must create an account before using the Debtors services. (Am. Lefkowitz Decl. ¶ 8). As part of the sign-up process, the customer must check a box stating that she has read and agrees to the Debtors Terms of Service and Privacy Statement. (Am. Lefkowitz Decl. Exh. V). The text of these documents is available via a hyperlink, but the Debtors do not require customers to actually read them. (Id.; Omb. Rep. 31).
Other areas of the Debtors website emphasize their commitment to protecting consumer data and the importance of privacy (Omb. Rep. 33). Consumers are repeatedly assured that they are in control of their genetic information (Id.). Earlier versions of the Privacy Statement also explicitly told customers in a summary section that the company “does not sell, lease, or rent your individual-level Personal Information without explicit consent” (Am. Lefkowitz Decl. Exhs. B, C, D). But they also contained the above-mentioned language about the possibility that information would be sold in connection with a sale of assets (Am. Lefkowitz Decl. Exhs. B, C, D).
In addition to the Privacy Statement, the Debtors have a supplemental Privacy Notice that applies to residents of some states (Vibbert Decl. Exh. 23). The most recent version applies to residents of California, Colorado, Connecticut, Utah, Virginia, and Washington (Id.). It informs these customers that they have the right to “opt-out of a sale or sharing of your Personal Information with a third party” (Id.). A more detailed section of the Notice suggests that this language may be intended to refer to website cookies and other tracking technologies, to the extent that their operations might constitute a sale or sharing under the law, rather than to a more straightforward sale of data, as is proposed here.
Earlier versions of this Privacy Notice, which applied only to California residents at the time, addressed sales more directly, stating that “we do not sell your Personal Information” in bold text (Vibbert Decl. Exh. 27). This language was eliminated in December 2022 when an amendment broadened the Notice to apply in additional states (Vibbert Decl. Exh. 26).
C. The Proposed Transaction
On March 24, 2025, the Debtors filed a motion to establish bidding procedures and to set certain hearing dates and deadlines for the sale process. I granted that motion after a
In recognition of the incremental value offered by TTAM, the Debtors filed a motion seeking to establish procedures for a final round of bidding. Although Regeneron had objected to the Debtors consideration of additional bids from TTAM, it supported the procedures proposed in the Debtors motion. Conversely, although TTAM wanted to submit an overbid, it objected to the details of the Debtors proposal. The parties resolved their differences during a recess in the hearing, and I entered an order that established procedures for a final round of bidding in which TTAM‘s bid of $305 million would be the starting bid (Walper Decl. ¶¶ 17-18). The Debtors conducted this final round on June 13, 2025 (Walper Decl. ¶ 18). Regeneron did not submit an additional bid (Id.). The Special Committee thus selected TTAM‘s $305 million bid as the winning bid (Walper Decl. ¶ 19). And the Debtors filed a notice of the selection of TTAM as the winning bidder and Regeneron as the backup bidder, together with copies of their respectivе asset purchase agreements, later on June 13.
Ms. Wojcicki created TTAM soon after the Debtors filed their voluntary petitions, with the goal of using TTAM to purchase the Debtors assets (Wojcicki Decl. ¶ 8). TTAM is a non-profit public-benefit corporation that is fully funded by Ms. Wojcicki and her affiliates (Wojcicki Decl. ¶¶ 8, 11). Ms. Wojcicki is the chief executive officer and president of TTAM and one of three members of its board of directors (Wojcicki Decl. ¶ 11).
The form of Asset Purchase Agreement between the Debtors and TTAM (APA), filed on June 13, contemplates a sale of assets by the Debtors directly to TTAM or its designee. But it also includes two alternative structures. Under Section 2.8, the Debtors may elect to implement an equity transfer, which the parties have referred to as the Equity Toggle. And under Section 11.8, in certain circumstances, the Debtors may choose to complete the transaction through confirmation of a Chapter 11 plan of reorganization, which the parties have referred to as the Plan Toggle.
The Debtors elected to proceed under the Equity Toggle on June 14 and filed a notice of the election on the docket. The Equity Toggle involves two separate transactions. First, the Debtors will form a new, wholly owned limited-liability company, which the parties have
If the sale is approved and consummated, TTAM will essentially operate in the same manner and serve the same functions as the Debtors do currently (Wojcicki Decl. ¶¶ 12, 22). TTAM has agreed to make employment offers to all of the Debtors employees (Wojcicki Decl. ¶ 22). The same limited number of people that currently have access to customer data would continue to have access (Tr. 1:135). The transaction process contemplates that genetic data will not be disclosed to any new parties (Wojcicki Decl. ¶ 22).
Following the closing, TTAM‘s privacy policy will be the same as the Debtors policy in effect on the petition date (Wojcicki Decl. ¶ 14). This includes customers continuing deletion rights and the ability to opt out of research in perpetuity (Id.). TTAM has also agreed to certain privacy enhancements, listed in Exhibit D of the APA. These include TTAM‘s agreement to comply with applicable laws, even if it might otherwise be excused from complying because of its status as a non-profit, and limitations on future mergers, acquisitions, bankruptcy transactions, and asset sales. TTAM also has agreed not to share personal information with insurance companies. Within ninety days of the closing, TTAM intends to form an independent consumer privacy advisory board that will ensure compliance with relevant privacy laws. And TTAM has agreed to provide customers with two years of identity-theft monitoring. These privacy enhancements would not apply under the Plan Toggle (APA Exh. D).
The Debtors have not yet elected the Plan Toggle, but an assessment of the States objections requires an understanding of that alternative. If exercised, it would result in the completion of the proposed transaction through a Chapter 11 plan, rather than through a Section 363 sale. Under that plan, TTAM would become the sole owner of the reorganized Debtors, resulting in exactly the same structure as under the Equity Toggle. Because no assets would move out of the Debtors—not even to affiliates—the state statutes that may complicate the Equity Toggle would not apply to the Plan Toggle.
