[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]
OVERSIGHT OF THE BANKRUPTCY CODE,
PART 1: CONFRONTING ABUSES OF THE
CHAPTER 11 SYSTEM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL, AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
WEDNESDAY, JULY 28, 2021
__________
Serial No. 117-38
__________
Printed for the use of the Committee on the Judiciary
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via: http://judiciary.house.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
48-645 WASHINGTON : 2022
-----------------------------------------------------------------------------------
COMMITTEE ON THE JUDICIARY
JERROLD NADLER, New York, Chair
MADELEINE DEAN, Pennsylvania, Vice-Chair
ZOE LOFGREN, California JIM JORDAN, Ohio, Ranking Member
SHEILA JACKSON LEE, Texas STEVE CHABOT, Ohio
STEVE COHEN, Tennessee LOUIE GOHMERT, Texas
HENRY C. ``HANK'' JOHNSON, Jr., DARREL ISSA, California
Georgia KEN BUCK, Colorado
THEODORE E. DEUTCH, Florida MATT GAETZ, Florida
KAREN BASS, California MIKE JOHNSON, Louisiana
HAKEEM S. JEFFRIES, New York ANDY BIGGS, Arizona
DAVID N. CICILLINE, Rhode Island TOM McCLINTOCK, California
ERIC SWALWELL, California W. GREGORY STEUBE, Florida
TED LIEU, California TOM TIFFANY, Wisconsin
JAMIE RASKIN, Maryland THOMAS MASSIE, Kentucky
PRAMILA JAYAPAL, Washington CHIP ROY, Texas
VAL BUTLER DEMINGS, Florida DAN BISHOP, North Carolina
J. LUIS CORREA, California MICHELLE FISCHBACH, Minnesota
MARY GAY SCANLON, Pennsylvania, VICTORIA SPARTZ, Indiana
SYLVIA R. GARCIA, Texas SCOTT FITZGERALD, Wisconsin
JOE NEGUSE, Colorado CLIFF BENTZ, Oregon
LUCY McBATH, Georgia BURGESS OWENS, Utah
GREG STANTON, Arizona
VERONICA ESCOBAR, Texas
MONDAIRE JONES, New York
DEBORAH ROSS, North Carolina
CORI BUSH, Missouri
PERRY APELBAUM, Majority Staff Director & Chief Counsel
CHRISTOPHER HIXON, Minority Staff Director
------
SUBCOMMITTEE ON ANTITRUST, COMMERCIAL,
AND ADMINISTRATIVE LAW
DAVID N. CICILLINE, Rhode Island, Chair
PRAMILIA JAYAPAL, Washington, Vice-Chair
JOE NEGUSE, Colorado KEN BUCK, Colorado, Ranking Member
ERIC SWALWELL, California DARREL ISSA, California
MONDAIRE JONES, New York MATT GAETZ, Florida
THEODORE E. DEUTCH, Florida MIKE JOHNSON, Louisiana
HAKEEM S. JEFFRIES, New York W. GREGORY STEUBE, Florida
JAMIE RASKIN, Maryland MICHELLE FISCHBACH, Minnesota
VAL BUTLER DEMINGS, Florida VICTORIA SPARTZ, Indiana
MARY GAY SCANLON, Pennsylvania SCOTT FITZGERALD, Wisconsin
LUCY McBATH, Georgia CLIFF BENTZ, Oregon
MADELINE DEAN, Pennsylvania BURGESS OWENS, Utah
HENRY C. ``HANK'' JOHNSON, Jr.,
Georgia
SLADE BOND, Chief Counsel
DOUG GEHO, Minority Counsel
C O N T E N T S
----------
Wednesday, July 28, 2021
Page
OPENING STATEMENTS
The Honorable David N. Cicilline, Chair of the Subcommittee on
Antitrust, Commercial and Administrative Law from the State of
Rhode Island................................................... 2
The Honorable Ken Buck, Ranking Member of the Subcommittee on
Antitrust, Commercial and Administrative Law from the State of
Colorado....................................................... 3
The Honorable Jerrold Nadler, Chair of the Committee on the
Judiciary from the State of New York........................... 173
WITNESSES
The Honorable William Tong, Attorney General, State of
Connecticut
Oral Testimony................................................. 6
Prepared Testimony............................................. 8
Tasha Schwikert Moser, Bronze Medal Olympic Gymnast, Attorney,
Sex Abuse Survivor
Oral Testimony................................................. 12
Prepared Testimony............................................. 14
Alexis Pleus, Founder, Executive Director, Board Ex Officio
Chair, Truth Pharm
Oral Testimony................................................. 18
Prepared Testimony............................................. 20
Supplement Material............................................ 28
Adam J. Levitin, Anne Fleming Research Professor and Professor of
Law, Georgetown Law
Oral Testimony................................................. 128
Prepared Testimony............................................. 130
Douglas G. Baird, Chair, National Bankruptcy Conference; Harry A.
