Law Commons^™

Dirty Dancing: Is The Texas Two-Step A Bad Faith Filing?, Katharine H. O'Neill

Fordham Law Review

The Texas Two-Step is both a style of line dancing and a legal maneuver used by several large, profitable companies to enable a newly created entity to access the bankruptcy system and, thus, discharge the tort liabilities of its predecessor. This type of filing has been criticized by some as a tool used by healthy companies to evade responsibility for their tortious conduct and lauded by others as an efficient means to achieve a global resolution of crushing mass tort liability. Whether Texas Two-Step filings may properly access the bankruptcy courts is a question governed by § 1112(b) of the …

Harsh Creditor Remedies And The Role Of The Redeemer, Christopher D. Hampson

Fordham Law Review

The concept of the judgment-proof or collection-proof debtor is fundamental to our understanding of civil law and of what distinguishes it from criminal law. But when civil creditors can threaten unduly harsh or cruel debt collection measures (whether legally or not), they extend their reach into the pockets of those whom this Article calls “redeemers,” third parties with a familial or quasi-familial relationship to civil debtors who have reason to pay on their behalf. This Article examines four such measures—imprisonment, homelessness, destitution, and deportation—remedies that sound like they come from another time and place, but which are threatened by some …

Dissonance And Distress In Bankruptcy And Mass Torts, Andrew D. Bradt, Zachary D. Clopton, D. Theodore Rave

Fordham Law Review

This Essay reviews the highly successful Fordham Law Review symposium entitled Mass Torts Evolve: The Intersection of Aggregate Litigation and Bankruptcy, held in 2022. The symposium brought together judges, scholars, and practitioners who work on multidistrict litigation (MDL), bankruptcy, or both. The symposium was successful because it brought these groups into conversation at a time when high-profile mass tort defendants are increasingly turning to bankruptcy to escape MDL, while others involved in the MDL process seek to keep them in. The symposium was also successful—and distressing, in our view—because it highlighted disturbing trends in complex litigation.

This Essay makes …

Due Process Alignment In Mass Restructurings, Sergio Campos, Samir D. Parikh

Fordham Law Review

Mass tort defendants have recently begun exiting multidistrict litigation by filing for bankruptcy. This new strategy ushers defendants into a far more hospitable forum that offers accelerated resolution of all state and federal claims held by both current and future victims. Bankruptcy’s structural, procedural, and substantive benefits also provide defendants with unique optionality.

Bankruptcy’s resolution promise is alluring, but the process relies on a very large assumption: that future victims can be compelled to relinquish property rights in their cause of action against the corporate defendant and others without consent or notice. Bankruptcy builds an entire resolution structure on the …

Aggregation And Abuse: Mass Torts In Bankruptcy, Edward J. Janger

Fordham Law Review

Bankruptcy courts have become the favored forum for large corporate defendants who seek global resolution of mass tort liability claims. Whether this forum choice benefits the victims of those mass torts or facilitates their exploitation is unclear. The features of bankruptcy law that have made bankruptcy court attractive to defendants can be efficiency enhancing, but they can also be used opportunistically and beyond their proper scope. As a result, their use must be subject to safeguards. The good news is that, where torts of the debtor itself are concerned, the U.S. Bankruptcy Code already contains the necessary tools. This Essay …

Covid-19 Aggregate Litigation: The Search For The Upstream Wrongdoer, Robert H. Klonoff

Fordham Law Review

The COVID-19 pandemic has generated many suits—including thousands of class actions—in which plaintiffs claim that defendants caused economic or health-related harm. Although the COVID-19 context may have led many plaintiffs’ lawyers to believe that the cases would be received with great sympathy, courts thus far have been very cautious, focusing closely—as they do in non-COVID cases—on whether the defendant has breached clear contractual commitments or has engaged in tortious or other wrongdoing. If anything, courts have been more skeptical and cautious in the COVID-19 context, recognizing that everyone has suffered due to the pandemic and that, in many instances, defendants …

The New Mass Torts Bargain, Samir D. Parikh

Fordham Law Review

Mass torts create a unique scale of harm and liabilities. Corporate tortfeasors are desperate to settle claims but condition settlement on the resolution of substantially all claims at a known price—commonly referred to as a global settlement. Without this, corporate tortfeasors are willing to continue with protracted and fragmented litigation across jurisdictions. Global settlements can be elusive in these cases. Mass torts are oftentimes characterized by heterogeneous victim groups that include both current victims and future victims—individuals whose harm has not yet manifested and may not do so for years. Despite this incongruence, future-victim claims must be aggregated as part …

The Constitutional Problem Of Nondebtor Releases In Bankruptcy, Adam J. Levitin

Fordham Law Review

In recent years, nondebtor releases have become a common feature of big-case Chapter 11 bankruptcy practice. Nondebtor releases involve the release of creditor claims against third-party nondebtors pursuant to a bankruptcy plan confirmation order. Some nondebtor releases are consensual, meaning that they are done with the assent of the releasing creditor, but some are not.

