Here’s my biggest bankruptcy shocker from 2023:

• the Third Circuit’s rationale for dismissing Johnson & Johnson’s bankruptcy.

I’ll try to explain.

Appalled

I’m still appalled by the lack of concern, from the Third Circuit Court of Appeals in its dismissal opinion, over these disparities it describes in results for similarly situated claimants:

“Bankruptcy provides a valuable and desirable venue for the resolution of [mass tort] disputes” by:

The history of bankruptcy in these United States teaches this:

• bankruptcy laws can provide an efficient and effective solution for a great variety of financial problems.

But bankruptcy laws, in these United States, face significant problems, and their effectiveness is being diminished.

First Problem

Bankruptcy has a fundamental problem: nobody likes it.

Everyone recognizes that bankruptcy laws are a necessity in our market economy. And bankruptcy laws are even founded upon a provision of the U.S. Constitution:

There are many reasons to mandate mediation in certain circumstances.

• One is to improve the quality of justice.
• Another is to manage an expanding docket and burgeoning caseload.
• A third is to create a mediation culture where none currently exists.

There are two ways to mandate mediation:

Every now and then, a bankruptcy ruling elicits an “Oh, no!” response from just about everyone.

And then, subsequent case law starts rejecting and/or chipping-away at that “On, no!” ruling.

We have such an “Oh, no!” situation going on right now on a Subchapter V debt-limit issue.

New Rejecting/Chipping-Away Opinion

I’m reading a U.S. circuit court’s recent bankruptcy opinion that cites Stern v. Marshall, 564 U.S. 462 (2011). I’m startled by that and blurt out (to myself), “Who cites Stern anymore?!” and “Is Stern still a thing?!” and “I thought Stern has been narrowed to nearly nothing?!”

What creditor would ever want to be an involuntary bankruptcy petitioner under these statements of facts and law:

Oral arguments at the U.S. Supreme Court in Harrington v. Purdue Pharma L.P. happened on December 4, 2023. Here is a link to the official transcript of such arguments.

My Impression

I’ve read that transcript—and still don’t know what the Court is going to do.

But based on the comments/questions of the justices (which are summarized and compiled below), I do have one impression:

Desperate people do desperate things. And desperation leads even good people astray.

So it is in the world of financial stress. Desperate people do desperate things: like providing sloppy financial statements to creditors, failing to assure that all collateral proceeds go to the proper place, and fudging on the truth here-and-there.

We hear a lot these days about bankruptcy venue abuse via corporate-entity manipulation shortly before bankruptcy filing.

Here’s the latest opinion on that subject—which allows Debtor’s choice of venue to stand, based on a newly-created entity: