These broad equitable powers at the bankruptcy courts ’ disposal are supposed to facilitate the reorganization and rehabilitation of the debtor as an economically viable entity , protecting the debtor ’ s estate from the chaos and the wasteful depletion of decentralized debt collection and litigation . Bankruptcy courts have these tools to “ achieve fairness and justice in the reorganization process ,” according to the U . S . Bankruptcy Court for the Southern District of New York In re : Aeropostale Inc . in 2016 .
But these features come at a cost . Each can delay , limit or even foreclose litigation creditors ’ access to , and ability to recover through , the American civil justice system .
The automatic stay prevents litigation creditors from seeking relief through the judicial system for as long as it remains in effect . A channeling injunction restricts plaintiffs to claims against the assets in the trust , which can cripple their right to recovery if the trust is underfunded .
Estimation of claims can limit the amount a litigation creditor may recover because confirmation of the reorganization plan — and the consequent funding of the new entity and the creditors ’ potential recovery — depends necessarily on this imprecise , nonjury proceeding . If the value of pending claims is underestimated , the reorganized entity may not be sufficiently funded to cover the damages assessed by juries .
In a standard Chapter 11 reorganization case involving a debtor in bona fide financial distress , the debtor could not meet all its obligations even if its creditors turned to the courts to enforce their entitlements . In such circumstances , these powerful features of the bankruptcy system are designed to produce the most equitable result still achievable .
But there is no such trade-off when a financially secure debtor with ample assets uses corporate law loopholes to manufacture insolvency . In this situation , tools like the automatic stay , channeling injunctions , and claims estimation frustrate plaintiffs ’ ability to try their cases before juries and recover full compensation for the harms they suffered at the hands of the debtor .
Thus , dishonest debtors can turn the equitable purpose of bankruptcy courts on its head by using these tools to create unfairness rather than ensure a fair outcome for all involved .
The Human Interests At Stake
The consequences of abusing the bankruptcy system to halt litigation and evade liability are devastating . Jury verdicts are a lifeline for victims who use the civil justice system as intended . Talc cases have been tried across the country .
In some cases , J & J prevailed . In others , after lengthy trials , juries found that J & J ’ s products did cause cancer , leading to severe suffering or death . For those plaintiffs who proved their cases , their verdicts provided justice in situations where time was of the essence . For those who did not , J & J avoided liability . In other words , the civil justice system worked as intended .
In Ingham v . Johnson & Johnson , 22 plaintiffs alleged that their frequent use of J & J ’ s talc products caused them to develop ovarian cancer . These plaintiffs underwent chemotherapy , hysterectomies and countless other surgeries that caused hair 66 x The Trial Lawyer loss , sleeplessness , mouth sores , loss of appetite , seizures , nausea , neuropathy and other infections .
After a trial that lasted more than six weeks , the jury found J & J liable and awarded $ 25 million in compensatory damages to each plaintiff , in addition to punitive damages . The Missouri Court of Appeals affirmed the jury ’ s factual findings in full and entered a judgment of $ 2.2 billion in damages . Tragically , five plaintiffs died during the litigation .
At only 34 years old , Christina Prudencio developed malignant mesothelioma , a terminal cancer , after daily use of talcum powder until age 16 and subsequent exposure through use of the substance on her siblings . In August 2021 , after a two-month trial , a California jury awarded her $ 26,572,967 in compensatory damages . This case was Prudencio v . Johnson & Johnson in the Alameda County Superior Court .
The jury ’ s verdict provided redress for Prudencio before it was too late . By her mid-30s , she had already “ suffered through surgery , hemorrhage , and other medical issues ,” and , as her lawyer told the jury , her cancer will take her life “ as her chemotherapy stops working .”
The process these plaintiffs followed is the cornerstone of the American legal system . They and J & J put their evidence before juries , and the juries decided their cases in accordance with due process of law . J & J had ample opportunity to defend the claims , and it had and has the full opportunity to seek appellate review of these judgments .
Thousands of other consumers with cancer are equally entitled to put their cases before a jury of their peers . But as these stories illustrate , time is of the essence . If J & J is permitted to use the bankruptcy process to delay justice , many of these seriously ill claimants will never get their day in court . J & J should not be permitted to manipulate the bankruptcy process and shut the courthouse doors to these victims .
A Dangerous Precedent
If allowed to stand , J & J ’ s bankruptcy ploy will set a dangerous precedent . There is nothing stopping any financially healthy company from employing the same tactics to delay or avoid civil justice . And there is nothing special about these tactics that would limit their use to the personal injury context .
Creditors of all forms — from construction contractors to startup investors — could be stonewalled by the Texas two-step . Any debtor could use this maneuver to shield its assets from its liabilities , leaving creditors in the lurch while the debtor goes about business as usual .
Neither Congress nor the framers of our Constitution intended for the federal bankruptcy laws to be used for these purposes . At the hearing next week , the bankruptcy court will consider the talc claimants ’ motion to dismiss LTL Management ’ s bankruptcy proceeding on the grounds that it was filed in bad faith to circumvent the civil justice system .
The court ’ s decision will determine whether plaintiffs can rely on the tort litigation system or if healthy corporations like Johnson & Johnson can play shell games , denying consumers access to justice .