Bigelow Distinguished Service Professor of Law, University of
Chicago Law School
Oral Testimony................................................. 152
Prepared Testimony............................................. 154
David A. Skeel, Jr., S. Samuel Arsht Professor of Corporate Law,
University of Pennsylvania Law School
Oral Testimony................................................. 164
Prepared Testimony............................................. 166
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Materials submitted by the Honorable David N. Cicilline, Chair of
the Subcommittee on Antitrust, Commercial and Administrative
Law from the State of Rhode Island, for the record
Statement from Marci A. Hamilton, Founder and CEO, CHILD USA... 200
Statement from Olympian Terin Humphrey, CHILD USA.............. 205
APPENDIX
An article entitled, ``Bankruptcy as Bailout: Coal Company
Insolvency and the Erosion of Federal Law,'' Stanford Law
Review, submitted by the Honorable Mary Gay Scanlon, a Member
of the Subcommittee on Antitrust, Commercial and Administrative
Law from the State of Pennsylvania, for the record............. 210
OVERSIGHT OF THE BANKRUPTCY CODE,
PART 1: CONFRONTING ABUSES OF THE CHAPTER 11 SYSTEM
----------
Wednesday, July 28, 2021
House of Representatives
Subcommittee on Antitrust, Commercial, and
Administrative Law
Committee on the Judiciary
Washington, DC
The Committee met, pursuant to call, at 10:05 a.m., in room
2141, Rayburn House Office Building, Hon. David N. Cicilline
[Chair of the Subcommittee] presiding.
Members present: Representatives Nadler, Cicilline, Jones,
Raskin, Jayapal, Scanlon, McBath, Dean, Johnson of Georgia,
Buck, Johnson of Louisiana, Steube, Bishop, Fischbach, Spartz,
Fitzgerald, Bentz, and Owens.
Staff present: John Doty, Senior Advisor; Moh Sharma,
Director of Member Services and Policy and Outreach Advisor;
Cierra Fontenot, Chief Clerk; John Williams, Parliamentarian
and Senior Counsel; Atarah McCoy, Staff Assistant; Daniel
Rubin, Communications Director; Merrick Nelson, Digital
Director; Kayla Hamedi, Deputy Communications Director; Joseph
Van Wye, Professional Staff Member/Legislative Aide for
Antitrust, Commercial, and Administrative Law; Slade Bond,
Chief Counsel for ACAL; Matt Morgan, Counsel for Constitution;
Douglas Geho, Minority Chief Counsel for Antitrust, Commercial,
and Administrative Law; Andrea Woodard, Minority Professional
Staff Member; and Kiley Bidelman, Minority Clerk.
Mr. Cicilline. [Presiding.] The Subcommittee will come to
order.
Without objection, the Chair is authorized to declare
recesses of the Committee at any time.
Good morning and welcome to today's hearing, the first in a
series to conduct much-needed oversight of our broken
Bankruptcy Code.
Before we begin, I would like to remind Members that we
have established an email address and distribution list
dedicated to circulating exhibits, motions, or other written
materials that Members might want to offer as part of our
hearing today. If you would like to submit materials, please
send them to the email address that has been previously
distributed to your offices, and we will circulate the
materials to Members and staff as quickly as we can.
I also want to remind those who are participating, in
response to the new guidance issued yesterday by the Centers
for Disease Control and the Office of the Attending Physician,
that Members and staff in this room are required to wear masks
at all times, except when they are under recognition to speak.
If, for whatever reason, you do not wish to comply with these
new guidelines, the House will give you the option of
participating remotely.
I now recognize myself for an opening statement.
The cornerstone of our Bankruptcy Code is fairness.
Fairness is essential to assist in what Congress designed to
determine who should get what when hard-working, honest
Americans need a fresh start; and in the case of Chapter 11
bankruptcies, when corporations cannot pay their debts.
In the Chapter 11 process, this concept of fairness means
respecting the rights of all stakeholders without stacking the
deck in favor of insiders or repeat players. In recent years,
massive institutions and powerful individuals have abused this
process to evade accountability for some of the most horrifying
conduct imaginable. The Sackler family, which made billions of
dollars off the opioid epidemic that they helped create, are
abusing the bankruptcy of the company they own, Purdue Pharma,
to secure lifetime immunity for liability for what they have
done.
Child abusers and their enablers are using the bankruptcies
of the Boy Scouts of America and the Catholic dioceses to
ensure that they will never have to answer for their crimes.
The people and organizations that allowed Larry Nassar to
sexually abuse hundreds of young women for years are using the
bankruptcy of USA Gymnastics to avoid a reckoning.
As part of this scheme, these companies hide behind opaque,
complex provisions of the Bankruptcy Code, controversial
practices that are cloaked in terms that are almost
impenetrable--terms like ``nonconsensual and non-debtor
releases,'' ``temporary stays,'' ``divisional mergers,'' and
``equitable incentive bonuses.'' Few people could possibly know
that these provisions often serve as tools to undermine the
checks and balances that are supposed to prevent powerful,
lawless corporations from rigging the Chapter 11 process in
their favor to evade justice.
