WRITTEN STATEMENT OF SAMIR D. PARIKH 1 "Evading Accountability: Corporate Manipulation of Chapter 11 Bankruptcy" Judiciary Committee United States Senate

I would like to thank the committee for the opportunity to testify on the hearing topic, “Evading Accountability: Corporate Efforts to Side-Step Accountability Through Bankruptcy.” It is a great honor to be here. I am Samir Parikh, the Robert E. Jones Professor of Advocacy and Ethics at Lewis &amp; Clark Law School. I should note that my statement reflects my own views, not the views of Lewis &amp; Clark Law School, the American Law Institute, or the American College of Bankruptcy – organizations with which I am affiliated. <br> <br> Recent debate about mass restructurings involving Johnson &amp; Johnson, Purdue Pharma LP, 3M, and Boy Scouts of America has provided a lot of fire but little light. In thinking about these cases, let's start with a simple question: What are the process objectives? What are we trying to accomplish when we think about resolving mass tort cases? <br> <br> I argue that the primary objective in resolving mass tort cases should be to provide meritorious claimants the compensation they deserve on the shortest timeline. Claims arising out of similar facts should not receive wildly divergent recoveries – a result customarily seen when mass tort cases are resolved through jury trials across the country. Pursuit of this objective illuminates federal bankruptcy court as the optimal resolution venue for many cases. This conclusion is the result of bankruptcy’s unique optionality and the limitations and deficiencies that characterize other claim aggregation processes. <br> <br> Rule 23 of the Federal Rules of Civil Procedure is arguably the most well-known claim aggregation process in the US. But in the 1990s, the Supreme Court ruled that Rule 23’s strictures exclude the vast majority of personal injury, mass tort cases. Multi-district litigation was subsequently embraced to fill the resolution void, but the process has evolved in ways that undermine the resolution model for many mass tort cases. MDL lacks Rule 23’s fundamental safeguards that ensure process integrity, and victims rarely receive their “day in court” through this process. Further, MDL has practical limitations because courts cannot resolve claims in state court or those held by individuals for whom harm has not yet manifested, also known as “future victims.” Most troubling, MDL lacks transparency, can be extremely protracted, and is plagued by backroom deals, the details of which remain hidden from the public. <br> <br> In recent years, federal bankruptcy has emerged as a viable option to resolve personal injury, mass tort cases. Bankruptcy allows aggregation of state and federal claims held by both current and future claimants. Bankruptcy’s automatic stay halts the litigation tsunami that squanders resources that should ultimately go to victims. Parties are able to focus on a global settlement. The promise of a comprehensive resolution draws parties to the bargaining table and encourages meaningful settlement talks, ending pointless posturing and attempts to curry public favor through the media. The bankruptcy court can rapidly estimate the aggregate value of all claims against the mass tort defendant for the purposes of formulating a plan of reorganization. Victims are able to vote on their proposed treatment, and inequitable plans can be voted down. Because there are few debtholders or other creditors typical of most chapter 11 cases, mass tort victims hold leverage in designing the final resolution. Naturally, the process is not perfect, but the primary infirmities can be addressed by the bankruptcy judge overseeing the case. Bankruptcy does not need new legislation or complicated statutory amendments to make the process work for mass tort stakeholders. That being said, I do believe that the process can be improved by making a few targeted adjustments to the Bankruptcy Code focused on improving the mechanics of Section 524(g) – the provision that governs asbestos cases in bankruptcy – and delineating the proper instances where a plan of reorganization containing nonconsensual, nondebtor releases can be confirmed. <br> <br> Divisive mergers are the final issue discussed below. The maneuver known as the “Texas two-step” is certainly unorthodox and has received a lot of attention. But this is a minor actor in the mass tort theatre, and I fear that the issue is receiving far more attention than it deserves. Ultimately, those divisive mergers that inequitably transfer assets away from creditors can be attacked as a fraudulent transfer – an area of law in which bankruptcy courts are extremely experienced. And a bankruptcy case preceded by a divisive merger designed to defraud creditors can be dismissed as a bad faith filing. The means to police undesirable behavior in this context already exists, and we have recently seen courts fulfilling their gatekeeping function. I worry that congressional intervention on this point may produce unintended consequences and should not be prioritized when so many other, more important issues in the mass torts space are ignored. <br> Ultimately, bankruptcy offers the highest likelihood of providing deserving plaintiffs with a meaningful recovery on an expedited timeline. Without bankruptcy, these cases may have to be adjudicated on a case-by-case basis over the course of decades. Some victims may secure enormous recoveries through jury trials; others may receive nothing even though all these claims emerge from a similar nucleus of facts. This litigation option is slow, highly speculative, and resource intensive. MDL is the alternative but comes with many of these problems and adds a few more. I do not believe either option serves victims’ best interests. <br> <br> Divergent recoveries are an inveterate aspect of our jury system. However, federal bankruptcy offers mass tort victims an alternative to this inequity. What platform is best designed to provide meritorious claimants the compensation they deserve on the shortest timeline? I assert bankruptcy is that platform for most mass tort cases. And I believe that this hearing should be about improving that platform, not tearing it down. I applaud this committee for devoting hearings to these important issues and hope to offer some insight.