Due Process Alignment in Mass Restructurings

Abstract

Mass tort defendants have recently begun exiting multi-district litigation (MDL) by filing for bankruptcy. This new strategy ushers defendants into a far more hospitable forum that offers accelerated resolution of all state and federal claims held by both current and future victims. Bankruptcy’s structural, procedural, and substantive benefits also provide defendants unique optionality.

Bankruptcy’s resolution promise is alluring, but the process relies on a very large assumption: future claimants can be compelled to relinquish property rights – their cause of action against the corporate defendant and others – without consent or notice. Bankruptcy builds an entire resolution structure on the premise that the Bankruptcy Code’s untested interest representation scheme satisfies Due Process strictures. This Article questions that assumption, and identifies two compromised pillars that could render bankruptcy’s mass tort framework unconstitutional. Primarily, the process for selecting the fiduciary that represents future victims’ interests and irrevocably binds them to the agreed settlement is fundamentally broken. Further, the process by which bankruptcy courts estimate the value of thousands of mass tort claims places too much pressure on a jurist unfamiliar with personal injury claims. These compromised pillars raise the risk that the victims’ settlement trust will be underfunded and fail prematurely. In this outcome, future victims would have no recourse but to argue that the restructuring process did not satisfy Due Process, and the entire settlement should be unwound.

This Article proposes that the risk of a prematurely insolvent victims’ trust can be reduced considerably by bolstering these two pillars. Our proposal seeks to (i) rebuild the FCR construct in order to ensure that future victims’ interests are effectively represented and (ii) recalibrate the claim estimation process by facilitating coordination between the bankruptcy court and the federal district court.