We’ve written previously about how the bankruptcy system can be a simpler, faster, and fairer alternative to mass litigation.
Mass litigation can take decades and billions of dollars to resolve, and it doesn’t guarantee that deserving plaintiffs are fairly compensated. Bankruptcy trust funds can process claims quickly by avoiding the months, sometimes years, of legal work involved in personal injury litigation. They can also distribute funds evenly to all claimants instead of paying huge amounts of money to a handful of plaintiffs who secure “nuclear” verdicts (usually identified as jury awards of $10 million or more) at trial. When companies are forced into bankruptcy because of massive jury awards, there may not be resources left to pay future claimants or current claimants whose cases aren’t ready for trial. Through bankruptcy, claimants can be compensated through a neutral system designed to ensure money is spread out evenly to all claimants.
In a recent high-profile bankruptcy case, one company voluntarily pledged almost $9 billion to a trust that would, over 25 years, be able to resolve tens of thousands of mass litigation cases. Its plan has the support of a group of lawyers who claim to represent almost 70,000 people in the litigation. If the court approves the plan, it will equitably resolve all current and future lawsuits.
There will be some plaintiffs’ lawyers who oppose any resolution of lawsuits through bankruptcy. Why? Because they won’t make as much money representing claimants with a bankruptcy trust as they would after years of litigating in court. Recent ILR research found that trusts only spend about eight cents on operational and administrative expenses for every dollar in net claim payments. Compare that to the costs of the U.S. tort system, where another ILR research paper found that 47 cents of every dollar paid into the tort system went to litigation costs and other expenses.
The reality is that the tort system is expensive, and it incentivizes plaintiffs’ lawyers to use aggressive marketing to convince as many people as possible to file as many lawsuits as possible, even if that clogs courts with questionable suits at the expense of those who need actual relief. The bankruptcy system is a more orderly, fair, and efficient way for companies to resolve never-ending litigation and ensure good outcomes for claimants, and not for their lawyers’ benefit.
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