This is a systemic problem that is plaguing our justice
system. We have heard from numerous victims, survivors, and
families who are caught up in these and other bankruptcies that
have been weaponized to silence them and to shield wrongdoers
from accountability. They told us that what was happening in
the Purdue bankruptcy was also happening to them, and unless
something changed, it would happen again and again and again.
These are all clear examples of how Chapter 11 is being abused.
To be clear, these examples are all systems of a deeper and
more pervasive problem in the bankruptcy system. It is not just
the Sacklers and their accomplices. It is the people and
institutions that enabled Larry Nasser to sexually abuse
hundreds of girls and young women; the people who enabled the
criminal acts of Harvey Weinstein; the authority figures and
surrogate parents who sexually abused uncounted scores of Boy
Scouts and young parishioners and those who enabled that abuse.
This must end. We cannot allow this complete and total
misuse of the bankruptcy system to escape the reckoning that
the law must provide.
That is why I am proud to join Chair Nadler, Chair Maloney,
Senator Durbin, and Senator Warren in introducing the Non-
Debtor Release Prohibition Act of 2021. This important
legislation would prevent individuals who have not filed for
bankruptcy from obtaining releases from lawsuits. It would also
provide other meaningful changes to address this problem,
including prohibiting the discharge of liability for misconduct
as part of the bankruptcy process. As we will hear from our
Witnesses today, this legislation is essential to curb these
abusive practices before they happen again and stop the abuses
that are happening now.
Before closing, I want to recognize the leadership of Chair
Nadler, who has pushed tirelessly to safeguard and advance the
rights of workers, students, and consumers in the bankruptcy
system.
I also want to acknowledge the hard work of my friend,
Chair Maloney, and her team on the Committee on Oversight and
Reform for their commitment to exposing the harm the Sackler
family and their handpicked executives at Purdue Pharma have
done to this country and its citizens; for giving a voice to
the families caught up in the crisis the Sacklers spawned, and
for shining a light on the Sacklers' efforts to turn the
bankruptcy system into an accomplice for their crimes.
With that, I thank the Witnesses for appearing before us
today, and I look forward to their testimony.
I now recognize the distinguished gentleman from Colorado,
the Ranking Member of the Antitrust Subcommittee, Congressman
Buck, for his opening statement.
Mr. Buck. Thank you, Mr. Chair.
This hearing raises important issues and I look forward to
learning more from our Witnesses today. As several of our
Witnesses point out in their testimony, the Chapter 11 system
is generally functioning well, but it is likely in need of some
changes.
The first area that I think we should look at is venue
selection in bankruptcy proceedings. Debtors are handpicking
which judge hears their cases. For example, in 2020, 39 percent
of large public company bankruptcy filings went before a single
judge, David Jones in Houston. In 2020, 57 percent of the large
public bankruptcy cases ended up before either Jones or two
other judges, Marvin Isgur of Houston or Robert Drain in White
Plains, New York.
For context, there are 375 bankruptcy judges. Three judges
should not be overseeing so many bankruptcy proceedings that
have massive ripple effects across this country. This trend is
particularly troubling because allowing a company to pick a
judge that they know will give them a favorable outcome
undermines the checks and balances of the Chapter 11 system.
I am proud to have cosponsored the Bankruptcy Venue Reform
Act of 2021 with Representative Lofgren, which simply requires
that Chapter 11 bankruptcy proceedings take place where the
principal place of business or principal assets of the
corporation are located.
The second issue that I believe warrants additional review
is the practice of forcing creditors to release their claims
against non-debtor third-parties in bankruptcy proceedings.
Under this practice, the non-debtor third-party agrees to pay
into a trust to be released from any further liability, and the
funds in that trust go to the claimants or victims.
Issues arise in this arrangement because the creditors who
are victims of a company's bad behavior or faulty product have
no say as to whether they are willing to accept the deal the
third party is proposing. It is usually just accepted by the
bankruptcy judge and made part of the bankruptcy proceeding.
Congress should update Chapter 11 to put sufficient
safeguards in place to ensure victims are adequately
compensated while allowing a company to have finality as to its
liability. Such a change would ensure victims are recompensed
instead of a company paying relatively little to extinguish
further liability, and then, trial lawyers being able to grift
off the funds meant for victims.
Mr. Chair, I yield back.
Mr. Cicilline. The gentleman yields back, and I will
recognize the Chair of the Full Committee and the Ranking
Member of the Full Committee upon their arrival.
It is now my pleasure to introduce today's Witnesses.
