How Do "Bankruptcy Grifters" Destroy Value in Mass Tort Settlements? In re Purdue Pharma as a Bargaining Failure

Abstract

Bankruptcy has become the endgame of mass tort litigation. Increasingly, corporate tortfeasors have resorted to bankruptcy to halt pending mass tort lawsuits and force parties to renegotiate. This creates bargaining leverage for corporate tortfeasors in settling mass tort liabilities while providing efficient means for tort victims to aggregate their claims. However, one recent development has disrupted this balance: solvent entities, such as the controlling shareholders and parent companies of insolvent firms seeking bankruptcy protection, have abused the bankruptcy process. These solvent entities—also known as “bankruptcy grifters”—haul their subsidiaries into bankruptcy while staying outside of bankruptcy themselves. Free of restrictions imposed by the Bankruptcy Code, the “bankruptcy grifters” exploit tort victims and creditors with impunity.

While there has been ample scholarly interest in corporate abuses of the bankruptcy system in mass torts, studies on how such abuses impact the negotiation process are virtually absent. This article fills the scholarly gap. It examines how “bankruptcy grifters” alter the bargaining dynamics, incentives, and strategies undertaken by each party in the settlement negotiation. Focusing on the Sackler family’s role in the high-profile bankruptcy of opioid producer Purdue Pharma, this article argues that the looming presence of “grifters” generates pervasive principal-agent conflicts that motivate parties to pursue non-cooperative strategies that destroy value. Using Purdue Pharma as a case study, this article further contends that these negotiation tactics can backfire by creating inefficiencies along structural, behavioral, and cognitive dimensions. This discovery both challenges and en-riches established law-and-economics understandings of inefficient bar-gaining.

Keywords: mass tort, bankruptcy, chapter 11, opioid crisis, purdue pharma, corporate governance, bankruptcy grifters, negotiation