ABSTRACT
This essay explores the constitutional tensions produced by aggressive efforts to resolve mass-tort liability through federal bankruptcy proceedings, as illustrated by non-consensual non-debtor (or third-party) releases and the so-called Texas Two-Step maneuver. The goal of both of those devices is to impose a mandatory no-opt-outs settlement of (and that imposes a hard cap on) a defendant’s mass-tort obligations – a prospect that is otherwise impermissible and unconstitutional. The very nature of bankruptcy relief necessitates that certain constitutional protections injured tort victims’ claims (such as the due process opt-out right and full Seventh Amendment jury trial rights) are inapplicable in federal bankruptcy proceedings. Bankruptcy also provides a basis for federal jurisdiction over all victims’ state-law claims that would not otherwise exist. All told, then, bankruptcy appears to be the Holy Grail for mass-tort defendants – a means of forcing all tort claimants (both present and future) into a mandatory no-opt-outs settlement process in one (federal) court. Unless bankruptcy is to become a facile end-run around multiple constitutional protections for both individual tort claimants and state sovereignty, as well as the structural constitutional limitations on the jurisdictional powers of the federal courts, the ‘subject of Bankruptcies’ (within the meaning of the Constitution’s Bankruptcy Clause) must be limited by a requirement of necessity for bankruptcy relief and its mandatory limited-fund treatment of claimants, consistent with the functional justifications for that relief.
Brubaker, Ralph, Mass Torts, The Bankruptcy Power, and Constitutional Limits on Mandatory No-Opt-Outs Settlements (January 26, 2024), Florida State University Business Review, volume 23, forthcoming; University of Illinois College of Law Legal Studies Research Paper No 24-15.
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