Chapter 7 · The Way Forward
Understanding Bankruptcy
If the world of mass torts is a physical sleeves-down-to-the-elbows contact sport, (the bankruptcy) process requires the finesse of a soccer match.— Anne Andrews
Anne Andrews has been a tireless advocate for victims’ rights dating all the way back to when she was a young girl growing up in California. As a teenager, she found herself fighting back against false accusations made by local authorities, who claimed her brother was involved in a deadly shooting incident in California.
During that fateful night, as chaos was unfolding all around her, she convinced her brother not to speak with local police until she could contact her family’s lawyer and properly sort out what was actually unfolding.
The story of what occurred that night is worthy of a book of its own, but that formative experience—the tension between authorities and lawyers, the look of uncertainty in the eyes of her brother and his friends as they weighed whether to sign releases, and the crystalizing importance of the decisions made in that moment— changed her life.
Eventually, Anne would go to law school and decide to work in an area of the law that straddled the complex intersection between law, business, and victims’ rights, all while remaining true to her commitment to ensuring everyone has access to equal protection under the law.
A key turning point came when she began representing members of the California horse-racing community, including jockeys, stall cleaners, and groomers. When a hot air balloon crashed into the Fresno County Fairgrounds, injuring scores of frightened horses and roughly a dozen people, she stepped up to represent the victims.
Shortly thereafter, she waged a successful mass tort against Dow Corning for producing dangerous silicone breast implants. While representing her 2,700 female clients, she realized she had a knack for uncoiling complex medical issues and distilling them down into simple language, a skill she continues to lean on today. As the case picked up steam, Dow Corning filed for bankruptcy, motivating her to study the intricacies of high-stakes corporate bankruptcies.
In the years since, her firm, Andrews & Thornton, has become one of the most respected and elite bankruptcy firms in the nation. Anne and her team have worked on an array of high-profile mass tort bankruptcy cases, including opioid and pharmaceutical-based mass torts as well as sexual assault cases involving the Boy Scouts of America and the Catholic Church.
I think it’s worth noting that Anne and her firm are responsible for revolutionizing how claim forms can now be submitted during bankruptcy proceedings.
This monumental shift occurred when Anne was working on the bankruptcy involving Purdue Pharmaceuticals, an opioid producer. Anne and I had just used Facebook to find thousands of new victims. But this flood of new applicants presented a new problem, as the intake system then in use was not designed to accept thousands of claim forms at one time.
So Anne, every bit the innovator, approached Purdue through their counsel and offered to file all these new claims via a spreadsheet. Purdue, which didn’t want to wait six months and spend tens of millions of dollars in additional legal fees to process all these forms, accepted her proposal.
The filing of thousands of cases via a spreadsheet proved to be the first filing of its kind. Anne shocked the bankruptcy world—and changed it forever, as her spreadsheet process has been employed in a number of subsequent bankruptcies.
I know that mass tort lawyers, listening to her deconstruct the bankruptcy process, will find her perspectives and knowledge vital in helping them properly prepare for— and deal with—mass tort cases that suddenly transform into bankruptcy cases. —JAcoB MALHerBe
How can mass tort defendants become better prepared for bankruptcy? They need to become better financial analysts of the corporate defendants—and codefendants—that they take to court. If a mass tort involves a company with a small market cap, it’s wise to assume they are vulnerable and will end up in chapter proceedings.
Look for these tells: Is the company overleveraged? How much secure debt does the company hold? How much mortgage debt and bond debt does the defendant have? How has a company raised money in the past? How is the company currently being run? How has its leadership responded when it encountered financial issues in the past?
Take, for example, the talc baby powder mass tort. I don’t think enough mass tort lawyers took the time to really study the financials of Imerys, which supplied the talc to Johnson & Johnson. There were all sorts of red flags there; Imerys had a small market cap, it was leveraged to the hilt, and it was headquartered in California, where we knew suits were going to keep piling up. And sure enough, just as I suggested would happen, Imerys wound up filing for bankruptcy because it saw no way out.
Don’t assume that a big company—even one that’s publicly traded on the big exchanges—won’t do the same. Look at Mallinckrodt, which sold generic opioids. It filed for bankruptcy as well.