In additional to formal notices filed on the docket of these cases, the Debtors published notice of the proposed sale in the Wall Street Journal on April 2, 2025. They also distributed a notice to all current and former customers of a potential change of ownership of their personal information beginning on June 11, 2025. The Debtors and TTAM have agreed to
D. The Ombudsman‘s Principal Conclusions and Recommendations
Following some initial disagreement, the parties agreed to the appointment of a consumer privacy ombudsman in these cases. On April 29, 2025, I entered a joint stipulation and agreed order that directed the United States Trustee to appoint an ombudsman. The Ombudsman was asked to address, among other considerations, whether the proposed sale of personally identifiable information complied with Debtors privacy policies and whether the sale would violate applicable non-bankruptcy law. Professor Richards filed his report on June 11, 2025, before the final round of bidding.5
In his report, the Ombudsman states that he considers the Debtors privacy policies to be broader than the formal Privacy Statement, Privacy Notice, and Terms of Service (Omb. Rep. 28). He cites multiple representations the Debtors made about the importance of privacy and their repeated assurances to customers that their personal data would be protected (Omb. Rep. 29). He also discusses statements by the Debtors that customers are in control of their own genetic data (Id.). The Privacy Statement has always included language about the possibility of customer data being sold as part of a larger change in ownership of the company (Omb. Rep. Exh. C). But the Ombudsman notes that other pages of the company‘s website promise not to share the genetic data of consumers (Omb. Rep. 33). Ultimately, the Ombudsman was not able to conclude with certainty whether the proposed sale is consistent with the Debtors privacy policies (Omb. Rep. 41).
Similarly, the Ombudsman analyzed a variety of federal, state, and foreign non-bankruptcy laws that may apply to the proposed sale (Omb. Rep. 60-105). Among these are state genetic-privacy laws that apply to direct-to-consumer genetic-testing companies such as the Debtors (Omb. Rep. 93-100). Many of these statutes require the express consent of a consumer before certain transfers or disclosures of the consumer‘s genetic data (Id.). The Ombudsman states that these state genetic-privacy laws are likely the most relevant non-bankruptcy laws (Omb. Rep. 93), and indeed they are at the heart of the States objections to
The Ombudsman also proposed privacy safeguards in his report that he believed a winning bidder should be required to follow (Omb. Rep. 105). The most significant is that the Debtors should be required to obtain separate and express consent from each customer before transferring the customer‘s data, even if the law does not require that consent (Id.). As an alternative, he suggested that the purchaser be permitted to take control of the data, but not to use it until the purchaser obtains affirmative consent (Omb. Rep. 105-06). As a third alternative, he recommended that the Debtors be required to provide their customers with actual notice of the sale that includes a statement about the ability of customers to delete their data, but he notes that this alternative would be significantly less protective of consumers privacy interests (Omb. Rep. 109-11).
The Ombudsman also recommended that the purchaser make a binding commitment that it will not use genetic data in a manner that is inconsistent with the best interests of consumers (Omb. Rep. 107-08). And he suggested policies to reduce the likelihood that the purchaser would retain genetic data after a customer‘s death, including allowing a next of kin to delete data, deleting the accounts of customers who do not log into the service for years or respond to email prompts, and providing that research consents will terminate upon the death of the customer unless the customer affirmatively agrees to donate genetic information to science (Omb. Rep. 106-07).
III. Analysis
I discuss below the States objections to the proposed sale. Many of the objections turn on state legislation that governs direct-to-consumer genetic-testing companies such as the Debtors. Before reaching those issues, however, I address a preemption theory advanced by the Debtors and TTAM, which appears to be an issue of first impression.
A. Preemption of State-Law Restrictions on Transfer
A threshold question is whether the Debtors must comply with the States laws in the first place. If the Bankruptcy Code preempts state law in this context, as the Debtors and TTAM contend, then the finer details of state law are irrelevant.
1. Preemption of transfer restrictions generally
The Bankruptcy Code does not state directly whether a debtor must comply with non-bankruptcy law in the sale of PII, but it provides some clues.
When a debtor seeks to transfer an asset out of the bankruptcy estate, two Bankruptcy Code provisions are relevant.
For a sale by a for-profit debtor, then, there is neither a broad preemption of state-law transfer restrictions, as in
The case law resolves this gap in favor of compliance. In In re Schauer, 835 F.2d 1222 (8th Cir. 1987), a bankruptcy trustee sought to sell patronage certificates issued to the debtors by a farm cooperative even though the trustee had not obtained the consent of the cooperative‘s board of directors, as its bylaws required. The trustee argued that the Bankruptcy Code preempted state law, but the Eighth Circuit rejected that contention, stating that “Sections 363(b)(1) and 704 do not expressly authorize the trustee to sell property contrary to the restrictions imposed by state and contract law.” Id. at 1225.6
The courts have since applied this princiрle to restrictions imposed directly by state law, as opposed to the contract-based restrictions in Board of Trade and Schauer. Thus, if a state‘s champerty law prohibits the assignment of a cause of action, the Bankruptcy Code does not override it. See Integrated Solutions, Inc. v. Service Support Specialties, Inc., 124 F.3d 487, 493 (3d Cir. 1997); Crabtree v. Allstate Property & Casualty Ins. Co., No. 23-60537, 2025 WL 1662279, at *2 (5th Cir. June 12, 2025). The same is true of a law restricting the assignment of payments under a structured settlement. See In re Crossman, 259 B.R. 301, 307 (Bankr. N.D. Ill. 2001); In re Jackus, 442 B.R. 365, 370 (Bankr. D.N.J. 2011). See also In re Rosa Dairy Farm, Inc., 622 B.R. 806, 817 (B.A.P. 1st Cir. 2020) (§ 363 does not preempt requirement to obtain regulatory body‘s approval of lease); In re Borne Chemical Co., 54 B.R. 126, 132 (Bankr. D.N.J. 1984) (§ 363 does not preempt state environmental cleanup law).
Exempting debtors and trustees from transfer restrictions in non-bankruptcy laws would present significant public-policy challenges. Generally applicable laws regulate or prohibit the transfer of items as diverse as firearms, endangered species, controlled substances, securities, human organs, and goods manufactured in violation of the wage-and-hour laws. See, e.g.,
2. Preemption of PII transfer restrictions
The Debtors do not dispute the general principle established by these precedents. They contend that only sales of PII are exempt from non-bankruptcy restrictions, and only if a debtor‘s privacy policy authorizes a sale of the information. Their argument depends on language added to
... except that if the debtor in connection with offering a product or a service discloses to an individual a policy prohibiting the transfer of personally identifiable information about individuals to persons that are not affiliated with the debtor and if such policy is in effect on the date of the commencement of the case, then the trustee may not sell or lease personally identifiable information to any person unless—
- such sale or lease is consistent with such policy; or
- after appointment of a consumer privacy ombudsman ... the court approves such sale or lease—
- giving due consideration to the facts, circumstances, and conditiоns of such sale or such lease; and
- finding that no showing was made that such sale or such lease would violate applicable nonbankruptcy law.
