Designing Designer Bankruptcy

Abstract

Today's mass torts are headed to bankruptcy. Be it Purdue Pharma's opioids, United States of America (USA) Gymnastics' sexual abuse, Pacific Gas and Electric Company's (PG&E) wildfires, or Johnson & Johnson's talc, masstort defendants have determined that bankruptcy-not class actions, multidistrict litigation, or one-off state suits-is the way to manage their mass-tort liability. But today's mass-tort bankruptcy is not the mass-tort bankruptcy of yesteryear, when the whole business filed for bankruptcy. Instead, these modern mass-tort bankruptcies are designer bankruptcies, where the defendant uses its corporate structure to choose which assets and which liabilities enter bankruptcy. To take today's marquee example, Johnson & Johnson, facing 38,000 tort suits alleging that its talc caused cancer, put those tort liabilities into a distinct limited liability company and had that company file for bankruptcy. Meanwhile, the remainder of Johnson & Johnson, including the division responsible for talc, continued to operate normally, staying outside of bankruptcy entirely.

Keywords: bankruptcy, Chapter 9, health law, local government