Bankruptcy Grifters

63 Pages Posted: 10 Apr 2021 Last revised: 18 Mar 2022

See all articles by Lindsey Simon

Lindsey Simon

University of Georgia School of Law

Date Written: April 1, 2021

Abstract

Grifters take advantage of situations, latching on to others for benefits they do not deserve. Bankruptcy has many desirable benefits, especially for mass-tort defendants. Bankruptcy provides a centralized proceeding for resolving claims and a forum of last resort for many companies to aggregate and resolve mass-tort liability. For the debtor-defendant, this makes sense. A bankruptcy court’s tremendous power represents a well-considered balance between debtors who have a limited amount of money and many claimants seeking payment.

But courts have also allowed the Bankruptcy Code’s mechanisms to be used by solvent, nondebtor companies and individuals facing mass-litigation exposure. These “bankruptcy grifters” act as parasites, receiving many of the substantive and procedural benefits of a host bankruptcy, but incurring only a fraction of the associated burdens. In exchange for the protections of bankruptcy, a debtor incurs the reputational cost and substantial scrutiny mandated by the bankruptcy process. Bankruptcy grifters do not. This dynamic has become evident in a number of recent, high-profile bankruptcies filed in the wake of pending mass-tort litigation, such as the Purdue Pharma and USA Gymnastics cases.

This Article is the first to call attention to the growing prevalence of bankruptcy grifters in mass-tort cases. By charting the progression of nondebtor relief from asbestos and product-liability bankruptcies to cases arising out of the opioid epidemic and sex-abuse scandals, this Article explains how courts allowed piecemeal expansion to fundamentally change the scope of bankruptcy protections. This Article proposes specific procedural and substantive safeguards that would deter bankruptcy-grifter opportunism and increase transparency, thereby protecting victims as well as the bankruptcy process.

Keywords: bankruptcy, mass torts, Chapter 11, channeling injunction, third-party release, non-debtor release, Section 524(g), asbestos bankruptcy, aggregate litigation, multidistrict litigation, civil procedure, opioid crisis, sex abuse litigation, Purdue Pharma, USA Gymnastics, Boy Scouts of America

JEL Classification: K20, K41

Suggested Citation

Simon, Lindsey, Bankruptcy Grifters (April 1, 2021). 131 Yale L. J. 1154 (2022), University of Georgia School of Law Legal Studies Research Paper No. 2021-06, Available at SSRN: https://ssrn.com/abstract=3817530

Lindsey Simon (Contact Author)

University of Georgia School of Law ( email )

225 Herty Drive
Athens, GA 30602
United States

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