Most bankruptcies don’t emerge unexpectedly. They’re planned business strategies, so listen to the noise on the street. Look for signs and symptoms that signal a bankruptcy is on the horizon. If you see, for example, a company doing bond swaps, the end is near; bankruptcy is likely coming. If a lawyer representing a corporate defendant—or interests related to the company—says, “We believe there’s going to be a chapter filing.” Believe them.
There’s no use swimming upstream. You have to accept what’s coming. It’s time to start adjusting your strategy—immediately.
What do you recommend mass tort lawyers do when they see these signals and red flags? Too many mass tort lawyers deny the inevitable. They need to immediately stop spending money on more cases because there’s not going to be a trial. Stop filing. Preserve your assets and focus on your clients’ interests by pulling back on the reins.
Look at the JUUL e-cigarette mass tort. There was a moment in 2020 when mass tort lawyers found themselves litigating the heck out of cases related to Altria—a tobacco and cigarette producer—even though the market cap of Altria was slipping quickly.
It’s what we call a melting ice cube. It wasn’t a case I was deeply involved in, but some of us could see that Altria wasn’t worth very much and Altria was “melting through” their insurance. All that money—from insurance and legal fees—was being drained from the company’s assets, which meant less money was going to go to the victims.
Mass tort lawyers need to know this: Starting a trial on the eve of bankruptcy is not going to get you preference, priority, or any kind of special treatment whatsoever. Once a case moves into bankruptcy, everything stops. Which is why I advise people to reach out to a bankruptcy lawyer. You’re going to need their experience and consultation moving forward. The right bankruptcy lawyer can save you—and your clients—millions in terms of costs, lost time, and overhead expenses over the course of the bankruptcy.
What would you say to mass tort lawyers who think they can handle bankruptcy issues on their own? Look at it this way: There’s a vast difference between the work required to be a mass tort lawyer and a bankruptcy lawyer. I liken it to the difference between playing football and soccer. Different playing fields. Different skill sets. Different rules. Some of my closest friends are incredible mass tort lawyers. Get them going on a mass tort, and they’re like Tom Brady playing in the Super Bowl; they’re going to find a way to win. But when a mass tort transitions into bankruptcy, you’re no longer playing football. It’s more like playing World Cup soccer. It doesn’t matter how skilled you are on the football field; you’re not going to be able to kick the goal your team needs to win the cup. You’re no longer playing against football players; you’re playing against soccer players who know the rules and know what it takes to win the game.
The best possible move is to hand over the reins to people who know how to play that particular game at a championship level. Smart mass tort lawyers understand the intrinsic value of partnering with top bankruptcy lawyers—people who have experience with the Delaware, New York, and California bankruptcy courts. It’s a whole different ballgame, which is why it’s best to hand the ball off to us and let us do our thing.
There’s a vast difference between the work required to be a mass tort lawyer and a bankruptcy lawyer. I liken it to the difference between playing football and soccer.
Different playing fields. Different skill sets. Different rules.
Generally speaking, what are the first steps that bankruptcy lawyers take when they join a team? Creditor committees are extraordinarily important in bankruptcy proceedings because they provide victims a seat at a table and the opportunity for their voices to be heard. It’s important to remember that once bankruptcies begin, victims are no longer mass tort plaintiffs; they’re now bankruptcy claimants.
Let’s look at opioids for a moment. When Purdue Pharmaceuticals, the maker of OxyContin, filed for bankruptcy in 2019, all the victims who participated in that mass tort became creditors of Purdue.
Purdue owed them money for the damages it caused. But in order for all those victims to be eligible for money, their attorneys needed to shift gears. They needed to reach out to the US Trustees Office, where the bankruptcy was filed and contact the specific US trustee who’d been assigned to the Purdue case.
As bankruptcy lawyers, we focus on ensuring victims sign applications that will place them on creditor committees. Note my emphasis on the word victims. You’re not filing an application on behalf of your firm to be a member of the creditor committee, as you would during an MDL or PSC, but on behalf of your client to be on the committee.
We have to present clients’ stories to the government by describing what happened and how their injuries are connected in some way to the company that is filing for bankruptcy. If accepted, victims become creditors; they become what we call tort claimants.
