Mass Exploitation

Abstract

Modern mass tort defendants—including Johnson & Johnson, Purdue Pharma, USA Gymnastics, and Boy Scouts of America—have developed unprecedented techniques for resolving mass tort cases: innovation coupled with exploitation. Three weapons in this new arsenal are particularly noteworthy. Before filing for bankruptcy, corporate defendants undergo divisive mergers to access bankruptcy on their terms. Once in bankruptcy, these mass restructuring debtors curate advantageous provisions in the Bankruptcy Code to craft their own ad hoc resolution mechanism implemented through plans of reorganization. This maneuver facilitates questionable outcomes, including the third-party releases the Sackler family recently secured. Finally, a mass restructuring debtor can agree to convert its tainted business into a public benefit corporation after bankruptcy and devote future profits—no matter how speculative they may be—to victims in exchange for a reduced financial contribution to the victims’ settlement trust.

The net effect of these legal innovations is difficult to assess because the intricacies are not fully understood. Debtors argue that these resolution devices provide accelerated and amplified distributions. And forum shopping has landed cases before accommodating jurists willing to tolerate unorthodoxy. The fear, however, is that mass tort victims are being exploited. The aggregation of these maneuvers may allow culpable parties to sequester funds outside of the bankruptcy court’s purview and then rely on statutory loopholes to suppress victim recoveries. Mass restructuring debtors are also pursuing victim balkanization—an attempt to pit current victims against future victims in order to facilitate settlements that may actually create disparate treatment across victim classes.

This Essay is the first to identify and assess the new shadowed practices in mass restructuring cases, providing perspective on interdisciplinary dynamics that have eluded academics and policymakers. This is one of the most controversial legal issues in the country today, but legal academia has largely overlooked it. This Essay seeks to create a dialogue to explore whether a legislative or judicial response is necessary and what shape such a response could take.

Keywords: Mass torts, Texas Two Step, multidistrict litigation, divisive mergers, class actions, bankruptcy, civil procedure, torts, public benefit companies, corporate restructurings, Johnson and Johnson, Purdue Pharma, Takata, Boy Scouts of America, USA Gymnastics, Imerys