The Debtors reason that compliance with applicable law appears only in subparagraph (B), and so there is no need for them to comply with applicable law if I approve their proposed sale under subparagraph (A). In other words, they say, if they demonstrate that the sale is consistent with their privacy policy, they do not need to show anything else.
The Debtors have not identified any precedent supporting their preemption theory.7 I find their argument unpersuasive for several reasons.
First, the structure of the statute suggests a different meaning. The language quoted above begins with “except that” and specifies when a debtor “may not sell” property.
Second, both the exception language for PII sales in
Third, the PII exception comes from Section 231 of BAPCPA. See Pub. L. No. 109-8, § 231(a) (2005). The report of the House Committee on the Judiciary on the bill stated that Section 231 “does not preempt applicable nonbankruptcy law.” H.R. Rep. No. 109-31, pt. 1, at 67 (2005), as reprinted in 2005 U.S.C.C.A.N. 88, 136. Legislative history can be an unreliable guide, and perhaps this was an imprecise reference to the “no showing was made” language in
Fourth, the implications of the Debtors’ preemption theory are concerning.9 Consider a hypothetical state statute that bars any business from selling its customer information to any person who has been convicted of a felony involving identity theft. Or another that prohibits a video streaming service from disclosing a subscriber‘s viewing history. Under the Debtors’ theory, a debtor or a trustee could sell the information regardless of the restrictions, exposing consumers to harm and, depending on who the purchaser is, embarrassment. These would be
The Debtors argument is based on so-called obstacle preemption, which requires a showing that “state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” Freightliner Corp. v. Myrick, 514 U.S. 280, 287 (1995) (cleaned up). Courts have applied obstacle preemption in bankruptcy cases in which the purposes and objectives of Congress are clear. See, e.g., In re Old Carco LLC, 442 B.R. 196, 210 (S.D.N.Y. 2010) (state statutes seeking to undermine the benefit of rejection of contracts under § 365 were preempted); In re Bayou Steel BD Holdings, L.L.C., 642 B.R. 371, 385 (Bankr. D. Del. 2022) (state statute of repose was preempted by Bankruptcy Code‘s statutory limitation period). That clarity is lacking here.
Adoption of the Debtors preemption theory would require me to conclude that Congress intended debtors in bankruptcy to be able to sell PII without any restrictions, so long as they published a sufficiently loose privacy policy. For the reasons described above, I conclude that Congress‘s purpose was somewhat more modest: to permit debtors and trustees to address and possibly to contravene privacy policies that prove inconvenient in light of the transactions they would like to pursue in bankruptcy.
But if all sales under
The preceding discussion does not mean that every restriction in non-bankruptcy law is enforceable in a sale of PII. In the circumstances of a particular transaction, a non-bankruptcy restriction may directly frustrate a clear congressional objective, or be impossible for a debtor to comply with, or fall within the scope of
B. The Debtors Privacy Policy and Section 363(b)(1)
1. What policy was in effect on the petition date?
As the preceding discussion makes clear, whether a debtor‘s privacy “policy is in effect on the date of the commencement of the case” and whether a proposed sale of property “is consistent with such policy” may be important in a court‘s consideration of the sale.
The parties in this case have distinctly different positions on how to determine whether a privacy policy is in effect at the commencement of the case. The Debtors and оthers supporting the sale suggest that a court should look only to the publicly available privacy policy or policies as they exist on that date. This interpretation has the benefit of simplicity, but it also may permit a debtor to bring a transaction within
On this point, the Debtors have the more persuasive argument. The principal function of the “policy ... in effect” language is to determine whether the court must appoint a consumer privacy ombudsman in a particular case. A court usually must make that decision quickly and with limited information. Even in a case that is much less complicated than this one, it is highly implausible that Congress intended the parties and the court to spend the time and effort necessary to evaluate multiple versions of a privacy policy, statements that may have appeared on a website at some point during the debtor‘s history, and the effect of a debtor‘s reservation of the right to change the policy, all for the purpose of deciding whether someone else should be appointed to investigate the same issues.
I thus conclude that the “policy” relevant to
As discussed above, the Debtors primary privacy policy (the Privacy Statement) has, since 2007, authorized them to include personal information in a “sale of all or a portion of
The privacy policy specific to California and certain other states (the Privacy Notice) is different. Before December 2022, it stated in bold print thаt “we do not sell your Personal Information.” In that month, the Debtors reformatted this policy, removed the bold statement, and modified the language to refer to a right to “opt out of a sale or sharing of your Personal Information with a third party.” As discussed above, this language may be limited to the operation of website cookies and other tracking technologies. If that is correct, then it is fair to interpret the revised policy as silent on a sale of the business, as is proposed here. In any event, the privacy policy applicable to California residents that was in effect on the petition date did not prohibit the sale of personal information in connection with a sale of assets.
California responds that the most recent versions of the Policy Notice violate its laws and are thus void. As I understand the argument, this would mean that the pre-2022 prohibition on the sale of personal information would remain in effect because it never was validly superseded. But however challenging it might be to enforce an unlawful policy over the objection of an affected party, that does not mean it is not a policy. If a construction firm has a policy that it will hire only men, or a lender has a policy that it will charge interest at a usurious rate, these businesses are violating the law, but they nevertheless have policies. And there is an enormous body of law involving the liability of local governments that are alleged to have policies that are unconstitutional. See Monell v. Department of Social Services, 436 U.S. 658 (1978) (cited by more than 93,000 other cases).
I therefore conclude that the Debtors privacy policies that were in effect as of the commencement of this case either authorized or did not prohibit the sale of PII as part of a transaction involving the other assets that constitute the Debtors business, subject to the right of customers to opt out of the sale.
