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University of Chicago Legal Forum

Abstract

Mass-harm events invariably precipitate mass tort liabilities. Since the enactment of the Bankruptcy Code in 1978, firms have resorted to Chapter 11 to address mass tort claims in cases involving asbestos-related disease, defective products, the opioid crisis, and historic sexual abuse. Of late, the use of bankruptcy to resolve mass tort claims has been the subject of sustained criticism from inside and outside bankruptcy law’s professional and academic communities. Much of this has been provoked by the Purdue Pharma filing and the bankruptcy court’s approval of a plan of reorganization that created a liability shield for the Sackler family in return for a $6 billion contribution to the bankruptcy settlement of opioid claims. But critics have also worried that solvent firms are abusing bankruptcy to effect targeted write downs of tort liabilities using a strategy pejoratively known as the “Texas Two-Step.”

Courts have also pushed back in ways that undermine the utility of bankruptcy in mass tort cases. In 2024, the Supreme Court held in Harrington v. Purdue Pharma that, outside of asbestos cases, the Bankruptcy Code does not authorize releases of direct claims against third parties who are contributing to the settlement without the consent of the affected claimants. The decision arguably makes it harder to bring additional resources into a global settlement and raises uncertainties about the extent to which the § 524(g) template can be adapted for use in non-asbestos bankruptcy cases.

Our Article makes a preliminary attempt to re-legitimize resolution of mass tort claims in Chapter 11 drawing comparatively on our experience as English lawyers with the English scheme of arrangement. We start by asking whether group resolution, as opposed to individual resolution of tort claims, is justifiable as a threshold matter and argue that the justification lies in nothing more elaborate than formal equality of treatment—in other words, that like claims should be treated alike—and that, accordingly, rough collective justice is superior to individual enforcement in the tort system.

However, while group resolution in bankruptcy might be capable of vindicating the foundational principle that like cases should be treated alike, such a principle does not explain why bankruptcy imposes majority rule as the mechanism by which the group arrives at collectively binding decisions concerning its treatment in a plan of reorganization. In this respect, we argue that Chapter 11 does not take the risk of a “tyranny of the majority” seriously enough. In Chapter 11, if the vote of all classes whose rights are being impaired by the plan meets the statutory voting threshold, the outcome is a so-called consensual plan and minority protection in the Code is limited. In particular, to garner bankruptcy court approval, a consensual plan need only offer dissenters within the accepting classes at least what they would have got out of a hypothetical fire sale: a very low floor.

By contrast, the English scheme of arrangement, from its inception, was understood to be a proceeding by which majorities could bind minorities. Because of this, the English courts have developed a framework for exercising their statutory discretion to approve a plan that checks that the plan the majority has accepted is reasonable for the entire group. Our Article draws inspiration from and elaborates on the scheme jurisdiction’s substantive and procedural checks on majority rule to make several suggestions for how Chapter 11’s response to mass harm could be re-legitimized.

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