\Big Pharma is forging a legal path that wealthy companies want to follow. The corporatists are using a new approach to crush patients and other consumers seeking justice in the civil system with claims that drugmakers and other big companies have harmed them with defective and dangerous products or verifiable wrongdoing.
The US Constitution recognizes the fundamental right of plaintiffs to have their cases heard in a court of first instance. But drugmakers and other companies are hoping to upend accepted norms by taking large-scale liability cases to federal bankruptcy courts, which legal scholars say should never hear such matters. As Bruce Markell, a Northwestern Pritzker School of Law professor and retired bankruptcy judge, told The Wall Street Journal of this predatory corporate tactic:
“This is an attack on the American compensation system.”
As a matter of fact. This is not an accidental disagreement between lawyers, legal professionals and academics. It covers the basics of the US civil justice system and how it works. To see its unfairness, we need to look at the differences between regular civil trial courts and bankruptcy courts. Both operate at the federal level. But the authority of the former is constitutional, while bankruptcy courts were a creation of Congress. As the US bankruptcy court itself explains:
“A fundamental goal of the federal bankruptcy laws passed by Congress is to provide debtors with a financial ‘reboot’ from onerous debt. The Supreme Court, in a 1934 decision, made this point for the purpose of the Bankruptcy Act: “[I]It gives the honest but unfortunate debtor … a new chance in life and a clear field for future endeavors, unhindered by the pressure and discouragement of pre-existing debt.’”
At a time when the country’s economy was dominated by people running small businesses, the legislature didn’t just want to encourage failure that might lead to later success. They also wanted small merchants and others to avoid the age-old shadow of ordinary folk, unable to innovate — and indeed hit by penalties like debtor’s prisons from lifelong debt and the worries that existed in the Old World .
But Purdue Pharmaceuticals, and now Johnson & Johnson, has turned the fundamentals of bankruptcy on its head. They argue—successfully for a time in Purdue’s case, and in a significant case pending with J&J—that profitable companies or their legal fictions should be allowed to enter bankruptcy to evade plaintiffs alleging corporate wrongdoing.
In Purdue’s case, the company singled out a bankruptcy judge and got him to buy a plan that provided billions of dollars to resolve claims from states, counties, cities, Native American tribes, and others that the drugmaker’s powerful painkiller was causing huge damage had OxyContin. The deal protected the plutocratic family that founded and controlled the company for decades, allowing them to keep billions of dollars of their personal wealth, avoid lawsuits against them, and never acknowledge a role in the opioid abuse and drug overdose crisis affecting 500,000 Americans has killed in a decade and is still raging.
J&J, which faces billions in claims over its iconic baby powder and whether the company knew it was contaminated with carcinogenic asbestos, has upped Purdue’s bankruptcy plan by one. That’s how investigative reporters for Reuters summarized the company’s strategy, which the news service said was “valued at more than $450 billion” and “had approximately $31 billion in cash and marketable securities at the end of the third quarter.” :
“Reuters exclusively reported the broad outlines of the bankruptcy strategy that J&J was investigating in July. The company went ahead with the plan in October, exonerating responsibility for [its talc liability] cases to [a] new subsidiary, which then filed for bankruptcy. Prior to the filing, the company faced $3.5 billion in judgments and settlements, including one in which 22 women were awarded more than $2 billion in judgments, according to records from the bankruptcy court. Now J&J is proposing to give the bankrupt subsidiary $2 billion to invest in a trust to indemnify all 38,000 current plaintiffs as well as all future plaintiffs.”
As Reuters also reported, plaintiffs and others have torn up the J&J creation, arguing it was a bogus tactic, created a shell company and bankrupted it almost from the start to prevent the parent company from facing the full powers of the civil jurisdiction system . The federal bankruptcy judge presiding over J&J’s plan will rule on its legal merit.
The news service reported that regardless of the bankruptcy judge’s decision, J&J will appeal – and the matter will be of sufficient legal importance the case could drag on for years.
In the meantime, the company will benefit, Reuters reported, as many of the plaintiffs filed their claims only after becoming seriously ill. Their lawsuits can be frozen and they can die of cancer and other complications before their cases can be considered.
