Courts have worked to develop the best procedural tools to resolve mass litigations over the past several decades. The way these claims have been handled is ever-evolving; from class-action lawsuits to collateral estoppel to case management consortia.
One prominent way mass tort claims are handled is through multidistrict litigation (“MDL”). An MDL comprises a set of pretrial processes that are designed to adequately resolve complex claims of mass harm.
In recent years, however, there have been an increasing number of mass tort defendants who have tried and settled claims through Chapter 11 bankruptcy. Both methods have their similarities but are vastly different in their operations and functions.
The Role of the Plaintiff in MDLs vs. Bankruptcy
Settlement is the end game for both MDLs and Chapter 11 bankruptcy claims. However, the processes are not the same, despite similar goals.
In a traditional mass tort case, the client is a plaintiff in a lawsuit seeking monetary relief from a defendant. In a bankruptcy case, though, the client becomes a creditor – someone (or some entity) that has a right to payment or other remedies from the debtor who has filed bankruptcy. The bankruptcy process uses certain administrative procedures to identify and investigate claims so that compensation is paid toward only legitimate allegations. This is due to there being a limited pool of resources from which to compensate. Traditional mass tort claims in or out of multidistrict litigation are remunerated on a level similar to personal injury compensation; a plaintiff’s degree of injury, loss of past and future wages, loss of consortium, and medical expenses are all considered when determining how much money is awarded.
How Defendants Use Bankruptcy Law to Compensate Injured Victims
Bankruptcy is a mitigation tool defendants, also known as debtors, use to try and cut down on expensive and time-consuming litigation in mass torts. When a company files for Chapter 11 bankruptcy, all litigation against the company is paused–or “stayed”—per Section 362 of the U.S. Bankruptcy Code. By pausing the litigation, companies have time to reorganize and develop strategies to shrink the pool of potential victims. Case management and administrative procedures are also established with the help of a federal bankruptcy court judge and claims agents.
Companies have been using bankruptcy laws to resolve pending litigation since the 1980s when lawsuits against asbestos manufacturers reached a fever pitch. The biggest case involved Johns Manville, a New York-based company that used asbestos to manufacture fire-resistant roofing. As thousands of former employees began developing serious illnesses (including mesothelioma), the company filed for bankruptcy in 1982 and six years later established the Manville Personal Injury Settlement Trust with $2.5 billion allotted for people harmed by asbestos products.
Recent Mass Tort Bankruptcy Cases
In September 2019, Purdue Pharma faced thousands of lawsuits accusing them and the Slacker family of inciting an opioid epidemic. To mitigate the long and financially draining MDL process, they filed Bankruptcy. By doing this, it created an automatic stay to provide Purdue time to craft efficient procedures. It also allowed the company to understand its pool of assets and other creditors. Defendants involved in multidistrict litigation typically do not have this luxury.
In February 2020, The Boy Scouts of America (“BSA”) sought bankruptcy protection as well. There was a revelation that brought light to the decades of abuse of young boys in the organization. With the automatic stay, BSA sought to reorganize and create a trust to provide compensation to victims. The trust (or pool of assets) would consist of negotiated amounts with insures and any local councils and charter organizations, which included churches, schools, and other nonprofit organizations that operated scouting units.
How MDLs and Bankruptcies Administer Claims
MDLs were originally created to relieve the backlog of civil lawsuits in federal courts. To determine which claims should be included in a coordinated proceeding (transferred to an MDL), a panel of federal judges was created. The decision-making process to rule if a coordinated proceeding is needed can take up to five or six months.
During this time, there is no automatic stay. That is not to say that there are no stays in MDLs; they are just not automatic. Stays can be filed via a motion in MDLs if there is a need to buy time to organize a defense, negotiate a settlement, or file for bankruptcy. For example, in October 2021, Johnson & Johnson (J&J) was facing tens of thousands of lawsuits alleging the company’s talc-based baby powder caused ovarian cancer. Like Purdue Pharma, J&J wanted to lessen its legal liability after voluntarily discontinuing sales of the product in May 2020. What the company did was two-fold in that they created a subsidiary company, moved it to North Carolina, and filed bankruptcy, presumably for a favorable outcome. This “Texas Two-Step” maneuver created a temporary stay in the New Jersey MDL.
