ANALYSIS: Emerging Mass Torts Expose Bankruptcy Code’s Limits

The US Supreme Court’s rejection of Purdue Pharma’s proposed opioid settlement and the bankruptcy court for the Southern District of Texas’s dismissal of Johnson & Johnson’s third talc-related filing mark a decisive shift in judicial tolerance for defensive bankruptcies. Courts are no longer willing to extend Chapter 11’s protections to entities that are solvent yet seeking to manage mass tort exposure through innovative application of section 524 and its protections. Instead, they are signaling renewed enthusiasm for the reassertion of a fundamental boundary for bankruptcy: that it exists to address genuine financial distress, not to circumvent liability.

A crucial consequence ...