Myles Alderman
For decades, Chapter 11 has served as a powerful tool for resolving mass tort liabilities that threaten an organization’s survival. By centralizing claims, preventing a race to the courthouse, and promoting equitable treatment of similarly situated claimants, bankruptcy has often provided a path to comprehensive settlements that would be difficult to achieve through traditional litigation or multidistrict proceedings. Channeling Injunctions and Third Party Releases became powerful tools.
Mass Torts From Asbestos to Boy Scouts of America
My first experience with mass tort Chapter 11 cases came in the asbestos bankruptcies that started in the 1980’s. Most recently, I was involved in the Boy Scouts of America, in which more than 85,000 sexual abuse claims were filed. Between those landmark Chapter 11 reorganizations were mass tort Chapter 11 involving intrauterine contraceptive devices, silicone breast implants, branded and generic opioids, and defective airbags. No one can predict which products, services, or course of conduct will give rise to the next mass tort case Chapter 11. But lawyers advising businesses should be prepared to respond when one affects a client – or at a minimum, know the multidisciplinary team they want to assemble.
Third Party Releases After Harrington v Purdue Pharma
The Supreme Court’s 2024 decision in Harrington v. Purdue Pharma significantly altered that landscape. The Court held that, outside the asbestos context governed by Bankruptcy Code §524(g), bankruptcy courts may not impose nonconsensual third-party releases. The ruling also rejected mandatory permanent channeling injunctions and opt-out structures that effectively bind nonconsenting claimants.
What Purdue Pharma Did Not Change About Third Party Releases
Importantly, Purdue Pharma did not eliminate many of the restructuring tools that practitioners have long relied upon. The automatic stay remains intact, debtors may still obtain restructuring relief, temporary injunctions continue to be available in appropriate circumstances, and consensual third-party releases remain permissible. Recent cases also suggest that carefully tailored post-confirmation injunctions may still be available where unusual circumstances exist and creditor prejudice is minimal.
What’s Next in Mass Tort Chapter 11 Cases.
Perhaps the most significant unanswered question is what constitutes meaningful consent. Courts are already taking different approaches to opt-in, opt-out, implied, and process-based consent, suggesting that another circuit split may be emerging.