The preceding discussion suggests that the appointment of a consumer privacy ombudsman in this case may not have been required. Nevertheless, the parties agreed to the appоintment of an ombudsman, and if the parties had litigated the matter, I may well have appointed an ombudsman over the Debtors objection in light of the high profile of this case and the sensitivity of the information held by the Debtors.
It is not clear from the statute whether
- The transaction will yield $305 million, including $302.5 million in cash, for the payment of creditors claims and, likely, a return to shareholders. This represents a nearly six-fold increase from the opening auction bid of $52 million (Am. Swift Decl. ¶ 15).
- A typical customer‘s relationship with TTAM after closing will be essentially the same as the customer‘s relationship with the Debtors today. TTAM will have the same business lines, employees, trade name, security practices, and privacy policies as the Debtors have now, except for certain privacy enhancements discussed below. Ms. Wojcicki, who co-founded the Debtors, will be the principal of TTAM.
- The primary creditors of the Debtors estates are customers or former customers who were affected by the 2023 cybersecurity incident. Except for some insurance coverage, there is no other obvious source of recovery for these creditors.
- TTAM has agreed to a series of privacy enhancements. Although there is disagreement about how effective some of these enhancements may be and whether some are already required by the laws of certain states, there does not appear to be any dispute that the enhancements will result in greater privacy protections than many customers enjoy today. The enhancements include the adoption in perpetuity of the Debtors policies permitting customers to delete their accounts, delete their data, and opt out of research.
- The Debtors and TTAM could produce exactly the same structure that will result from the Equity Toggle—that is, TTAM as the sole member of a limited-liability company
that owns and operates the 23andme business and controls its data—by pursuing the Plan Toggle instead. Because the Plan Toggle would not result in a transfer or disclosure of any PII, which would remain with the Debtors at all times, the States objections to the Equity Toggle would not apply.12 A plan of reorganization likely would have overwhelming support from creditors and shareholders, and there is no obvious reason why it would not be confirmable. But preparing and confirming a plan would require several months, during which the Debtors would continue to run operating deficits, accrue interest on their post-petition financing facility, and incur substantial professional fees. The Debtors estimate that they would lose $20 million or more while preparing and confirming a plan. There is no direct support for that number in the evidentiary record, but it is plausible, and it would present a significant concern even if it were halved. Proceeding under the Plan Toggle would not generate any incremental privacy benefits. In fact, the privacy enhancements discussed in the preceding paragraph would not apply in a Plan Toggle transaction.
Of course, there are factors weighing against approval of the sale as well. I summarize several of them here as well.
- Some subset of customers probably would prefer not to do business with TTAM but are not in a position to opt out by deleting their accounts. This may be because they no longer have access to their login credentials, because they are deceased, because they ignore email messages, or for some other reason.
- TTAM could decide to take the business in a different direction that conflicts with customers expectations. To some degree, customers have been subject to the same risk during their relationship with the Debtors thus far, but this remains a valid concern. The risk is mitigated somewhat by certain state statutes that limit the right of genetic-testing companies to use data beyond the scope of their primary businesses. Nothing in the proposed transaction will immunize TTAM from the requirements of these statutes and others that may be enacted.
Something could go wrong at TTAM that exposes or significantly increases the risk of exposure of customer data. There is nothing a court can do to ensure that customer data will be protected after a transaction closes. TTAM would, however, be subject to legislation, regulation, and litigation with regard to its post-closing actions and omissions.
On balance, the facts and circumstances strongly favor approval of the transaction. If it proceeds, customers are likely to have the same or better experiences (with respect to privacy and otherwise) with TTAM as they have with the Debtors today. There are alternatives that would provide stronger privacy protection, but they are essentially theoretical. In particular, non-bankruptcy law might require, or I might impose unilaterally, a requirement that customers expressly opt in to the transaction as it is presently structured before their data may be transferred or used. But there is no reason to believe that the Debtors or TTAM will follow through with the opt-in requirement. Because of the out-of-pocket costs, delays, and loss of transaction value associated with an opt-in campaign, it is quite likely that the parties would instead exercise the Plan Toggle and proceed under a structure that requires no consent at all. As discussed above, that would result in fewer privacy protections while costing the bankruptcy estates approximately $20 million. The States have not articulated any persuasive reason why this outcome would be preferable.
For these reasons, I am inclined to approve the proposed sale notwithstanding the privacy objections raised by the States, unless non-bankruptcy law precludes that result. I turn to that issue next.
C. The States Statutes Governing Genetic Information
1. Disclosure and transfer consent statutes
California, Kentucky, Tennessee, Texas, and Utah assert that the proposed transaction with TTAM would violate their respective genetic-privacy statutes because the Debtors do not propose to seek affirmative, opt-in consent of every customer residing in their states. Although the exact language of these statutes varies, they generally require direct-to-consumer genetic-testing companies to obtain consumers separate express consent when the company transfers or discloses a consumer‘s genetic data. See
By way of example, the relevant portion of the Texas statute reads as follows:
(a) A direct-to-consumer genetic testing company ... must obtain:
(1) an individual‘s separate express consent for:
(A) the transfer or disclosure of the individual‘s genetic data to any person other than the company‘s vendors and service providers.
a. Persons and third parties
The statutes of Kentucky, Tennessee, Texas, and Utah regulate the transfer or disclosure of genetic data to any “person,” while California‘s statute regulates transfers to a “third party.” See
For the States genetic-privacy statutes to apply, there must first be a disclosure or transfer of genetic data. None of the statutes define “disclosure” or “transfer.” “In the absence of an indication to the contrary, words in a statute are assumed to bear their ordinary, contemporary, common meaning.” Walters v. Metropolitan Educational Enterprises, Inc., 519 U.S. 202, 207 (1997) (cleaned up). “Disclose” means “[t]o make (something) known or public.” Disclose, Black‘s Law Dictionary (12th ed. 2024). In this transaction, TTAM plans to retain the Debtors current employees and subcontractors, and the genetic data is not anticipated to be made known to anyone who does not already have access (Wojcicki Decl. ¶ 22). Thus, unless every transfer is also a disclosure, the transaction with TTAM will not result in any disclosure of any genetic data.