Our first Witness is the Honorable William Tong, the 25th
Attorney General of Connecticut. He took office on January 9,
2019, and is the first Asian American State-level elected
official to serve in Connecticut. Prior to being elected
Attorney General, he served as a State representative in the
Connecticut General Assembly for 12 years, where he was the
Chair of both the Judiciary and Banking Committees. He is a
litigator in both State and Federal courts. Since taking
office, Attorney General Tong has been a leading voice on a
number of critical consumer protection issues, perhaps most
notably in his work to hold the Sackler family accountable for
their role in creating our nation's opioid epidemic. Attorney
General Tong received his bachelor's degree from the nationally
renowned Brown University in my district and his JD from the
University of Chicago Law School.
Our second Witness today is Tasha Schwikert Moser. Ms.
Schwikert Moser is a bronze-medal-winning Olympic gymnast and
associate at Munck Wilson Mandala's corporate and sports law
practices. She currently focuses on complex mergers and
represents athletes in contracts, disputes, and name, image,
and likeness matters. She also serves as co-chair of the
special committee for more than 500 survivors of Larry Nassar.
She and her sister Jordan are among those survivors. Ms.
Schwikert Moser is a tireless advocate specifically in her
efforts to support survivors of sexual assault. In 2019, she
testified before the Texas Senate State Affairs Committee in
favor of extending the statute of limitations for child sexual
abuse survivors. Ms. Schwikert Moser received her BA from the
University of California Los Angeles and her JD from the
University of Nevada.
Our third Witness, Alexis Pleus, is the founder, Executive
Director, and board ex-officio Chair of Truth Pharm. She is a
licensed professional engineer with more than 25 years of
experience in the design and construction industry and served
as an adjunct professor of civil engineering for nine years at
SUNY Broome. Tragically, in 2014, Ms. Pleus lost her oldest son
Jeff to a heroin overdose. As a result, she founded Truth
Pharm, a volunteer, nonprofit organization dedicated to raising
awareness, reducing stigma, and focusing on education and
advocacy to reduce the harms of substance abuse. Ms. Pleus also
serves as co-chair for the New York State Harm Reduction
Association, on the Statewide Coalition to End Overdose in New
York, on the National Coalition for Harm Reduction Funding, and
on the Opioid Network.
Our fourth Witness is Adam Levitin, the Anne Fleming
Research Professor and professor of law at Georgetown Law
School. Professor Levitin has taught at Georgetown Law in
various posts since 2007. Additionally, he served as a visiting
professor of law at Harvard Law School from 2012-2013. Before
joining the faculty at Georgetown, Professor Levitin served in
Weil, Gotshal & Manges' Business Finance and Restructuring
Department. While maintaining his post at Georgetown, he also
served as special counsel to the Congressional Oversight Panel
for the Troubled Asset Relief Program and volunteer consulting
attorney to the Delaware attorney general's office. In 2020,
Professor Levitin was listed as one of Lawdragon's 500 leading
U.S. bankruptcy and solvency lawyers. He is the author of ``The
Great American Housing Bubble: What Went Wrong and How Can We
Protect Ourselves in the Future,'' and has had articles
featured in the country's leading law reviews and journals.
Professor Levitin received both his BA and his JD from Harvard.
Our fifth Witness, Douglas Baird, is the chair of the
National Bankruptcy Conference and the Harry A. Bigelow
Distinguished Service Professor of Law at the University of
Chicago Law School, where he has taught since 1980. Over his
academic career, he has served as a visiting professor at
Stanford, Harvard, and Yale's Law Schools. Professor Baird has
held positions in a number of prominent legal organizations,
including the American Law and Economics Association and the
American College of Bankruptcy, and is a member of the National
Bankruptcy Conference. Professor Baird received his BA from
Yale College, his JD from Stanford Law School, and an LLD from
the University of Rochester.
Today's last Witness, David Skeel, serves as the S. Samuel
Arsht Professor of Corporate Law at the University of
Pennsylvania Law School since 2004 and has been professor of
law there since 1999. Before joining the faculty at the
University of Pennsylvania, he taught at Temple University and
later at Temple School of Law. During his academic career,
Professor Skeel has served as a visiting professor at multiple
law schools, including Harvard, Duke University, the University
of Virginia, and Cambridge. He is a member of the Financial and
Management Oversight Board for Puerto Rico, as well as the
Advisory Committee on Bankruptcy Rules. Additionally, Professor
Skeel has published multiple books, including ``True Paradox:
How Christianity Makes Sense of Our Complex World,'' and
``Debt's Dominion: A History of Bankruptcy Law in America.''
Professor Skeel received his BA from the University of North
Caroline Chapel Hill and his JD from the University of Virginia
Law School.
We welcome all our very distinguished Witnesses, and we
thank you for your participation.
I will begin by swearing in each of our Witnesses. I ask
the Witnesses who are in the room to rise, and I ask the
Witnesses testifying remotely to turn on their audio and make
sure that I can see your face, with their right hand raised,
while I administer the oath.
Do you swear or affirm under penalty of perjury that the
testimony you are about to give is true and correct to the best
of your knowledge, information, and belief, so help you God?
