A Calculus Without Consent: Mass Tort Bankruptcies, Future Claimants, and the Problem of Third Party Non-Debtor 'Discharge'
81 Pages Posted: 11 Oct 2000
This article demonstrates the distortional effects of third party non-debtor "discharge" plans with regard to the settlement of mass tort claims in the context of chapter 11 bankruptcy proceedings. The article shows that (1) the bankruptcy process is designed to preserve, not alter, rights created under state and federal non-bankruptcy law; (2) truncation of the rights of future claimants violates the "fairness" provisions of the code, and (3) the premature determination of the rights of future claimants distorts the resource reallocation function performed by the interaction of chapter 11 and chapter 7, resulting in a consistent downward bias of trust funds earmarked for future claimants.
The article then proposes that consent serve as the guiding principle for courts confronted with these third party non-debtor discharge plans. Where third party non-debtor co-tortfeasors are able to reach consensual agreements with present claimants, bankruptcy courts should refrain from interfering with these private contractual releases. Where third party non-debtors are unable to reach such consensual arrangements with claimants, either because they are unwilling or temporally unable to give their consent, courts should refrain from truncating the rights of claimants with their section 105(a) equitable powers.
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