Jacoby on Mass Tort Bankruptcy

Melissa Jacoby has posted to SSRN Sorting Bugs and Features of Mass Tort Bankruptcy.  The abstract provides:

In 1997, after two years of study, the National Bankruptcy Review Commission recognized bankruptcy’s potential as a forum to address mass tort problems, but emphasized that Congress needed to do much more to ensure due process, address major risks of under-compensation and inconsistent compensation of future injured parties, and address uncertainty about the lawfulness of these cases. United States Supreme Court cases invalidating particular limited-fund class actions raised the stakes, casting doubt on certain bankruptcy practices.

Congress adopted neither the commission's proposals nor others on the topic. Mass tort bankruptcy practice continued without legislative clarifications or improvements, culminating in recent high-profile and controversial cases like Purdue Pharma, Boy Scouts of America, LTL (Johnson and Johnson's bankruptcy to cut off ovarian cancer and mesothelioma patients’ access to the civil justice system regarding talc-related claims) and Aearo Technologies (3M's bankruptcy that aspired to stop multidistrict litigation over allegedly faulty earplugs).

Revisiting earlier reform discussions helps reveal how much bugs rather than features drive these kinds of mass tort bankruptcies. Lawyers and defendants (and perhaps some plaintiffs lawyers) gravitate to bankruptcy to do extraordinary things that have weak statutory and constitutional support and are in tension with principles of due process, not to mention federalism and separation of powers. The design of mass tort bankruptcies also tends to blunt the effective operation of standard chapter 11 protections meant to empower individual creditors – tools that often are cited as making bankruptcy “better” for mass tort than other aggregate litigation fora. The analysis in this draft article invites skepticism about whether the system can credibly and constitutionally deliver the level of global resolution that debtors and their co-defendants demand.