As bankruptcy lawyers, we know how to convince the government that victims deserve a seat on those committees, understanding that these are fiduciary committees. US trustees want certain kinds of people to sit on these committees. They’re looking for well-spoken individuals who can be clear about the facts and will remain in the process until the very end. You want to find someone who won’t let emotion overcome them just because they’re sitting on a committee with representatives of the same company that did harm to them or their family.
Bankruptcy lawyers understand the importance of filing serious applications. These reports can’t be flimsy one-page documents. They have to be expertly curated, which is why we’ve been selected almost every time we’ve applied.
It’s our responsibility to sit next to a client and guide them throughout the process, but in the end, it’s the victim who needs to have the skill set and, quite frankly, fortitude to endure a process that involves the same companies that wronged them in the past.
What are some of the early deadlines when it comes to bankruptcy proceedings? Bankruptcy moves at lightning speed. Remember that these companies want to resolve all of the claims against them and emerge from it as quickly as possible.
If you’re a mass tort lawyer and have a large number of mass tort cases going into bankruptcy, be prepared to set aside a lot of time. Filing a bankruptcy claim is different than pretty much anything mass tort lawyers usually do because their clients—the victims—have what we call contingent unliquidated claims.
Creditors have different classifications. We don’t have the space to get into the technical rules regarding classes of creditors here, but suffice to say, there are differences between different claims and how they are paid out. In other words, there are preferences and priorities mass tort lawyers should be aware of.
If a company, let’s say X Social Media, sold its services to Purdue, X Social Media will have a specific contract and receipt attached to that bill. That claim is called a commercial liquidated claim because that service provider knows exactly how much he’s owed. That company is called a trade creditor.
Tort claims are different from liquidated claims, and as representatives of these victims, you have a responsibility to place a value on the victim’s claim when you file.
The date by which all claims must be filed is called the bar date. There’s no forgiveness for missing the bar date, as the bar date puts the company on notice as to how many creditors there are, what kinds of creditors there are, and how much each is seeking. Gathering up all this information helps a bankrupt company determine who they are going to pay, who they will disallow, and how much each of those creditors will be paid.
Thus, bar date deadlines are sacrosanct. And they come up very fast. In many instances, the bar date is set at less than six months. It can sometimes be a bit longer, but we’ve been involved in cases with deadlines as short as three months. Which is why I highly recommend mass tort lawyers hire an experienced bankruptcy lawyer, given that meeting these deadlines is not always easy.
If you’re a bankruptcy lawyer, you need to stop the litigation in state or federal court. You need to stop filing complaints because it will not provide your clients with any advantages in the bankruptcy proceedings. It’s pretty much a waste of time, both in terms of energy and resources.
How do you go about contacting additional victims once the bar date has been set? Debtors have an obligation to notify the public of a bar date via what we call a notice program. In the past, companies would publish a notice in newspapers. Some lawyers might air an ad on TV. But then social media came along and changed everything.
Look at what X Social Media has been able to achieve in recent years. Using Facebook, we can now send word about a bankruptcy and a looming bar date to tens of thousands of potential victims/creditors instantly. We can reach them via their Facebook feeds and create ads that tell them something to the effect of: “You might be eligible to share in the proceeds for this bankruptcy, but to do so, you have to file a claim by X date.”
Without the services provided by companies like X Social Media, we could never have achieved what we’ve accomplished in recent bankruptcy cases. In regard to the Purdue bankruptcy, X Social Media helped our firm file sixty-six thousand claims in just six months, which broke a record for the number of claims filed in a six-month period.
And things are only accelerating from here. Look at the Boy Scouts bankruptcy. When we said that we could find ten thousand or twenty thousand claimants before the bar date, some people laughed at us. Lawyers told us that victims would never come forward. But with the help of X Social Media, we’ve brought forward eighty-two thousand claims.
We discovered that these people were dying to talk to somebody. No one had ever taken the time to show interest in their plight. Victims of abuse have waited a long time to be believed. It’s taken time, but that time has finally come.
Victims of abuse have waited a long time to be believed.
It’s taken time, but that time has finally come.
Using a mix of compassion and technology, we’ve changed that paradigm. It’s something I’m very proud of because we found a way to reach out to people whose lives were destroyed, and we encouraged their voices to be heard. It’s never been done this way before—certainly not this quickly or on this scale—but it’s changed things forever.