[Witnesses all respond in the affirmative.]
Thank you. You may be seated.
Let the record reflect that the Witness all answered in the
affirmative.
Now, I would just remind all the Witnesses that your
written statements will be entered into the record in their
entirety. Accordingly, I ask that you summarize your testimony
in five minutes.
To help you stay within that timeframe, there is a timing
light in Webex and in the room. When the light switches from
green to yellow, you have one minute to conclude your
testimony. When the light turns red, it signals that your five
minutes have expired.
I now recognize Attorney General Tong for five minutes.
STATEMENT OF THE HON. WILLIAM TONG
Mr. Tong. Thank you, Chair Cicilline, Ranking Member Buck,
and Members of the Committee. Thank you for the distinct honor
of appearing before you today.
My name is William Tong. I am the Attorney General of the
State of Connecticut. On behalf of the people of our great
State, I am here to urge you to stop the abusive practice known
as nonconsensual/non-debtor releases. In other words, an
abusive practice by which people who are not in bankruptcy, who
are not bankrupt, use the bankruptcy process to secure releases
for themselves and to avoid liability for their own misconduct.
I don't have to tell the Members here that the opioid and
addiction crisis is ravaging States and communities across the
country. Apart from the COVID pandemic, this is the worst
public health crisis in America. In Connecticut, that means we
lose more than 1,300 people a year and rising, with more than
$10 billion a year in damage to our State. That is 1,300
families wrecked by the opioid and addiction crisis. Across the
country, almost 100,000 families share this fate, and we have
seen more than $2 trillion in damage.
I have the unfortunate distinction of being the home State
Attorney General for Purdue Pharma and many of the Members of
the Sackler family who are responsible for this crisis. That is
why, in December of 2018, Connecticut sued Purdue Pharma and
the Sacklers. Now, importantly, we focused on the Sacklers for
their direct participation in helping to cause the addiction
crisis and for telling lies that had made people sick and has
gotten them killed.
They turbo-charged the sales of OxyContin, a molecule very
similar, almost identical, to heroin. They tell lies about
opioids, saying that they're not addictive. They tell lies
about victims, saying that their addiction is their fault. They
push long-term use. They cover up for doctors who
overprescribe, and they cover up for pill mills. They sell lies
like pseudo-addiction, where they say that the reason why
people get addicted is because they don't have access to enough
opioids, and if they just had more drugs, they wouldn't get
addicted. After causing widespread addiction, they attempted to
profit off that addiction by offering therapies to confront
addiction and to help people get off of their addiction to
OxyContin.
So, Connecticut sued the Sacklers, exercising our state's
police power to protect the public health and lives of our
residents. These claims are essentially identical to those of
our sister States.
In 2019, the company Purdue Pharma declared bankruptcy.
Importantly, the Sacklers did not because they are not
bankrupt. No one believes for a second that the Sacklers do not
have any money. By conservative estimates, they have taken out
at least $11 billion from the sale of OxyContin, and they are
growing wealthier by the minute.
The Sacklers personally have no basis to seek the
protections of the bankruptcy court. If they were bankrupt,
then all their money, all their assets would be in the control
of the bankruptcy court, and the court could decide to
distribute those assets to help thousands, if not millions, of
victims and their families.
Now, even though the Sacklers are not bankrupt, they have
used the bankruptcy court to stop States like Connecticut from
going after them and holding them accountable. They want us to
agree to a deal in which the Sacklers pay $4.2 billion over
nine years. Now, let me put that in perspective in case $4.2
billion sounds like a lot of money.
Over nine years, if you assume the Sacklers have made at
least $11 billion in ill-begotten gains, if they pay $4.2
billion over nine years, that means they will pay less than
five percent on their money every year. They'll more than cover
that five percent on the investment income in their offshore
accounts, and not a single one of them will have to sell a
house or a boat or a piece of art or jewelry.
If we don't agree--and that's why I am here today--the
Sacklers want the court to force us to accept this deal and to
force sovereign States like Connecticut to release our claims
against the non-debtor Sacklers. This is an outrage.
Connecticut is exercising its sovereign police powers against
the Sacklers. No court in this country has ever held that a
court may force a sovereign State to release its police power
claims against a non-debtor. To permit non-debtors to abuse the
bankruptcy process like this is an outrage, and Connecticut
strongly encourages you to stop this abuse.
Thank you, Mr. Chair.
[The statement of Mr. Tong follows:]
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[GRAPHIC] [TIFF OMITTED] T8645.002
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[GRAPHIC] [TIFF OMITTED] T8645.004
Mr. Cicilline. Thank you, Mr. Attorney General.
I now recognize Ms. Schwikert Moser for five minutes.
Just put your microphone on. Thank you.
STATEMENT OF TASHA SCHWIKERT MOSER
Ms. Schwikert Moser. Thank you. Chair, Ranking Member, and
distinguished Members of the Committee, it is a great honor for
me to appear in front of you today.
