Emptying Purdue’s Pockets: How Corporations Avoid Paying Mass Tort Litigants and How to Stop Them
Chapter 11 is often used when mass tort litigation causes a corporation to enter bankruptcy. Until recently, judges in these bankruptcies often employed a tool known as a nonconsensual third-party release. This maneuver allowed directors or officers of a bankrupt corporation to contribute personal assets to the bankruptcy estate in exchange for a release of liability. The recent Supreme Court case Harrington v. Purdue Pharma highlighted the ways in which wealthy companies like Purdue Pharma exploited this system. Purdue was forced to declare bankruptcy after compounding litigation against the company left them insolvent. The owners of Purdue had depleted the company’s assets prior to bankruptcy, and subsequently attempted to negotiate a plan under which they would return some assets to the estate in exchange for personal liability releases. The Court rejected Purdue’s strategy, holding that nonconsensual third-party releases are an unlawful overreach of bankruptcy courts’ power. While the Court’s ruling prevents bad corporate actors from obtaining immunity without surrendering all their assets, mass tort litigants are still at a loss, as there is no system in place to ensure they can receive an equitable recovery when management drains company funds prior to bankruptcy.