How do you determine the value of each victim’s injury if a case moves into bankruptcy? Mass tort lawyers probably understand this principle very well already. There are different values applied to different claims. How much, in the case of the Boy Scouts, should victims who were sexually assaulted receive? How were they abused? Was it physically or emotionally? There are different gradations of injuries and different compensation amounts that align with those injuries.
We looked at the history of Boy Scout claims across the country; then we performed a random sample of all the victims. An expert then came in and gave an economic analysis and estimate, which was a foundational number to start building upon.
What is the next phase in the process? Once all the claims are filed, the next step is usually mediation, which moves very quickly in bankruptcy. It’s at this point that all the claims are gathered together and separated by value. If you’re on the committee, you need to delve deeply into the financials. If you’re not on the committee, don’t be shy. You won’t have as much power as those on the committee, but you need to interact with committee counsel.
Whenever I’m on a committee, I always help other lawyers because it’s my obligation to provide advice regarding what’s in the best interest of all tort creditors. I’m very interested in who has claims and who’s filing by the bar date because we have an overarching philosophy in bankruptcy law: We don’t want to leave any victims behind.
Bankruptcy lawyers study the assets of the company. They look into product liability insurance—and these policies become assets during bankruptcies. As a result of skilled mediation and a skilled bankruptcy practitioner like myself, we can usually get those policies in play for victims with proper cash guarantees.
If you’re on a committee, what do you look for in a company’s financials? When you sit on a committee, you are provided access to an extraordinary wealth of financial data. You get to see the value of all of the company’s assets. You get to see the confidential, sensitive information that no one ever sees outside of its board of directors. This is one of the advantages of a mass tort turning into bankruptcy case. You see everything. Some companies never want those financials to be made public.
Once we see these records, bankruptcy attorneys can fight for real dollars. All those liability issues you must prove in a typical mass tort are off the table. You know the value of the company. It’s the equivalent, in the business world, of being invited onto a company’s board of directors. We’re able to see every decision the company is making, and we have the power to aid victims.
It’s really transparent, and it’s completely democratic. Every dollar that’s spent in a bankruptcy has to be approved through the courts. We look at what we call the “curb and the keep,” which includes the pensions and benefits of key employees. If, for instance, the CEO of a company has allowed a harmful product to be released, we want to know if he or she is being paid a $10 million bonus. Victims have the right to know that information.
We’re talking to financial advisors and investment bankers because we have a right to know what a company is going to sell in order to raise money to pay its debtors. These are not the kinds of conversations that mass tort lawyers have been trained to have. It’s a different domain. It’s our domain.
This is where the twenty years I’ve spent educating myself about corporate finances, corporate structures, and corporate indebtedness really pays off. It’s also the point at which others often call on me to step into the fray and help them out, which is what happened with the sexual assault cases connected to the Catholic Church.
If the world of mass torts is a physical sleeves-down-to-the-elbows contact sport, this process requires the finesse of a soccer match. You have to be smart, delicate, and refined. It’s very, very different. You have to be able to shift your approach to push things in the right direction. I see lawyers make enormous mistakes all the time where they think they’re going to come into a bankruptcy court and throw their weight around. It just doesn’t work. You look like an idiot; you look like you’re out of place.
You have to know the rules of the game and amend your approach. My firm and I have learned how to adapt, which is why we’ve brought in more than $3 billion in value to clients over the years. And we’re just getting started.
When it comes to bankruptcy lawyers, how does the typical fee structure work? According to current case law, fees should track the law of the jurisdiction where the claimant resides. Thus, if the claimant resides in New York or New Jersey, those state filing laws and fees apply.
Are we seeing a rise in bankruptcies associated with mass torts? And if so, why is that the case? Yes, we are because most companies are seriously leveraged, a trend that only accelerated in the wake of 2008–2009 financial crisis and COVID-19. As a result, we will see more companies, even those you’d never expect, file for bankruptcy. Their primary reason is a need for debt restructuring. Look at JUUL, the Boy Scouts, and Purdue. They went into bankruptcy because tort victims put them there. Some suggest that the owners of Purdue took billions out of the company and wouldn’t have slid into bankruptcy if not for these torts, so there are many angles to consider.