My name is Tasha Schwikert Moser. I am a mother of three
young children, a wife, an Olympic bronze medalist, and a
practicing attorney in corporate law and sports law. I am also
one of the hundreds of survivors of sexual abuse at the hands
of Larry Nassar, who was the official doctor for USA Gymnastics
and the United States Olympic and Paralympic Committee.
I dedicated my entire childhood seeking to represent the
United States of America at the Olympics. At the age of 15, I
made our country's women's gymnastics team for the Sydney 2000
Olympic Games. The team won a bronze. Like the Olympic athletes
representing our great country in Tokyo right now, my teammates
and I had to make huge sacrifices to get there.
My sacrifices came at a horrific cost. I was abused by
Larry Nassar. At first, Larry gained my trust and confidence.
After beating up my body day-in and day-out in my goal to win
for my country, I would see Larry for medical treatment, which
gave him the opportunity to do unspeakable things to my body. I
saw Larry because he was the only doctor that USA Gymnastics
and the Olympic Committee made available to me. I had no choice
in medical providers. He was the Olympic gymnastics doctor.
Everyone on the national team and the Olympic team saw
Larry for medical treatment. When I was part of Team USA at the
Sydney Olympics, the Olympic Committee and USA Gymnastics had
our gymnastics team stay outside the Olympic Village. With no
chaperone present, Larry performed his now infamous medical
treatments--sexual abuse--on me when I was a child in my own
sleeping area. He also sexually abused me at the Sydney 2000
Olympic Games in the actual Olympic stadium.
I relied on USA Gymnastics and the Olympic Committee for my
well-being. Both organizations must be held accountable for the
abuse that happened to me and my hundreds of other survivor
sisters.
In 2018, I filed a lawsuit seeking to hold USA Gymnastics
and the Olympic Committee accountable for my sex abuse. Shortly
after I filed my lawsuit, USA Gymnastics declared bankruptcy.
My claim against USA Gymnastics was automatically stayed. I was
appointed co-chair of the Sexual Abuse Survivors Committee in
the USA Gymnastics bankruptcy.
What does the bankruptcy of USA Gymnastics have to do with
my independent claims against the Olympic Committee? At first,
I thought absolutely nothing. The Olympic Committee had a net
worth of approximately $468 million. The Olympic Committee made
approximately $79 million per year in profits.
After USA Gymnastics' bankruptcy, I learned a sad reality--
that the bankruptcy would hurt my efforts to get relief in our
civil justice system for my independent claims against the
Olympic Committee. Bankruptcy courts asserted extraordinary
powers that I had never thought possible over my claims against
the Olympic Committee. The bankruptcy court stayed my claims
against the Olympic Committee.
When I recently tried to lift the stay, so I could continue
my lawsuit against the Olympic Committee, USA Gymnastics
claimed that I had violated the bankruptcy stay. When USA
Gymnastics filed a bankruptcy plan, they claimed the bankruptcy
court had the extraordinary power to release my sex abuse
claims against the Olympic Committee for abuse that happened at
the Olympics.
How could the bankruptcy court decide my claims against a
non-bankrupt, wealthy corporation like the Olympic Committee? I
found that bankruptcy laws protect very wealthy organizations
like the Olympic Committee who are not in bankruptcy and who
have the ability to fully pay for injuries they caused me. This
shocked me. I thought it was unfair and unconstitutional.
I thought it was unfair because, without my consent, a
bankruptcy court could take away my claims against an
organization that has not declared bankruptcy. I thought it was
unconstitutional because the Constitution protects me and all
Americans from the government taking our property without due
process and preserves my right to a jury trial.
I learned that the bankruptcy court could take away my
claim against the Olympic Committee without a jury trial,
without my consent, and without the right to opt out of a
bankruptcy plan. I had no choice in who provided me medical
treatment which resulted in my sexual abuse. Now, I feel I have
no choice in this case seeking accountability for that sexual
abuse.
While bankruptcies should not be the end of the road for
sex abuse predators, in many ways it has felt like a giant
Black hole of truth and accountability against non-bankrupt
organizations. It has been nearly three years since USA
Gymnastics declared bankruptcy. The Olympic Committee received
substantial protection from the bankruptcy courts, yet has
given no relief to me or the many other Yeasurvivors of their
despicable conduct.
I support this legislation because each athlete like me who
endured this hell and sexual abuse by Olympic doctor Larry
Nassar, each athlete deserves the ability to make the choice on
how they will seek justice. Victims and survivors of their
abuse are then barred from seeking justice and fair
compensation in the court of law and deprived of their
constitutional right to a jury trial. This bankruptcy abuse
must stop, and this is why I support this bill.
[The statement of Ms. Schwikert Moser follows:]
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Mr. Cicilline. Thank you so much.
I now recognize Ms. Pleus for five minutes.
STATEMENT OF ALEXIS PLEUS
Ms. Pleus. Good morning and thank you for having me here to
testify today.
Next week will commemorate the seventh year since I lost my
first-born son Jeff to a heroin overdose. The call came from my
middle son Jason while I was overseeing a concrete pour at Fort
Meade. He would only call me during the workday if it was an
emergency. So, I answered. The signal was weak. There was
static. There were concrete trucks and construction noises in
the background. So, I pushed the phone close to my ear, and I
heard him screaming, ``Come home, mom. Come home.'' Jeff was
dead.
Eleven years prior, I was attending Jeff's first football
game of his junior year. There was a huddle, a whistle blown,
pushing on the line, a circle of players, and refs on the
field, parents standing, trying to see who was down, and then,
a coach waving to me. I rushed to the field. Jeff was rolling
on his back with his knee pulled to his chest, crying in agony.
The orthopedics doctor said that it would take surgery,
extensive physical therapy, and OxyContin to manage Jeff's
pain, if he ever wanted to play sports again. OxyContin every
four hours, take it, even if you don't feel the pain, because
it will be important to stay ahead of it, the doctor said.
This was 2003. A national crisis was brewing, but we were
oblivious. There were no headlines about overdose deaths. There
was no education about the addictive qualities of OxyContin. No
one told me that it might be hard for Jeff to stop taking those
pills.
I glanced at a picture of our family in a frame in our
living room the other day. Everyone was smiling normal, but
Jeff had a wide-open comical smile on his face with his hand
propped on his hip. I'll never see his smile again, I thought
to myself, and instantly folded over in pain.
I've been grieving his loss for seven years, and yet, the
reality still hits me like this at odd times, like fresh news,
like a punch in the gut that makes you want to curl up in a
ball on the floor and cry until you can't cry anymore.
Jeff's life and story is important to all of those who
loved him, but his story alone is not enough to impact laws. I
don't expect you to care about him, but the fact that Jeff is
among 930,000 other people who have died of an overdose since
1999 certainly should be enough.
In 2001, when a federal prosecutor reported 59 OxyContin
overdose deaths in one State, Richard Sackler wrote in an email
to Purdue executives, ``That's not too bad. It could have been
far worse.''
I grew up in a family of strong women who set an example of
voting, working at the polls, running for town boards, and
being active Members of political committees. My grandmother
wrote op-eds from a nursing home bed until she passed. I bring
this up to mention that I grew up in a family who believed in
our government, in our governmental processes, who taught me
that, if you wanted change, there were ways to create it, and
it is your responsibility. What my family did not teach me is
the power of corporations, the rich people who benefit from
them, and the laws that protect them.
In 2011, after one week of prescription sales doubled
Purdue's forecast, Richard Sackler said, ``I had hoped for
better results.'' For the rest of America, we have laws in this
country to teach personal accountability, no matter how petty a
crime is. In fact, we even criminalize the illness of
addiction, despite the fact that incarceration increases a
person's risk of fatal overdose by 40 times.
The massive war on drugs has done nothing other than
perpetuate harm, cause massive human loss, and decimate
communities of color. I know a Black man sentenced to six years
for having four baggies of heroin in his pocket. In June, we
held a rally for a 22-year-old boy who died from medical
neglect in a jail. He had the smallest amount of drugs possible
that he was charged for criminal possession, and he died in a
jail cell for it. The little brother of one of our staff
Members is currently facing 15 years in prison for a quantity
of drugs that could fit in a small ladies' purse. These are
criminals. ``Why should they be entitled to our sympathies?''--
another Richard Sackler email quote.
In 2012, 259 million prescriptions were written for
opioids, which was more than enough to give every American
adult their own bottle of pills. We've seen no intent to sell,
no drug distribution, and no incarceration for the Sacklers. In
2018, Richard Sackler obtained a patent for a medication that
can be used to treat opioid addiction. The patent application
notes the addictive qualities of opioids.
I watched a congressional hearing in December where I saw
Members call the Sacklers the evilest family in America, and I
had hoped that the mass destruction that was caused by this
family was being exposed in a way that our lawmakers would get
to work on ensuring a plan of accountability. Somehow the
Sacklers are free from the drug war. They walk away unscathed,
uncharged for mass murder. They have changed and impacted our
country for generations. They even get to keep the money they
accumulated as a result, leaving the burden and expense on the
American people.
New York State Attorney General Letitia James has shown
that the family has withdrawn $11 billion from Purdue Pharma,
protecting their wealth from lawsuits. These slippery suckers
found a way to not only suck this wealth off the top of the
corporation, they now found a way to protect the wealth they
amassed on the graves of our kids, a little loophole called the
non-debtors' release. It is likely that less than two percent
of us who have lost a loved one will even receive any
settlement, not even enough to cover the funerals of our
children. What I'm asking you to do today is to please close
this loophole.
[The statement of Ms. Pleus follows:]
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Mr. Cicilline. Thank you so much, Ms. Pleus.
I now recognize Professor Levitin for five minutes.