The next issue is whether this transfer is to a “person,” as used in the genetic-privacy statutes of Kentucky, Tennessee, Texas, and Utah, or a “third party,” as used in California‘s genetic-privacy statute.13 “Person” is not uniformly defined in these laws, but it often includes individuals and various forms of business organizations. See
But whatever “person” or “third party” is or is not defined to mean in the States’ statutes, those terms cannot be interpreted such that the transfer or disclosure of genetic data to any conceivable individual or organization would require a genetic-testing company to seek express consent from all its customers. Courts avoid interpreting statutes in ways that would create absurd results. See Marion Energy, Inc. v. KFJ Ranch Partnership, 267 P.3d 863, 869 (Utah 2011) (“Generally, when interpreting statutes we seek to avoid interpretations which render some part of a provision nonsensical or absurd.“) (cleaned up); National Shooting Sports Foundation, Inc. v. California, 420 P.3d 870, 873 (Cal. 2018) (noting that the absurdity canon counsels against interpreting statutes in ways that would result in absurd consequences); Norton Hospitals, Inc. v. Peyton, 381 S.W.3d 286, 292 (Ky. 2012) (“[A]ny interpretation that
Although the genetic-privacy statutes provide explicit exceptions for vendors or service providers, there must also be some implicit exceptions. The “notion that some things go without saying applies to legislation just as it does to everyday life.” Morath v. Lampasas Independent School District, 686 S.W.3d 725, 738 (Tex. 2024) (cleaned up) (discussing a statute‘s implicit time period for school board action). For example, the Debtors’ Privacy Statement states that data will be shared with service providers, but it also contemplates that consumers’ information will be used by the Debtors themselves to provide the services that they offer (Vibbert Decl. Exh. 1). Even if a privacy policy does not say that information will be disclosed to a company‘s employees, a reasonable consumer would understand that disclosure to be necessary.
Similarly, the statutes at issue here must be understood to permit a genetic-testing company to disclose information to its own employees in the furtherance of their responsibilities. A couрle of examples make this clear.
- Consider a genetic-testing company that does not contract with any vendors or service providers and instead performs all services in-house. The individuals that are employed by the company will naturally change over time. If the company needs to hire a new employee whose job requires access to genetic data, would the company be required to obtain all of its customers’ express consent before the employee could start working? As a practical matter, must a genetic-testing company outsource all of its operations to vendors or service providers?
- Or suppose that a company that uses a mix of in-house and outsourced services experiences a data breach. The company could retain a vendor to help remediate the breach and investigate what went wrong. But does the statute preclude the company‘s own privacy and information-technology employees from assisting these efforts, or even from receiving a detailed report from the vendor?
The answer to all of these questions is “no; of course the statute doesn‘t require that.” A genetic-testing company‘s employees, though technically distinct “persons” from the company, are part of the company for purposes of its statutory restrictions on disclosure and transfers.
It is also worth noting that the Debtors’ Privacy Statement alerts consumers that their information may be shared with the Debtors’ corporate affiliates (Vibbert Decl. Exh. 1). The privacy policy also distinguishes between third-party content and organizations affiliated with the Debtors (Id.). As with the issue of disclosures to employees, a privacy policy does not determine the meaning of the statutory language, but it helps to provide context.
So is a subsidiary or affiliate a person or third party for purposes of disclosure and transfer? Examples again help to illuminate the issue.
- Suppose that California passes legislation requiring sophisticated encryption of all genetic data. This particular type of encryption is patented and available only from a single vendor, and so it is expensive. Rather than license the encryption product for all 4 million of its customers, a genetic-testing company decides to create a new subsidiary for its California business, move customer data for Californians into the new subsidiary, and have the new subsidiary enter into a license for the new product. Is this a transfer to a third party that requires separate and express consent under
Section 56.181(a)(2) ? - Now suppose that the company just discussed decides that California‘s approach to encryption policy is better after all, and the price of a license has come down. May the company merge its California subsidiary back into its main operating company without violating the law? Does it matter which of the two merged companies is technically the surviving company?
- Next consider a genetic-testing company that contracts with an unaffiliated vendor to provide cybersecurity advice and, in the event of a security incident, response and remediation services. In the course of its work, the vendor periodically accesses customers’ information. During the term of the contract, the testing company
purchases the stock of the vendor, which becomes a subsidiary of the testing company and is then covered by its privacy policies. There are a few months left in the term of the contract, but the parties allow it to expire. The cybersecurity subsidiary continues to provide the same services to the rest of the corporate family as it did when it was a vendor. Has a prohibited transfer or disclosure occurred? When did it occur? If no transfer or disclosure has occurred yet, what happens if there is a cyber incident? Can employees of the cyber subsidiary access the data of the affected customers without obtaining separate express consent? Would the result be any different if the testing company had founded the cybersecurity company and housed it in a subsidiary all along? - Continuing with this theme, imagine a corporate family that includes a genetic-testing company. For tax or other reasons, the parent company organizes matters so that all workers who provide services to the corporate family are employed and paid by a single subsidiary that has no operations beyond managing payroll and benefits. Can the testing company make use of these employees when it is necessary to access customer data, or is that an impermissible disclosure or transfer?
As these examples demonstrate, there is a meaningful difference between what happens within the confines of a corporate enterprise, where a privacy policy governs, and what happens outside the corporate family.
As discussed above, courts avoid interpreting statutes in ways that produce absurd results. See, e.g., National Shooting Sports Foundation, Inc., 420 P.3d at 873. To interpret these statutes to require separate express consent for every transfer to an affiliate would hamper a genetic-testing company‘s ability to organize itself, to operate, and, in important respects, to protect the interests of customers. A court‘s “role in statutory interpretation is to give a statute the full effect of the [legislature‘s] intent without unduly restricting or expanding the statute‘s intended scope.” State v. Marshall, 319 S.W.3d 558, 561 (Tenn. 2010). See also Lungren v. Deukmejian, 755 P.2d 299, 304 (Cal. 1988) (“The intent prevails over the letter, and the letter will, if possible, be so read as to conform to the spirit of the act.“).
