On November 10, 2020, Temple Law Professor and 10-Q Faculty Editor Jonathan Lipson delivered the 2020 Friel-Scanlan lecture, titled “Sex, Drugs, and Bankruptcy: Due Process and Social Debt.” The lecture was delivered against the backdrop of the American opioid crisis and recent events surrounding the well-publicized bankruptcies of Purdue Pharma, Boy Scouts of America, and other debtors with liability for egregious misconduct. Professor Lipson argued that a bankruptcy system which offers sweeping releases from civil and criminal liability for those involved in this wrongdoing upsets the basic tenets of Due Process.
Prior to its tumultuous bankruptcy, for example, Purdue Pharma was a significant player in the booming pharmaceutical industry, with much of its success (and profit) owed to the pharmaceutical giant’s blockbuster drug, OxyContin. Both Purdue and OxyContin have been linked to the genesis of the opioid crisis, with allegations of illegal marketing and misrepresentation being levied against Purdue and its storied owners – the Sackler family. Although the extent to which certain members of the Sackler family are responsible for America’s opioid crisis may never be known, Professor Lipson posits that the story of Purdue Pharma sheds light on one important observation concerning our bankruptcy system: its relational tensions may occasionally place the “rule of the deal” over the rule of law.
To put these “relational” tensions into perspective, Professor Lipson proffered two interesting facts: (i) the two largest law firms involved in Purdue Pharma are involved in nearly one-third of the mega-cases on the docket of Bankruptcy Judge Robert Drain, who is presiding over Purdue Pharma’s case, and (ii) corporations like Purdue are able to effectively shop for their judge simply by maintaining a tenuous connection to the venue of friendly judges, such as Westchester County, New York, in the case of Purdue. The problem, Professor Lipson explained, is that these working relationships can lead those in the room when decisions about the litigation are being made to reach compromises that negatively impact interested parties who do not enjoy the same insider status. In the cases of Purdue and the Boy Scouts, these interested parties are the victims of America’s opioid crisis or sexual assault and their grieving families, who often seek dignitary justice, such as transparency and accountability, and not just a payout.
What can be done about this inequity? Professor Lipson argued that the bankruptcy system is much more adept at preserving the value of a corporate debtor as a going concern and achieving the highest possible recovery for creditors then it is at correcting for the non-monetary harms that a corporation’s pre-petition activities might have caused.
Despite this deficiency, Professor Lipson was able to highlight a few workable, albeit partial, solutions that can begin to narrow the due process gap caused by the Bankruptcy Code’s utilitarian orientation. Among these partial solutions is the pre-existing notion that Bankruptcy Courts might allow “test cases” to continue in order to establish a baseline level of liability that the company may face for the underlying claims. Alternatively, an examiner might be appointed to investigate allegations of serious wrongdoing.
Ultimately, it appears that the procedural integrity of our bankruptcy system can only be preserved by appealing to the moral interests of the victims that debtors like Purdue so often leave behind, rather than appealing to the pecuniary interests of personal injury attorneys. Although the current regime, complete with its relational frictions, may result in the highest possible monetary recovery, Professor Lipson implored the audience to consider that money is often insufficient to correct for immoral behavior.
For more information, the lecture can be viewed in its entirety at the link below:
Michael DiPietro (LAW ‘21) is a student-editor for the 10-Q. 8 \lsd