J&J, which has long advertised itself as a family-friendly healthcare company, says it is pursuing every legal avenue available to it. The company has tried to prevent coverage of its Dodge, which it says offers fair compensation for those who make claims for damages. Imagine that – denying inappropriateness and then setting a price for it. How does that blue joke about the bar pickup go with the retort that says, “We know what you are, we’re just arguing about the price…”?
The Wall Street Journal reported that bankruptcy strategy is becoming a form of corporate legal contagion:
“The new legal tactic shifts the balance of power towards defendants Johnson & Johnson, Georgia-Pacific LLC, and the US units of Ireland’s Trane Technologies PLC and France’s Compagnie de Saint-Gobain SA, which affiliates are accused of previously selling products to that contain asbestos, a carcinogenic mineral. J&J, Georgia-Pacific, Trane and Saint-Gobain have not filed for bankruptcy. But they have used a Texas law to move at least 250,000 personal injury cases through newly formed limited-operations subsidiaries to bankruptcy courts, a strategy pioneered by law firm Jones Day, court filings show. Texas law allows companies to provide their new subsidiaries with legal liability for pending and future claims for damages before those entities filed for Chapter 11. The bankruptcies have stayed pending lawsuits against either the parent companies or their U.S. subsidiaries, barring plaintiffs from the tort system and preventing them from trying their claims before juries, at least for now. These four companies will receive legal and financial benefits from Chapter 11 without risking the likely loss of equity value that would result from entire businesses going bankrupt.”
In my practice, I see not only the harm patients suffer when they seek medical services, but also the harm that dangerous drugs can cause them, as well as the injuries they can suffer from defective and risky products, particularly those of the Diversity in Healthcare.
It is a privilege for my colleagues and I to support ordinary people and to witness the fortitude they must show when they suffer harm and choose to seek justice in the often intimidating civil system. Malpractice and product liability cases can be time-consuming and stressful. Testifying and exposing your life in court can be scary. But plaintiffs are pursuing legitimate claims not only because they often need lifelong financial support after their injury. They also earnestly seek justice and reparation for the severe harm done to them. They want to make sure system bugs are fixed so others don’t have to suffer as they do.
Corporatists should not be allowed to scrutinize the jurisdiction and manipulate the bankruptcy system into profit-maximizing tricks. Bankruptcy judges should reject this ploy. They know that the role of the bankruptcy regime in the federal system is the orderly, prudent resolution of corporations — not the determination of broader, complex, and difficult issues, including whether wrongdoing has occurred and how justice can best be served.
If the federal system doesn’t stop corporate escapades immediately, what trust will patients, consumers and the public have in our courts? Will we see toy makers create BabyOops Inc.-like bankruptcy divisions that effectively penalize infant injury or death? Will vehicle manufacturers set up new subsidiaries like Junker Ltd. for bankruptcies avoiding injury or death from wrecking broken or dangerous cars, trucks and motorcycles? Will every professional under the sun, especially doctors, suddenly spawn Second Life businesses that will file for bankruptcy if egregious acts are committed with patients?
In the bankruptcy system, the first level of appeal is to US District Judges, and one has already rejected Purdue’s bankruptcy settlement. US District Judge Colleen McMahon of the Southern District of New York is asking her courts to resolve growing unresolved bankruptcy issues, including granting the Sackler family immunity from lawsuits against them for their company’s misconduct. She stressed that such courts should not follow legal avenues, but should abide by what Congress permits through detailed statutes.
Of course, lest a legal scholar marvel at the wisdom of a more expansive role for bankruptcy courts, it’s worth considering the great regret Judge Robert Drain of the US Bankruptcy Court in White Plains, New York, expressed in an hour-long speech from the bench he held his Frustration at his court’s inability to address critical issues in the Purdue case, including the final settlement amounts and the Sacklers’ taking of funds from their firm that could not then be paid to the injured party.
As The New York Times reported on his remarks, the judge said so, and put it this way:
“It’s a bitter result. BITTER.”
We have work to do to ensure Americans have free and fair access to civil courts to seek justice when they feel they have been wronged.