These statutes regulate the disclosure and transfer of genetic data. See
And the proposed transaction fits within the exception. Consumers are already on notice that the Debtors may share information with their affiliates. The transfer to Newco, along with substantially all of the Debtors’ other assets, is not for purposes of marketing, or monetizing the data to the detriment of customers, or criminal behavior, or other evils targeted by the States’ statutes. It is instead to enable the Debtors’ business to continue under new ownership and with enhanced privacy protections.
b. Particular California issues
California argues that a genetic-testing company‘s affiliates are not excepted from the application of its genetic-privacy statute. It points to a provision in its general privacy legislation which includes affiliates in the definition of “business,” and argues that the absence of a similar provision in its genetic-privacy act means that the California legislature did not intend to create such an exception in the latter. See
California‘s genetic privacy statute does not define “third party.” California courts “giv[e] the words their usual, ordinary meaning.” People v. Canty, 90 P.3d 1168, 1172 (Cal. 2004). “Third party” is commonly understood to exclude affiliates. In re Wesco Aircraft Holdings, Inc., No. 23-90611, 2025 WL 354858, at *21 (Bankr. S.D. Tex. Jan. 15, 2025); see also MCI Communications Services, Inc. v. California Department of Tax and Fee Administration, 28 Cal. App. 5th 635, 640 (Cal. Ct. App. 2018) (describing purchase of materials from “third party vendors and intercompany affiliates“).
Furthermore, construing an affiliate to be a “third party” would cause problems elsewhere in California‘s genetic-privacy statute. The term “third party” also appears in
California also argues that “provisions of the law that afford the greatest protection for the right of privacy for consumers shall control.”
In summary, Newco, a wholly owned subsidiary of the Debtors, would not be considered a “third party” under California‘s genetic-privacy statute, nor a “person” under the statutes of Kentucky, Tennessee, Texas, and Utah for purposes of the proposed transaction. I conclude that the transfer of the genetic data, along with the rest of the business, to a wholly owned subsidiary of the Debtors does not require separate consent under these genetic-privacy statutes.
c. On form and substance
The second step of the Equity Toggle—the sale of the Debtors’ equity in Newco to TTAM—does not require separate consent either, because nothing in the statutes purports to prohibit or condition a change of ownership of or sale of equity in a direct-to-consumer testing company. I cannot say for sure why the States’ legislatures decided not to regulate ownership changes, but a likely reason is that it could deprive emerging and growing companies of access to equity capital.
The States argue, in essence, that I should collapse the two steps of the Equity Toggle for purposes of my analysis and examine the result of the transaction, which is that TTAM will be the new owner of the genetic data and biological samples. This is not quite right, because Newco will be the new owner of those assets, and the genetic-privacy statutes have nothing to say about who owns Newco. Nevertheless, bankruptcy courts sometimes deploy the collapsing doctrine to more accurately assess a complex series of transactions that are alleged to constitute a fraudulent transfer. See, e.g., In re Maxxus Energy Corp., 641 B.R. 467, 531-32 (Bankr. D. Del. 2022).
Each side in this dispute argues that the other side is elevating form over substance. The Debtors and their supporters point out that the States are interposing technical objections to a transaction that will benefit the bankruptcy estates, and in particular benefit consumers harmed by the 2023 data breach. The States counter that the Debtors have replaced a structure that would require them to obtain opt-in consent from customers with a structure that does not require that consent (though the States disagree), even though there is no difference in the substance of the two structures. Neither of these arguments is preposterous, but neither resolves the standoff.
2. Texas‘s definition of property rights in DNA
Texas‘s genetic-privacy statute includes a second relevant provision. It reads as follows:
Sec. 503A.003. EXCLUSIVE PROPERTY RIGHT IN DNA; CONFIDENTIALITY. An individual has a property right in, and retains the right to exercise exclusive control over, the individual‘s biological sample that is provided to or used by a direct-to-consumer genetic testing company and the results of genetic testing or analysis conducted on the individual‘s DNA by a direct-to-consumer genetic testing company, including to the collection, use, retention, maintenance, disclosure, or destruction of the sample or results. The results of the genetic testing of an individual‘s DNA are confidential and may not be disclosed to another person without the individual‘s express consent.
Texas also notes that the property right created by its statute includes “the right to exercise exclusive control over ... disclosure ... of the sample or results.” Id. The State argues that this property right is part of the “bundle of stiсks” often used to conceptualize interests in property, such that any disclosure without a customer‘s opt-in consent is a violation of the customer‘s property rights. Although I have concluded above that the proposed transaction does not involve a disclosure, I will accept Texas‘s point for purposes of this discussion. I nevertheless disagree with this broad interpretation of
First, as we have seen,
Second,
A much more straightforward reading of the first sentence of
The second sentence of
At the very end of the sale hearing, Utah suggested that TTAM‘s use of the genetic data would be for a purpose that is outside the scope of the Debtors’ genetic-testing service. This assertion is not in Utah‘s written objection, but I understand it to relate to
D. Other Objections by the States
Some of the objecting States also have advanced arguments unrelated to their genetic-privacy statutes. I discuss these below.
1. Compliance with other Section 363 requirements
a. Business judgment / good business reason
In general, a bankruptcy court considers a proposed sale of assets outside of the ordinary course of business under the deferential business-judgment standard. See In re MF Global Inc., 467 B.R. 726, 730 (Bankr. S.D.N.Y. 2012). California takes issue with the Debtors’ business judgment in one respect. It argues that because the State can pursue a civil penalty for each transfer of genetic information without opt-in consent, the bankruptcy estates may be largely devoted to paying civil penalties rather than to compensating creditors and shareholders. See
Texas questions the appropriateness of a Section 363 sale more directly, though its arguments are blended with those suggesting that the sale is a sub rosa plan, which I address below. Under local precedent, a sale of substantially all of a debtor‘s assets may warrant additional scrutiny to ensure the sale is not an effort to evade the protections of a reorganization plan. See In re George Walsh Chevrolet, Inc., 118 B.R. 99, 101 (Bankr. E.D. Mo. 1990). Such analysis “include[s] a showing that there is a sound business purpose for the sale without a disclosure statement and plan; that there has been accurate and reasonable notice; that the price to be paid is fair and reasonable; and that the sale does not unfairly benefit insiders or the prospective purchasers, or unfairly fаvor a creditor or class of creditors.” In re Channel One Communications, Inc., 117 B.R. 493, 496 (Bankr. E.D. Mo. 1990). The Debtors’ sound business purpose for proceeding by a Section 363 sale is straightforward: their liquidity is challenged, and it will cost tens of millions of dollars to confirm a plan, with no apparent
b. Sub rosa plan
California and Texas argue that the proposed sale is an impermissible sub rosa plan. A debtor may not “short circuit the requirements of Chapter 11 for confirmation of a reorganization plan by establishing the terms of the plan sub rosa in connection with a sale of assets.” In re Braniff Airways, Inc., 700 F.2d 935, 940 (5th Cir. 1983). But nothing in the APA, the sale order, or other aspects of the transaction establishes any terms of a forthcoming plan of liquidation for the Debtors. Upon closing, the Debtors will have a pot of cash and will be free to propose a plan that distributes that cash as the Debtors believe is appropriate, subject to the requirements of the Bankruptcy Code and the votes and objections of parties in interest.
