RECENT DEVELOPMENTS AT THE CROSSROADS OF BANKRUPTCY AND MASS TORTS
In many mass tort mega-cases, the liability of the primary tortfeasor greatly exceeds its assets, setting up a ‘race to the courthouse’ among private and governmental plaintiffs. The US Bankruptcy Code provides a unique set of tools for resolving these cases.
Among other things, Chapter 11 centralises claims against the company in a single forum, thereby avoiding the immense destruction of value associated with thousands of lawsuits in scores of courts. It also facilitates coordinated representation of claimants not amenable to class treatment such as personal injury claimants.
The Bankruptcy Code requires fairness across classes of similarly situated plaintiffs and provides for ‘creditor democracy’, balancing the power of larger creditors (i.e., governments) with that of large groups of smaller ones (i.e., personal injury victims).
Bankruptcy also offers a unique tool to address the potential liability of third parties: third-party releases – i.e., the settlement of non-debtors’ claims against non-debtor tortfeasors. While these non-debtors may bear or share liability, they have little incentive to contribute to settlements absent a comprehensive resolution.
Plaintiffs, likewise, have little incentive to settle unless hold outs – who could jump the queue or render defendants insolvent – can be barred from separately pursuing co-tortfeasors. Third-party releases can address these problems and enable victims to resolve claims against all co-tortfeasors in value-maximising global settlements.
Oct-Dec 2023 issue
Davis Polk & Wardwell LLP