Once an MDL is selected, it becomes its own beast. Like bankruptcy cases, the jurisdiction chosen makes all decisions over pretrial matters. Most claims will not go to trial although there are “bellwether” trials used to determine the validity of the allegations. Nonetheless, hundreds or thousands of claims can be filed in front of a single judge for review. Or a single strong case can be filed in state court for recognition, while weaker claims are filed in federal court. This is a strategy that plaintiff attorneys use in hope that weaker claims are not weeded out in federal court and have a chance at global settlement in the future.
MDL filings are subject to statutes of limitations (SOL). An SOL is a time a plaintiff must file a legal action against a wrongdoer in each state. There are several different “triggers” for SOL dates that an MDL judge may consider moving forward in a claim. They may choose the date of injury, the date of implantation of a medical device, the date a manufacturer warned of potential injuries, or the date a patient discovered an injury. Each option sets different SOLs for each claimant a law firm represents. This can make case management difficult depending on the volume of cases a firm is handling.
In contrast, bankruptcies work off one set deadline called a bar date. The bar date determines when all legal allegations via a proof of claim form against the debtor must be filed. If a claim is asserted outside of this date, it is unlikely to receive consideration.
There are other differences between both types of claims as well. In bankruptcy, a Plan of Reorganization (“Plan”) is established and a voting process is held for all affected creditors. The plan sets criteria for a potential settlement pool of claimants as well as a reformation layout of the company. MDLs do not establish Plans. The litigation is solely to resolve legal claims and the companies can decide whether to withdraw products from the market or may be forced to do so by the U.S. Food and Drug Administration.
Political Opposition to Corporate Bankruptcies
There are a growing number of lawmakers who condemn the practice of corporate defendants filing bankruptcy to resolve legal claims. Other politicians believe that corporations should be able to take advantage of the bankruptcy process and restructure their businesses as they see fit.
Federal judges have issued rulings and injunctions upending bankruptcy plans to protect the legal rights of creditors and other third parties who haven’t filed for Chapter 11 protections themselves. The US. Department of Justice is currently objecting to the Boy Scouts of America restructuring, adding that the plan would violate U.S. bankruptcy law by releasing other entities from liability.
Settlements in MDLs vs. Bankruptcy Cases
Settlements can also take different paths depending on whether a legal claim is in bankruptcy or active litigation. In an MDL, the defendant will agree to set up a settlement fund in which plaintiffs agree to settlement terms. The offer will be for a certain amount based on specified criteria and the defendant will usually require 95% of plaintiffs to agree to certain terms and participate in the settlement.
In some ways, bankruptcy claims are similar, but where they differ is in the voting process. Bankruptcy clients are notified of a potential settlement pool in the Plan. Like in MDL global settlements, there is a certain percentage of claimants that must agree to the Plan. If the Plan is not accepted, the settlement pool is no longer available, and the negotiation/mediation process starts all over again. In MDLs, if parties can’t agree to settle or the MDL is not dismissed, individual cases will be remanded back to the original court it was filed in for trial.
While the processes behind MDLs and bankruptcy claims differ, they both aim to resolve the legal issues asserted by numerous claimants who suffer similar injuries. They both establish their own process of actions that help guide the litigation to reach their ultimate goal: settlement.
About the Author
Alicia Bivens is a certified paralegal who has worked in Mass Torts since 2016. She is currently obtaining her master’s degree (with honors) in paralegal studies at The George Washington University. She is an empath by nature and is passionate about helping others learn and grow. Outside of work and education she enjoys spending time with her son, cosplaying, and listening to paranormal podcasts.
The Mass Tort Institute is a consortium of industry leaders dedicated to providing education, training, and networking opportunities for those advocating on behalf of mass tort victims.