c. Section 363(m)
At the sale hearing, California argued that the protection against appellate modification provided by Section 363(m) should not apply to the first step of the Equity Toggle, the sale of assets from the Debtors to Newco, because Newco will not be providing value to the estate in exchange for the transfer of the assets. No party has suggested that the second step, the sale of equity interests to TTAM, is not eligible for Section 363(m) protection.
“Section 363(m) moots any challenge to an order approving the sale of assets to a good faith purchaser where (1) no party obtained a stay of the sale pending appeal, and (2) reversing or modifying the authorization to sell would affect the validity of the sale or lease.” In re Polaroid Corp., 611 F.3d 438, 440-41 (8th Cir. 2010). The goal of Section 363(m) is to “provid[e] reliability and finality.” In re Trism, Inc., 328 F.3d 1003, 1006 (8th Cir. 2003). Section 363(m) protects a transaction only if the purchaser acted in good faith. The test for good faith “is twofold: a good faith purchaser is one who buys in good faith and for value.” In re Burgess, 246 B.R. 352, 356 (B.A.P. 8th Cir. 2000).
The short answer to this argument is that the Debtors’ sale of assets to Newco is a necessary part of the larger transaction. Section 363(m) moots challenges that “would affect the validity of a sale.” 11 U.S.C. § 363(m). The Eighth Circuit has held that related provisions
But the argument also is unsound on the merits. California contends that the note to be issued by Newco to the Debtors is of no value because Newco has no assets. But this ignores the instantaneous exchange of assets and the note. When Newco delivers the note to the Debtors, the Debtors will deliver assets worth hundreds of millions of dollars to Newco. These presence of these assets means that Newco‘s note will not be worthless.
Whether and how Section 363(m) applies to this transaction ultimately will be an issue for an appellate tribunal to decide. I conclude only that California‘s argument is insufficient to deprive Newco and TTAM of the good-faith finding that underlies the appellate protection.
2. Section 959(b)
California, Tennessee, and Texas assert that the proposed sale would violаte
I have already rejected the state-law premise of this argument. But in any event, there is a distinction between management and operation of property, governed by Section 959(b), and the sale of assets outside the ordinary course of business, which is governed by Section 363. See In re Valley Steel Products Co., 157 B.R. 442, 447 (Bankr. E.D. Mo. 1993) (§ 959(b) does not apply to a debtor liquidating its business); In re White Crane Trading Co., 170 B.R. 694, 702 (Bankr. E.D. Cal. 1994) (“The constraints of section 959 limit the debtor‘s authority to conduct business in the ordinary course.“).
3. Fraudulent transfer
California and Texas argue that I cannot approve the Debtors’ sale of assets to a subsidiary because it is an avoidable fraudulent transfer. They cite no authority for this argument in the context of a Section 363 sale.
The argument is easily refuted. The Debtors are not seeking to hinder, delay, or defraud any of their creditors. See
4. Jurisdiction
Texas also argues that this Court lacks jurisdiction to approve the transaction under the Equity Toggle structure. That is not correct. The Debtors’ operating assets are property of their bankruptcy еstates, and the equity interests in Newco will be property of the bankruptcy estates when that company is formed. See
I agree with Texas‘s implicit suggestion that the Court will not have jurisdiction of the operating assets after they are transferred from the Debtors to Newco. This would be an obstacle if the parties asked me to approve further transfers of those assets. But no such transfers are contemplated; those assets will remain owned by Newco.
Texas argues that parties have received insufficient notice of the proposed sale, in violation of their due process rights. The Debtors counter that, in their view, the sale process has moved relatively slowly compared to other large Chapter 11 cases.
The Debtors have the better of this argument. Through a combination of formal notice and general publicity, these cases have a high profile. The Debtors have made no secret of their plan to sell their assets in a formal sale process. Many States appeared at the first-day hearing in these cases, and more have been actively involved as the cases proceeded. The attorneys general have ably represented the interests of their citizens.
Chapter 11 cases move quickly. There are different reasons for the pace of each case, but they often involve a lack of cash or constraints imposed by the only lender willing to provide more cash. In some cases, only a few days elapse between the announcement of the high bidder at an auction and the beginning of the sale hearing. That gap in these cases was nearly a month, and it was mostly intentional. (As I informed the parties at the first-day hearing, my travel plans were a factor as well.) Because objections to the sale were due only seven days before the hearing, creditors, governmental units, and the Ombudsman had more than three weeks to absorb and respond to the results of the auction and the draft documentation.
To be sure, the reopening of the bidding process presented a twist. But TTAM was not a new bidder, and its earlier agreement was disclosed on May 19 when TTAM was in the position of backup bidder. The order authorizing additional bidding also permitted objectors to address new developments in supplemental objections, and the States used that opportunity to buttress their arguments.
At some level, Texas‘s argument appears to be that it did not have sufficient notice that the Debtors might implement the Equity Toggle. But the Equity Toggle also appeared in Section 2.8 of TTAM‘s May 19 agreement. Texas was thus sufficiently alerted that if it presented a show-stopping objection to the proposed sale, the Debtors and TTAM were prepared to implement a different structure that would render the objection inapplicable.
In short, I conclude that Texas and other parties received notice and an opportunity to be heard that are consistent with the requirements of due process.
