Welcome to the mass torts issue of the TMA JCR. This issue introduces some new moves for restructuring and bankruptcy professionals.
At its most simplistic level, a mass tort is a civil action that involves a high number of plaintiffs against one or a few defendants. These lawsuits, which may be filed in a state or federal court, are frequently brought about by a large number of people getting hurt by whatever the defendant allegedly did or sold. Mass torts differ from class action lawsuits in that a class action treats the plaintiffs as a single entity, while mass torts consider each plaintiff individually and may compensate each victim differently.
Two mass tort cases that you’ve probably heard of involve Johnson & Johnson (J&J) and Purdue Pharma. The J&J mass tort involves allegations that the company’s baby powder caused cancer in certain users, and Purdue Pharma is accused of contributing to the opioid crisis through the widespread distribution of OxyContin, which once dominated the market for such drugs.
Given the expertise of restructuring and bankruptcy professionals in our industry, not surprisingly, new, innovative strategies are being developed to help streamline mass tort cases and allow a company to reorganize. Enter the “Texas Two-Step” approach in bankruptcy.
The Texas Two-Step is a legal strategy that debtor companies can (try to) use in mass tort cases in certain jurisdictions. To do so, a company first creates a new legal entity, to which it transfers its tort liabilities (a process usually called a “divisive merger”). This newly created corporation is allocated a small portion of the company’s assets, and it then files for Chapter 11 bankruptcy. This allows the company to avoid recourse to its remaining pool of assets, as there is now a separate legal entity with all the tort liabilities and a certain amount of assets proposed to satisfy those liabilities. This “innovation” gives companies leverage in settlement talks with plaintiffs and can allow them to suspend their lawsuit. Not surprisingly, it is quite controversial.
But, “Fraudulent transfer!” you cry? How could this be fair? Why would the Bankruptcy Court allow a company to escape its legitimate legal obligations? Supporters say that a Texas Two-Step approach in bankruptcy can help speed up an often long process of trials by jury. They also claim that it is the fairest way to compensate claimants, to which many creditors vehemently disagree. Bankruptcy judges continue to be spilt on the approach, so this is clearly not settled law.
So, put on your dancing shoes and get ready to learn more about mass torts in this issue of the JCR. We’ve assembled experts from TMA to give you their perspective on this new development in bankruptcy cases. Whatever side you are representing, the Texas Two-Step creates more new questions than it answers, so this topic is important and timely for mass tort cases.
Make sure to save the dates to be in Boston for the TMA Annual November 1-4. And while you are at it, consider attending a TMA regional conference, getting more involved with your local chapter, or becoming an event sponsor. There are many ways to get and stay involved with TMA.
Thanks, stay safe, and be #TMAProud.
Matthew English, CTP
TMA Global Chair