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Mass Tort Bankruptcy Goes Public

Posted by on Saturday, April 20, 2024 in Articles, Volume 77, Volume 77, Number 3.

William Organek | 77 Vand. L. Rev. 723

Large companies like 3M, Johnson & Johnson, Purdue Pharma, and others have increasingly, and controversially, turned from multidistrict litigation to bankruptcy to resolve their mass tort liability. While corporate attraction to bankruptcy’s unique features partially explains this evolution, this Article reveals an underexamined driver of this trend and its startling results: government intervention. Governments increasingly intervene in high-profile bankruptcies, forcing firms into insolvency and dictating the outcomes in their bankruptcy cases. Using several case studies, this Article demonstrates why bankruptcy law should subject such governmental actions to greater scrutiny and procedural protections. Governments often assume multiple incompatible roles in these cases, appearing simultaneously as representatives of injured citizens, creditors in their own right, and sovereigns with broader social duties and regulatory powers. These overlapping identities create conflicts of interest that bankruptcy law does not currently police, which can encourage governments to coercively privilege their monetary recoveries over the monetary and dignitary claims of their citizens. This Article argues that bankruptcy law should apply the aggregate litigation concepts of exit, voice, and loyalty to ensure that bankruptcy outcomes are not distorted by governmental intervention. Reciprocally, if mass tort liability does not migrate entirely to bankruptcy, the fiduciary duties and consensual restructuring support agreements of bankruptcy can improve other forms of mass tort resolution.

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William Organek