6. Stay under Rules 6004(h) and 6006(d)
Several of the States object to the Debtors’ request that I waive the fourteen-day stay of sale and assignment orders under Federal Rules of Bankruptcy Prоcedure 6004(h) and
According to a leading treatise,
if an objection has been filed and is overruled, the court should eliminate or reduce the 14-day stay period only upon a showing that there is a sufficient business need to close the transaction within the 14-day period and the interests of the objecting party, taking into account the likelihood of success on appeal, are sufficiently protected. The reasons are almost always monetary.
9A Collier on Bankruptcy ¶ 6004.11 (16th ed. 2025). The reasons favoring a waiver in this case are, as Collier suggests, monetary. The Debtors lose money daily, without taking into consideration the interest accruing at 14% per annum on their post-petition financing or the charges of their professionals. Delay in closing translates directly to reduced recovery for stakeholders.
On the other hand, the States have filed and pursued objections, and they are likely to pursue appeals. It is not clear that they have the right to appeal, see Fed. R. Bankr. P. 2018(b), but that is a matter for the appellate court to determine, and the rule does not limit other parties. The Debtors have acknowledged that they will require some time to consummate the transaction and will not be in a position to close the day after receiving court approval. And the upcoming Independence Day holiday may present an obstacle to the parties’ efforts to be heard by an appellate court and to the movement of the funds needed for the closing.
Taking these factors into consideration, I believe that it is appropriate to reduce the 14-day stays to 10 days. This will allow any appellants sufficient time to seek a stay but will not unduly delay the closing or impair stakeholders’ recoveries. Closing of the transaction will thus be stayed through Monday, July 7, 2025, but I will permit the Debtors and TTAM to take preliminary actions, such as forming Newco and giving notice to customers, in the interim.
E. Other Recommendations of the Ombudsman
1. Opt-in consent
The Ombudsman has recommended that I require the Debtors to obtain opt-in consent to the proposed transaction even if I conclude that it is not required by the law. He describes
First, the effect of the proposed transaction on consumer privacy is not so significant as to justify court intervention. As discussed above, after the closing, customers will deal with the same business, the same employees, familiar leaders, and the same privacy policies (plus some additional privacy protections). Consumers are not likely to even understand why their consent has been requested in this scenario. I see no need to impose obstacles to the ongoing operations of this enterprise.
Second, there is a significant risk that the sale will not close if I impose an opt-in requirement. The APA includes representations by the Debtors that TTAM will be able to use personal information without undue restriction or delay and that no court has imposed any material restriction on the transfer or use of data (APA §§ 5.1(l)(iv), 5.1(w)(iv)). I am confident that the Debtors would present the strongest possible arguments against the application of these representations, but their counsel described this at the sale hearing as a litigation alternative. That assessment seems accurate. It also is consistent with Ms. Wojcicki‘s testimony that the number of customers in California and Texas alone is equivalent to about three years of growth for the Debtors. I cannot readily conclude that TTAM would agree to close the transaction at the current price if it were required to obtain opt-in consent from those customers, much less from all customers.
Third, the Plan Toggle materially affects the analysis. Despite the discussion of transaction failure just above, the Debtors’ fallback option is to confirm a plan that results in the issuance of new equity to TTAM. That mitigates the downside considerably, but not entirely. More to the point, the Debtors would not be required to obtain any type of consent from customers before confirming a plan, and I see no reason why I would impose an opt-in
Thus, if I were to impose an opt-in requirement, it is highly unlikely that it would ever be fulfilled, or even attempted. The Debtors probably would exercise the Plan Toggle and consummate a restructuring, with no customer consent required and probably tens of millions of dollars lost to administrative expenses and professional fees. Or, if their estates could not bear that expense, they would convert these cases to Chapter 7.
2. Protections for deceased customers
The Ombudsman has suggested a detailed protocol for protection of, and potential deletion of, genetic information of customers who are no longer living. The proposal is creative and may well be in the best interests of TTAM and the heirs of deceased customers.
Nevertheless, there is little information in the record about the Debtors’ current policies and protocols on this subject, and none of the objecting parties pursued the issue in any depth. I am reluctant to tinker with the parties’ transaction without that foundation. Although I commend the Ombudsman‘s recommendations to the leadership of TTAM, I will not impose any particular requirements on the purchaser in this regard.
3. Fiduciary duty
The Ombudsman also recommends that I require TTAM “not to use Company customer data in a way that is inconsistent with the best interests of the data subject” (Omb. Rep. 9). This is essentially, if not exactly, a fiduciary duty to customers.
This recommendation also is creative and would provide strong protections for consumers. But it is not practical for me to impose it, because it would require an infrastructure beyond the leadership of TTAM itself. Who would determine what the duty requires in a particular situation? Who would have standing to enforce the duty? What tribunal would resolve disputes? I do not have the power to establish all that would be necessary for this fiduciary duty to be meaningful. But the Ombudsman and others may want to address the proposal to Congress and state legislatures, which are able to evaluate its costs and benefits and to appropriate the resources necessary to make it meaningful.
V. Conclusion
These cases present challenging issues involving sensitive information. In the abstract, a company‘s sale of genetic data is a scary proposition, and reasonable people might conclude
The proposed sale by the Debtors to TTAM suggests that an absolute prohibition on sales could result in missed opportunities. If we cut through the formalities, this transaction will result in Ms. Wojcicki‘s repurchase of a business that she co-founded and ran for years. To make that happen, she will pay a very large sum of money that may be sufficient to compensate all of the company‘s creditors, including customers who were harmed by a data breach. And she will improve privacy practices while honoring customers’ rights to delete their aсcounts and data.
As currently structured, the transaction involves a sale of customer data only in a technical sense: the Debtors will transfer the data, along with the rest of the business, to a subsidiary. And, as discussed above, the parties could avoid even that technical sale by exercising the Plan Toggle, though the process would cost perhaps $20 million. If the law required the parties to obtain opt-in consent to implement the Equity Toggle, then they would need to obtain that consent or else bear the cost of the Plan Toggle. But I have concluded above that there is no such requirement.
For these reasons, I will enter a separate order that grants the Debtors’ sale motion, includes appropriate findings of fact and conclusions of law, and shortens the stays under Rules 6004(h) and 6006(d) to 10 days.
Dated: June 27, 2025
St. Louis, Missouri
cjs
Brian C. Walsh
United States Bankruptcy Judge