This Essay argues that all nonconsensual nondebtor releases in bankruptcy are unconstitutional. The constitutional infirmities of nondebtor releases are layered: all non debtor releases—consensual or nonconsensual—are outside the scope of Congress’s authority under an original understanding of the Bankruptcy Clause; all nonconsensual nondebtor releases are …

Third-Party Bankruptcy Releases: An Analysis Of Consent Through The Lenses Of Due Process And Contract Law, Dorothy Coco

Fordham Law Review

Bankruptcy courts disagree on the use of third-party releases in Chapter 11 bankruptcy plans, the different factors that circuit courts consider when deciding whether to approve a third-party release, and the impact of the various consent definitions on whether a release is or should be binding on the creditor. Affirmative consent, “deemed consent,” and silence are important elements in this discussion. Both contract law and due process provide lenses to evaluate consent definitions to determine whether nondebtor third-party releases should bind certain creditor groups. This Note proposes a solution that follows an affirmative consent approach to protect against due process …

Restoring Bankruptcy’S Fresh Start, Jonathan S. Hermann

Fordham Law Review

The discharge injunction, which allows former debtors to be free from any efforts to collect former debt, is a primary feature of bankruptcy law in the United States. When creditors have systemically violated debtors’ discharge injunctions, some debtors have attempted to challenge those creditors through a class action lawsuit in bankruptcy court. However, the pervasiveness of class-waiving arbitration clauses likely prevents those debtors from disputing discharge injunction violations outside of binding, individual arbitration. This Note first discusses areas of disagreement regarding how former debtors may enforce their discharge injunctions. Then, it examines the types of disputes that allow debtors to …

Up The Chute, Down The Ladder: Shifting Priorities Through Structured Dismissals In Bankruptcy, Bethany K. Smith

Fordham Law Review

In a structured dismissal of a Chapter 11 bankruptcy case, a bankruptcy court approves case dismissal alongside a stakeholder agreement as to the manner in which the estate is to be dealt with once the case has been dismissed. Such orders are controversial in that they are not explicitly authorized through the U.S. Bankruptcy Code (“the Code”) and are especially controversial where the accompanying agreement seeks to distribute estate property in contravention of the priority scheme laid out in § 507 of the Code. Where the agreement violates this so-called waterfall payment method, bankruptcy courts are faced with difficult questions: …

No Misrepresentation Needed: Excepting Discharge For Actual Fraud Under 11 U.S.C. § 523 Without Misrepresentation, Morgan Green

Fordham Law Review

Imagine buying a game from a seller and promising to repay him at a later date. However, instead of repayment, you decide to give the game to your friend, who in turn allows you to use it. Then your friend declares bankruptcy to discharge the price of the game from his debts, thus allowing you both to use it without paying. This repayment runaround is the issue that the First and Fifth Circuits were asked to decide in two recent cases. Specifically, the question was whether a debt incurred by “actual fraud” may be discharged by the recipient of the …

Ethics For Examiners, Daniel J. Bussel

Fordham Law Review

The inquisitorial bankruptcy examiner is sui generis in our system. He faces unique ethical quandaries and considerations, which require a code of ethics tailored to his role if he is to achieve fully the promise of improving Chapter 11 through the introduction of inquisitorial investigative methods. This Article attempts to point the way toward guidelines that will regulate the conduct of examiners to mitigate real, potential, and perceived abuses.

Felonious, Erroneous, It’S All Odious: A Story Of Debt Gone Wrong, Virginia M. Brown

Fordham Law Review

Iraq is paying off debt from Saddam Hussein’s rule. South Africa is paying off debt obligations incurred under apartheid rule. Argentina is renegotiating debts that can be traced back to a de facto military-civilian regime that was ousted in 1976. There are numerous examples in which sovereigns are paying off debts that previous governing regimes incurred while oppressing their citizens. Should sovereigns be obligated to pay these debts? Were the debts really incurred by the sovereign or were they incurred by the governing regime in question? What if the lender knew in advance what the proceeds would be used for? …

Time For An Update: A New Framework For Evaluating Chapter 9 Bankruptcies, Michael J. Deitch

Fordham Law Review

Municipal bankruptcies have been making national news since the “Great Recession.” Municipalities like Stockton, Vallejo, and Jefferson County gained notoriety for the record scale of their bankruptcy filings, only to be surpassed by Detroit shortly thereafter as the largest and most populous municipal bankruptcy filing. Historically, municipal bankruptcy occurred infrequently, leaving the nuances of many critical issues, including insolvency, asset utilization, and good faith, unexplored in case law. For example, how should a bankruptcy court analyze Detroit’s cityowned art museum that houses billions of dollars of art when bondholders, pensioners, and other unsecured creditors have unpaid claims? And how should …

Restructuring A Sovereign Bond Pari Passu Work-Around: Can Holdout Creditors Ever Have Equal Treatment?, Natalie A. Turchi

Fordham Law Review

The rise of vulture fund investing in sovereign bonds has created additional hurdles to successful restructuring in an already fragile ad hoc process. Recent litigation in NML Capital, Ltd. v. Argentina has proven courts’ willingness to utilize powers of equity to enforce a ratable payment interpretation of the pari passu clause—the equal treatment provision commonly found in sovereign bond contracts—creating much uncertainty on how the ruling will affect future restructuring efforts. By looking to the tension in interpretations of the pari passu clause, discrepancies in remedial relief awarded, and international institutions’ proposed solutions, this Note analyzes the role of the …