The Significance
Strategies such as third-party releases and the Texas Two-Step have been held up by some as more expedient alternatives to unwieldy litigation. In the Dec. 4 oral arguments before the Supreme Court, justices heard arguments over whether they should block Purdue’s bankruptcy plan that includes legal protections for the Sackler family, which owned the company whose OxyContin drug allegedly contributed to the opioid crisis. Justices Brett Kavanaugh and Elena Kagan noted that the deal could provide quick relief for victim-creditors.
“I think what the opioid victims and their families are saying is you, the federal government, with no stake in this at all, are coming in and telling the families, no, we’re not going to give you payment, prompt payment, for what’s happened to your family … for this somewhat theoretical idea that they’ll be able to recover money down the road from the Sacklers themselves,” Kavanaugh said. “I guess I’m not sure why we should cast aside that concern so readily.”
The questions raised in the SCOTUS hearing highlight that the court, and American society at large, are grappling with the ideals of economic justice, accountability, and a fresh start through bankruptcy, according to Bankruptcy attorney Monique Hayes of DGIM Law.
“Perhaps most interesting is how the issues were framed, in the questioning of some of the justices. For example, Justice [Brett] Kavanaugh seemed to question whether the ‘federal government’, by objecting to the settlement, was delaying or denying ‘prompt payment’ to victims of the opioid crisis, while some of Justice [Ketanji] Brown Jackson’s questions went to the heart of whether those perceived to be most culpable for the crisis should ever be entitled to ‘these kinds of releases,’” Hayes said.
In a Dec. 13 column, The New Jersey Law Journal Editorial Board said the court will be left to grapple with ambiguous statutory language and considerations of practicality. “As noted by the justices at oral argument, the decision could upset many apple carts where the circumstances are less egregious than this case. They will have to decide both whether this kind of deal can be “appropriate” under the Bankruptcy Code and, if it can be, the standard by which the lower courts should determine whether is appropriate in a particular case,” the board wrote, except for Editorial Board Chairman Rosemary Alito, who recused herself from the column.
The Information
Want to know more? Here's what we've discovered in the ALM Global Newsroom:
The Forecast
If the Texas Two-Step and third-party liability releases continue, plaintiffs attorneys will also likely shift their strategies in response.
In a column, Mark Eveland said the Texas Two-Step could affect how plaintiffs' attorneys budget for litigation. Retaining costly bankruptcy specialists, whose fees could easily top seven or eight figures, is an expense that didn’t exist for plaintiffs counsel leadership teams a few years ago, Eveland wrote.
“Additionally, many plaintiffs firms rely on litigation funding to help defray the substantial costs of mass tort litigation,” he wrote. “However, if defendants limit their potential liability through a Texas Two-Step, litigation funding companies may reduce their appetite to fund mass tort cases because plaintiffs’ recoveries—and, in turn, funding companies’ returns on their investments—will be limited to whatever cash a defendant has put in their spun-off liability subsidiary.”
But the high costs could also create broader ripples for mass tort practices by preventing smaller or newer plaintiffs firms from developing mass tort practices, according to Eveland. “It could also spur the birth of a new kind of funding that takes the place of traditional litigation funding,” he wrote.
