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Wealthy companies are shielding themselves from lawsuits using a bankruptcy strategy

AILSA CHANG, HOST:

NPR has been reporting on a controversial legal strategy that's used by wealthy corporations and individuals accused of wrongdoing. They're using the power of bankruptcy courts to block lawsuits, even though they're not actually bankrupt. This tactic faces growing opposition from legal scholars, members of Congress and the U.S. Justice Department. NPR's Brian Mann joins us now to talk about all of this. Hey, Brian.

BRIAN MANN, BYLINE: Hey, Ailsa.

CHANG: So how did you learn about this strategy, how companies and individuals with tons of money are using bankruptcy court to shield themselves from liability?

MANN: Yeah, it was really by accident. I was covering the bankruptcy of Purdue Pharma, a drug company at the center of the opioid crisis. And I learned that while Purdue Pharma is legitimately in serious financial trouble because of all the opioid lawsuits the company faces, there was another controversial piece of that deal. The company's owners, members of the Sackler family, aren't bankrupt. They earn more than $10 billion in revenue from opioid sales. But as part of this bankruptcy settlement, they offered to pay a lot of cash in exchange for immunity from opioid lawsuits, again, without ever actually filing for bankruptcy themselves. And at first, Ailsa, I thought this was a unique case, kind of a legal anomaly. But people I spoke to set me straight. It turns out more and more rich individuals and wealthy companies are using this tactic.

CHANG: Right. It sounds remarkable, but it's not rare. And can you just explain how - like, how a financially viable company uses the power of bankruptcy even though they're not really bankrupt.

MANN: Basically, what happens is more and more bankruptcy judges are allowing wealthy companies and, again, individuals to pay big chunks of money as part of settlements, again, without filing for bankruptcy. And in return, the judges give these people or firms a clean legal slate. They can no longer be sued. This has already happened to tens of thousands of lawsuits involving everything from child sexual assault to big consumer product safety cases and to the opioid epidemic.

CHANG: Well, you profiled Hanna Wilt, who died while her lawsuit against Johnson & Johnson was tangled up in just this kind of bankruptcy. Can you talk about what happened in her case?

MANN: Yeah, this was a really troubling example of how this can happen. Hanna Wilt was 27 years old when she died in February. She had a terrible form of cancer called mesothelioma, and she was one of tens of thousands of people who sued J&J, claiming Johnson's baby powder was contaminated with asbestos that made them sick. It's a claim J&J denies. Last October, the company used one of these bankruptcy maneuvers to halt all these lawsuits. And now it could be months or even years before any of these cases can move forward again. After Hanna died, her mom Hope told me this legal tactic was devastating to her daughter and their family.

HOPE SCHILLER WILT: For her to see justice would have not saved her life, but she would have felt like a company like this couldn't get away with causing such horrible heartache.

MANN: NPR did ask Johnson & Johnson for an interview about their decision to use this legal strategy, but the company declined.

CHANG: But to be very clear, Brian, I mean, this legal maneuver, it's not illegal and it's also supported by many people, right?

MANN: That's right. You know, bankruptcy courts are designed to cut deals quickly and distribute money efficiently. They're really good at that. And that makes sense, all the legal experts agree, when there's a financial emergency involving a company that's truly broke. And some judges, legal scholars and corporate executives think it's a good use of bankruptcy power to resolve complicated legal cases in cases like this, when companies are not bankrupt. And what we're seeing is that judges do demand pretty sizable payments from these non-bankrupt companies that want to get in on this kind of settlement. The Sacklers, who we talked about earlier, they're expected to pay roughly $6 billion as part of the Purdue Pharma deal, but in exchange, they're going to receive complete immunity from lawsuits linked to their company's main product, OxyContin, and its role in the deadly opioid crisis. Critics point out this kind of deal, this kind of legal immunity, is only available to those rich enough to afford this kind of big payment and these really costly legal fees.

CHANG: Let's talk about that. Who is trying now to stop bankruptcy judges from allowing this kind of deal?

MANN: Members of Congress from both parties have voiced a lot of outrage about these deals, describing them as a kind of pay-to-play form of justice. There are bills that, if passed into law, would rein in the power of bankruptcy courts to allow these tactics. The U.S. Justice Department has also condemned these deals, saying it's actually unconstitutional to block lawsuits in this way. But for now, Ailsa, unless something changes, the sources I talked to say they expect more and more companies accused of wrongdoing to try to use this approach.

CHANG: That is NPR's Brian Mann. Thank you, Brian.

MANN: Thank you, Ailsa. Transcript provided by NPR, Copyright NPR.

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