Bankruptcy as MDL escape hatch? Not so fast, judge tells 3M in ‘surprise’ decision

The 3M logo is seen at its global headquarters in Maplewood, Minnesota, U.S. on March 4, 2020. Picture taken March 4, 2020. REUTERS/Nicholas Pfosi/File Photo

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(Reuters) – A federal bankruptcy judge in Indianapolis jolted 3M Co on Friday, ruling that scores of thousands of military veterans who claim hearing loss from 3M earplugs can continue to litigate their claims against 3M, despite the July 26 bankruptcy of several 3M subsidiaries. The company’s shares, as my colleague Dietrich Knauth reported, dropped 12% Friday and continued falling on Monday morning.

But the decision’s implications extend beyond 3M and the earplug multidistrict litigation. The ruling by U.S. Bankruptcy Judge Jeffrey Graham of Indianapolis should also be a warning to other MDL defendants: A subsidiary’s bankruptcy may not be the escape hatch you’re hoping for.

Graham’s ruling took even seasoned bankruptcy observers such as law professor Lindsey Simon of the University of Georgia School of Law by surprise, since courts frequently agree to extend litigation stays to the parents of bankruptcy subsidiaries. Reuters, for instance, has reported extensively on the so-called Texas two-step, in which solvent companies dump mass tort liability into a newly created

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September 10, 2022 by ATTORNEY

Knowing When to File for Bankruptcy

Knowing When to File for Bankruptcy

Life doesn’t always go according to plan. You may have needed to take on debt that outgrew your ability to pay it off each month. Now you’re wondering how to get your financial situation back in order.

Knowing When to File for Bankruptcy

Due – Due

Knowing when to file for bankruptcy is a valuable skill for individual consumers and small-business owners. Learn more about it and determine if it’s the best move for your financial needs.

What Is Bankruptcy?

Bankruptcy is a legal process begun by people who have too much debt. They must sign a federal petition that considers their outstanding financial obligations or debts before requesting that their creditors work with them to resolve their debt with any remaining assets.

What Are the Types of Bankruptcy?

People can accrue too much debt as individual consumers or business owners, so numerous types of bankruptcy exist to address those situations. These are the specific chapters outlined in the U.S. bankruptcy code that you may consider if you find yourself unable to repay debts.

Chapter 7: Individual Liquidation

Most people who need to claim straight bankruptcy over personal debt will file under Chapter 7. A federal court appoints a trustee to assist the individual with selling

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September 9, 2022 by ATTORNEY

Bankruptcy Courts Are Good At Adjudicating Tort Claims

Economists tend to view tort law differently than lawyers—or state attorney generals—and this difference explains both the advent of bankruptcy trusts in adjudicating class action liability claims and the complaints by the latter group concerning this development.

Tort law covers someone who was injured because of an action or omission that harms another. Its purpose is to change the essential cost-benefit calculus for a firm so that it does all that is feasible to prevent this from happening.

A classic example of the application of tort law is the manufacture of the Ford Pinto. Engineers placed the gas tank in the very rear of the car as a cost expedient measure even though they knew it would leave the car more vulnerable to a fire or explosion in an accident. They concluded that the liability costs would be less than re-engineering the car to place the tank elsewhere.

The courts found this calculus appalling and contrary to the public interest, and Ford’s liability ended up being many times greater than if it had addressed this vulnerability to begin with.

However, these days tort liability is invariably driven less by a desire to incentivize proper decisions and more by the

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September 8, 2022 by ATTORNEY

Alex Jones using bankruptcy to avoid payouts, Sandy Hook families allege

Sandy Hook families have asked a federal judge to remove InfoWars founder Alex Jones from control of his main company, alleging that Jones has siphoned off millions of dollars and is abusing the bankruptcy system to avoid paying court judgments for portraying the 2012 school shooting as a hoax.

Jones placed Free Speech Systems into bankruptcy in late July while he was in the middle of an Austin trial that ended with jurors awarding almost $50 million to the parents of 6-year-old Jesse Lewis, one of 20 children and six educators killed at Sandy Hook Elementary School in Newtown, Conn.

Sued by other Sandy Hook families, Jones and Free Speech Systems are facing a similar trial this month in Connecticut and another trial later this year in Austin.

With potentially large jury awards looming, bankruptcy proceedings for Free Speech Systems — which reported $9.4 million in profits on $14.3 million in income in the first five months of this year — could determine how much money the Sandy Hook families receive, as well as the continued viability of Jones’ Austin-based InfoWars media system.

Lawyers for the Sandy Hook parents recently told U.S. Bankruptcy Judge Christopher Lopez that they don’t trust

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September 6, 2022 by ATTORNEY

Limiting ‘preference’ liability exposure in bankruptcy

Limiting ‘preference’ liability exposure in bankruptcy
Limiting ‘preference’ liability exposure in bankruptcy

Joe Foster

As the saying goes, what goes up, must come down. After years of robust growth, the U.S. economy appears to be hitting a rough patch. In the coming months, it is likely that some businesses will not survive the challenges that lie ahead, and will be forced to file bankruptcy.

As bankruptcy attorneys, we find that one of the most difficult issues to explain to a client is receipt of a demand letter from a bankruptcy trustee seeking return of payments from a customer received months or years before. To add insult to injury, the customer, now a debtor in bankruptcy, often still owes the client. In addition, the letter typically includes a threat that if the payment is not returned, the trustee will file a lawsuit.

This claim by the trustee is referred to as a “preference” action. The intent of the law is to prohibit insolvent companies from playing favorites or preferring a particular vendor over another. Preference claims force the so-called “preferred” vendor to return the payment so that all general creditors can enjoy equality of treatment.

A preference claim is, unfortunately, very simple to bring and very easy to prove. To successfully assert the

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September 5, 2022 by ATTORNEY
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