Aggregation and Abuse: Mass Torts in Bankruptcy

By Edward J. Janger
October 31, 2022

Bankruptcy courts have become the favored forum for large corporate defendants who seek global resolution of mass tort liability claims. Whether this forum choice benefits the victims of those mass torts or facilitates their exploitation is unclear. The features of bankruptcy law that have made bankruptcy court attractive to defendants can be efficiency enhancing, but they can also be used opportunistically and beyond their proper scope. As a result, their use must be subject to safeguards. The good news is that, where torts of the debtor itself are concerned, the U.S. Bankruptcy Code already contains the necessary tools. This Essay suggests that the possibility of victim exploitation lies not in the Bankruptcy Code per se, but in inattention to the scope of the statutory (and constitutional) bankruptcy power, as well as in “bankruptcy à la carte.” The takeaway is that a court order binding plaintiffs to a mass tort settlement should not be extorted, either by tactical bullying or with allegations that the debtor is a “melting ice cube.” Further, nonconsensual releases should not be granted in the absence of (1) full disclosure of assets, (2) financial distress, and (3) procedural protections provided to claimants by the Bankruptcy Code. Finally, this Essay will consider whether there might be a benefit to having a mechanism for facilitating resolution of direct claims against related parties. In particular, it will look at the recently proposed UNCITRAL Model Law on Enterprise Group Insolvency to consider whether it offers a viable model.