Bankruptcy Abuse Rarely Works . . . Because Of Gatekeepers—INTRODUCTION

By: Donald L Swanson

I recently heard politicians on all sides of the political divide agree on one thing as self-evident:

that bankruptcy abuse by “fabulously wealthy corporations” is rampant; and
Johnson & Johnson is a prime example of that abuse.

Those partisans also agree on this point (again, as self-evident): that every mass tort victim is entitled to his/her:

day in court; and
before a jury of peers.

That’s the Civics 101 ideal, right?

Widely Disparate Results

Yes. But there’s a down side to the ideal. It’s this: widely disparate results for similarly situated victims.

Consider the following information provided by the Third Circuit Court of Appeals, in its opinion dismissing Johnson & Johnson’s bankruptcy for abuse.

–Huge recoveries for some

One jury awards $4.69 billion to 22 ovarian cancer plaintiffs, reduced on appeal to $2.24 billion to the 20 plaintiffs who are not dismissed on appeal (in Ingham v. Johnson & Johnson)—that’s $112 million per successful claimant; and
Since 2018, damages in all other jury awards for plaintiffs that withstand appeal average $39.7 million per claimant.

–Small recoveries for others

J&J settles 6,800 claims for $1 billion in total (that averages $147,060 per claimant).

–No recoveries for many

of the 22 Ingham plaintiffs with the $2.24 billion judgment, 2 receive nothing;
of 15 completed ovarian cancer trials, only Ingham results in a monetary award for plaintiffs that is not reversed;
of 28 completed mesothelioma trials, fewer than half result in monetary awards for plaintiffs that are not reversed; and
J&J obtains dismissals, without any payment whatsoever, of 1,300 ovarian cancer actions and over 250 mesothelioma actions.

–All claims are similar

Regarding such hugely disparate results, it’s important to note that all claimants:

used the same baby powder with the same talc products;
suffer from the same types of disease—ovarian cancer or mesothelioma; and
hold the same types of claims.

–An Inexplicable Value Judgment

Despite such huge disparities in results for similarly situated claimants, the Third Circuit makes these value judgments:

This is bad abuse: “a bankruptcy court estimating claims on a great scale”; and
This is good: “a longer history of litigation outside of bankruptcy may provide a court with better guideposts when tackling these issues.”

Translation. The Third Circuit Court of Appeals (and now a bipartisan group of politicians too) are saying this:

‘Tis a far, far better thing that huge disparities (ranging from $0 per claimant to $112 million per claimant) among similarly situated claimants continue to prevail in a “longer history of litigation”;
instead of utilizing a claims estimation process, now, based on results in many thousands of cases to date.

History

We have a long history in these United States of dealing with large numbers of personal injury claims without providing everyone a day in court or before a jury of peers. Consider the following, for example.

–Workers Comp

Workers compensation systems are a time honored way of dealing with large numbers of personal injury claims. Such systems do so efficiently, without jury trials and with claims valuation standards.

–Bellwether Trials

Mass tort claims in state and federal courts are often handled through a bellwether trials process in which:

a limited number of cases are tried to juries; and
the results of those trials inform the defendants and remaining plaintiffs on establishing standards for resolving remaining claims without further trials.

But Johnson & Johnson points out a defect in the bellwether trials process:

despite 6,800 settlements, >1,550 dismissals and many trials,
the Third Circuit still opines that “a longer history of litigation” is needed.

–Asbestos Cases

In 1994, Congress innovates a procedure (enacted into § 524(g) of the Bankruptcy Code) to deal with mass tort claims against asbestos companies.

In the nearly three decades since enactment, the asbestos bankruptcy procedure has served asbestos claimants and defendants well.

And that procedure has protected the interests of future claimants (i.e., those whose symptoms would not become known for many years hence).

[Here’s an ironic twist: a basic allegation in claims against Johnson & Johnson is that its talc products contain traces of asbestos.]

–Sex Abuse Cases

In more recent times, mass sex abuse claims against religious and nonprofit organizations have abounded.

Resolution of those claims through bankruptcy is now standard procedure and has worked well to maximize value for claimants.

Maximizing Value for Claimants

Bankruptcy “abuse” is the wrong focus for Congress to take.

I know. I know. A focus on “abuse” gets political brownie points for politicians, raises the ire of voters and activates them. But it’s still the wrong focus.

What Congress should be focusing on, in mass tort cases, is this question:

How can our federal judicial system maximize value for present and future claimants?

It’s from having a maximize-value-to-claimants focus that we get each of the items noted above:

workers comp systems;
bellwether trials;
asbestos provisions in § 524(g) of the Bankruptcy Code; and
sex abuse bankruptcy cases.

Conclusion

This article is the introduction to a five-part series on bankruptcy abuse—and particularly on:

how it’s hard for anyone to pull off a bankruptcy abuse successfully; and
that’s because of all the gatekeepers in the bankruptcy system that identify and prevent abuse.

** If you find this article of value, please feel free to share. If you’d like to discuss, let me know.