The "Mass" Exodus Through Chapter 11: Mass Tort Reorganizations

By: Russell L. Munsch (Co-author) and Jay H. Ong (Co-author)
Texas State Bar Advanced Business Bankruptcy Course
May 22, 2003

I. INTRODUCTION
A. The Rise and Significance of Mass Tort Cases
Johns-Manville, Dow Corning, Celotex, A.H. Robins, Federal-Mogul. Even accounting for the recent notoriety and complexity of recent mega-bankruptcies, and the whirlwind of corporate scandals surrounding them, mass tort bankruptcy cases unquestionably count among the most complex chapter 11 bankruptcy cases in history. They arise from a myriad of products liability and environmental pollution scenarios, but all share one distinguishing feature: the presence of unsecured tort claimants which dominates each case and largely dictates its progression through the bankruptcy process.

The prospects for a company faced with mass tort litigation are dire indeed. A single set of events and occurrences, often dormant long before injuries begin to manifest, can give rise to hundreds of thousands of tort claims asserted against an otherwise solvent and viable enterprise. The proliferation of legal and business expenses arising therefrom can easily crush virtually any company, no matter the size or profitability. To date, the legal system has responded through two basic mechanisms designed to accomplish a more cost effective and orderly resolution of such claims: class action litigation, and now bankruptcy.

Mass tort litigation, and class actions in particular, were largely enabled by the 1966 amendments to the Federal Rules of Civil Procedure, specifically Rule 23, which substantially relaxed prior, rather formalistic joinder requirements. Through class actions, a discreet number of "exemplary" plaintiffs can sue on behalf of the entire class of tort victims, subject to certain qualifications. To the plaintiffs, these cases promote an overall faster resolution of claims, by consolidating actions and freeing up judicial resources to address them. While a class action involving hundreds of plaintiffs and additional procedural issues may certainly progress more slowly than a suit brought by a single plaintiff, the plaintiff need not fear a "race to the courthouse" against potentially thousands of other similarly situated plaintiffs because their claims will be addressed together. Not only is the plaintiff assured a reasonably prompt progression in court, but also consistent treatment among its co-plaintiffs, thereby alleviating the concern that prior suits will exhaust the defendant's resources and assets and render the plaintiff's ordeal all for naught.

TO READ MORE, CLICK THE PDF ICON BELOW: