THE CHAPTER 11 SOLUTION FOR RESOLVING ALLEGED NON-ASBESTOS MASS TORT CLAIMS
For more than 40 years, defendants in the US tort system have looked to Chapter 11 of the Bankruptcy Code to fairly resolve alleged billions of dollars of mass tort liabilities. Today, a fierce debate is raging over whether tort defendants, particularly solvent defendants, should be permitted to use the bankruptcy process to deal with those liabilities, both present and future, in a fair and equitable way.
Whether labelling lawful restructurings under Texas law pejoratively as a ‘Texas two-step’ or aggressively fighting opioid-related bankruptcy cases, the plaintiffs’ bar has been attacking the validity of restructurings and Chapter 11 filings designed to facilitate a global resolution of longstanding tort litigation, preferring instead to keep defendants in the tort system and using the threat of one-off, high-dollar jury verdicts to induce huge settlements in their own favour. Depending on the outcome of that debate, the ability of a company to draw on the valuable tools provided by the bankruptcy code, including the automatic stay, discharge from liabilities, releases and injunctive relief, to resolve voluminous tort claims hangs in the balance.
Calling on the bankruptcy code to address massive tort liabilities dates back to at least the 1982 bankruptcy filing of Johns-Manville Corporation. The Johns-Manville case was a watershed moment for companies facing potential financially devastating mass tort liabilities. Although the bankruptcy code did not give the bankruptcy court an explicit solution to address these liabilities, the Johns-Manville court invoked the bankruptcy court’s equitable power under section 105(a) of the code to fashion a creative remedy.
Oct-Dec 2022 issue
King & Spalding LLP