Law360 Quotes Kevin Maclay on Mass Tort Chapter 11 Case

A subcommittee of the Senate Judiciary Committee on Tuesday heard from bankruptcy experts and those affected directly by mass tort Chapter 11 cases about their concerns over the corporate machinations that allow some large corporations to avoid liability over asbestos exposure and how those concerns can be resolved through a range of possible solutions.

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Bankruptcy attorney Kevin C. Maclay of Caplin & Drysdale said the risk of abuse is so high from these kinds of cases that an answer is needed now to stop large corporations from taking advantage of the bankruptcy system to avoid accountability.

While most courts make it a reasonable undertaking to challenge a bankruptcy filing as having been made in bad faith, Maclay said the Fourth Circuit has an unreasonably high bar that makes it almost impossible to have a Chapter 11 case dismissed. For that reason, he said most — if not all — of the Texas two-step cases have been filed in courts in the Western District of North Carolina, including the case of LTL Management, although it was later transferred to J&J's home state of New Jersey.

"The courts' hands are bound by this governing and controlling precedent," Maclay said. "It doesn't matter if it's bad faith … when there is such a widely used scheme where the richest companies take advantage of this."

He urged Congress to take action and create a "universal solution" to what is a universal problem, which could eventually open the door for debtors of all kinds to shield themselves from any type of obligation against any type of creditor.

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