Over the years we have proven that some auxiliary companies have contributed, in some fashion, to the injuries incurred by victims. We refer to these companies as joint tortfeasors. These defendants can also use the bankruptcy courts to get relief from the claims against them.
In the second and third circuit, my firm has made case law that’s been used time and time again to allow non-debtors (i.e., people who are also at fault) to contribute money to the bankruptcy. And if that contribution is found to be sufficient, they can find relief. Thus, bankruptcy is increasingly viewed as an opportunity for companies and their related entities to clear all their debt and emerge without any additional liability for what they did. But they need to pay up in order to do so.
If you look at Boy Scouts, its national chapter in Dallas would probably be in settlement with a trustee, if not for the fact that debtors understood that the 261 Boy Scout councils—all of the chapters that own a charter—as well as the individual standalone charitable corporate and nonprofit corporations—need to pay up. Think of the Boy Scouts of Greater New York or the Boy Scouts Los Angeles Council.
These organizations are participating in the larger Boy Scouts bankruptcy because there are also a lot of additional insurance issues to consider. They are allowed to come into the bankruptcy, but they need to make substantial contributions. Some people say it requires full value for them to emerge as one giant National Boy Scout entity. This can be an attractive remedy for everyone involved.
So in short, bankruptcy can be used to stop an MDL, stop the court litigation, and move it into the bankruptcy court where it is controlled in the process. Thus, these companies feel like they gain more control in the process.
What are the final phases of the bankruptcy process? Once we negotiate a deal in mediation, which is called a consensual bankruptcy plan, we negotiate a trust distribution protocol, which determines how value is distributed to the victims. Who will receive money and how much? And then we generate a plan to distribute those funds. In the mass tort world, this is referred to as a matrix; in bankruptcy, we call it a TDP, a trust distribution protocol.
Let’s take the Boy Scouts cases. If a victim was sexually assaulted in a certain way, they will be granted X number of dollars. If they were abused in a different way, then they receive Y amount.
Then we distribute that plan for victims to vote on. In essence, every claimant receives a document in their inboxes that shows the disclosures of the debtor. It provides all the information that victims need to make a decision. How can they participate? How will the process work? And how will different classes of claimants be paid?
The protocol is disclosed, so everybody can read it and see how it might apply to them. It’s not going to tell victims exactly how much they will receive. It’s going to tell them, plus or minus or within a certain range, what they might receive. So victims can look at the document and say, “Okay, I might receive this much.” Then we move onto confirmation and voting.
Everybody votes: one claim and one vote. It’s very democratic. Bankruptcy lawyers don’t sign things behind closed doors and tell everybody later what they decided. It’s all out in the open and disclosed publicly. And everyone votes.
I think it’s one of the fairest audit processes around. Everyone has a right to object, and the bankruptcy court will listen to those complaints. Imagine trying to voice your dissent in an MDL. What would you do? Call the judge? You have a limited voice in an MDL. This is far more transparent. Our goal is to get as many votes as possible. We have a tremendous track record of achieving this at our firm. Most of the time we wind up around 96 percent of allowed votes.
After confirmation, there’s a formal hearing before the court to look at every slice of the agreement and ensure it meets legal standards. If approved, we send out checks as soon as possible, within two to three weeks, so the victims can receive what they are due.
What should a mass tort look for when they go looking for a bankruptcy lawyer? Not all bankruptcy lawyers are created equal. You want to find a bankruptcy lawyer who has a track record of helping mass tort clients in bankruptcy, not simply a bankruptcy specialist.
Look at skilled bankruptcy. Of course, I would put our firm, Andrews & Thornton, at the top of the list as well.
Find a lawyer who is capable of really taking on these large companies with the interest of victims in mind. You don’t want a bankruptcy lawyer who only specializes in hedge funds or moving around decimal points. You want someone who knows how to represent a victim—someone who values the tort claimant’s position in bankruptcy.
Remember that mass tort victims are often the forgotten stepchildren during bankruptcy proceedings. They’re not the highest priority for a debtor—or even many judges—unless someone steps in and makes sure that they become a priority. Which is what we have all sworn to do.