Due Process Alignment in Mass Restructurings

By Sergio Campos & Samir D. Parikh
October 31, 2022

Mass tort defendants have recently begun exiting multidistrict litigation by filing for bankruptcy.  This new strategy ushers defendants into a far more hospitable forum that offers accelerated resolution of all state and federal claims held by both current and future victims.  Bankruptcy’s structural, procedural, and substantive benefits also provide defendants with unique optionality.

Bankruptcy’s resolution promise is alluring, but the process relies on a very large assumption:  that future victims can be compelled to relinquish property rights in their cause of action against the corporate defendant and others without consent or notice.  Bankruptcy builds an entire resolution structure on the premise that the U.S. Bankruptcy Code’s untested interest-representation scheme satisfies due process strictures.  This Essay questions that assumption and identifies two compromised pillars that could render bankruptcy’s mass tort framework unconstitutional.  First, the process for selecting the fiduciary that represents future victims’ interests and irrevocably binds them to the agreed settlement is fundamentally broken.  Second, the process by which bankruptcy courts estimate the value of thousands of mass tort claims places too much pressure on a jurist unfamiliar with personal injury claims.  These compromised pillars raise the risk that the victims’ settlement trust will be underfunded and will fail prematurely.  In this outcome, future victims would have no recourse but to argue that the restructuring process did not satisfy due process and the entire settlement should be unwound.

This Essay proposes that the risk of a prematurely insolvent victim’s trust can be reduced considerably by bolstering these two pillars.  Our proposal seeks to (1) rebuild the future claimants’ representative role in order to ensure that future victims’ interests are effectively represented and (2) recalibrate the claim estimation process by facilitating coordination between the bankruptcy court and nonbankruptcy federal and state courts.