STATEMENT OF ADAM LEVITIN
Mr. Levitin. Mr. Chair Cicilline, Ranking Member Buck,
Members of the Committee, and particularly my own
Representative, Jamie Raskin, good morning.
My name is Adam Levitin. I'm a professor of law at
Georgetown University. I'm here to tell you that Chapter 11 has
got some problems. They're perhaps best illustrated by what's
going on in Purdue Pharma's bankruptcy. Purdue, of course, is
the manufacturer of OxyContin, a powerful opioid that played a
central role in the opioid crisis.
In a couple of weeks, a bankruptcy judge is going to hold a
hearing to determine whether to confirm Purdue's Chapter 11
plan. Under Purdue's plan, opioid victims and other creditors,
like my own State of Maryland, will be forced to release their
claims, not just against Purdue, but also against Purdue's
owners, the billionaire Sackler family. The Sacklers will wipe
out their opioid liabilities without having to file for
bankruptcy themselves. Opioid victims will never have their day
in court. The Sacklers will never have to face their creditors,
make a full disclosure of their assets, or make all their
assets available to creditors. Despite allegedly receiving
billions of dollars in fraudulent transfers from Purdue, the
Sacklers will actually emerge from Purdue's bankruptcy richer
than when they went into it.
How did this happen? The key to the Sacklers getting away
with it is that Purdue abused the local bankruptcy case
assignment rules to handpick the judge for its case. Purdue
picked this judge because it knew that he was likely to rule in
its favor on all the key issues, including a release for the
Sacklers. So far, they have not disappointed. Litigation
against the Sacklers has already been stayed for almost two
years.
Now, forum shopping has long been a problem in bankruptcy,
but Purdue involved something different. In the last several
years, debtors have learned techniques to handpick individual
judges whom they believe will rule in their favor. We've gone
from having forum shopping among districts to shopping for
individual judges. Judge picking reached such an extreme last
year when 57 percent of the large public company bankruptcies
ended up before just three of the nation's 375 bankruptcy
judges, and one of those three judges is the very judge who is
presiding over Purdue's bankruptcy.
Judge picking indelibly taints a case with an appearance of
impropriety. What's worse, however, is that appellate review,
the critical check on problems at the trial court level, often
does not function in bankruptcy. In particular, a doctrine
called equitable mootness provides that an appellate court will
not reverse a bankruptcy plan that has been substantially
consummated to protect reliance on the plan. As a result, in
many situations a bankruptcy judge's ruling is the final word.
That means, once the debtor has picked its preferred judge,
it's game, set, and match.
This has become the standard operating procedure in big
case Chapter 11 practice, and it comes at a price. Sometimes
that price is paid by bond holders who are landlords, but what
we see in cases like Purdue and Boy Scouts of America is that
it also comes at the expense of tort victims, of people who
have already been terribly wronged. That shouldn't happen.
Now, I don't think you're going to hear any defense of
judge picking or equitable mootness today. There is recognition
across the legal academy, and much of the Chapter 11 bar, that
both are problems that need to be addressed. I believe you will
hear that third-party releases are a useful tool for making the
best of a bad situation and that they should be allowed, at
least under certain circumstances. I would urge you not to heed
that position.
The key problem bankruptcy is attempting to address is the
orderly payment of claims from a limited fund that's
insufficient to satisfy all creditors. That is about making the
best of a bad situation. Third-party releases are different,
however. They are releases of solvent entities, like the U.S.
Olympic Committee. So, there's no limited fund problem. The
only problem is that non-debtors don't want to have to pay
their debts. Third-party releases enable them to get a
discharge on the cheap by piggybacking on another entity's
bankruptcy, and the result is perverse. An insolvent debtor is
required to surrender all its assets, but a solvent non-debtor
can get a release in exchange for parting with, at most, a
fraction of its assets.
While bankruptcy is about trying to make the best of a bad
situation, it's not a license to trample overdue process
rights. If the Sacklers, or any other third party, want to
resolve mass litigation liability in a single proceeding,
they're welcome to file for bankruptcy themselves. It should be
axiomatic that the benefits of bankruptcy relief must go hand
in hand with its burdens.
I look forward to your questions.
[The statement of Mr. Levitin follows:]
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Mr. Cicilline. Thank you, Professor.
Now, I will recognize Professor Baird for five minutes.
STATEMENT OF DOUGLAS G. BAIRD
Mr. Baird. Mr. Chair, Ranking Member Buck, Members of the
Committee, I'm Douglas Baird. I'm the Harry A. Bigelow
Distinguished Service Professor at the University of Chicago
Law School, and I'm grateful for the opportunity to speak to
you today on behalf of the National Bankruptcy Conference.
Since 1979, Chapter 11 has saved many thousands of
businesses, large and small. As conditions change, however,
ongoing vigilance against abuse is essential, and nowhere is
vigilance more important than when the rights of those affected
are tort victims and involve nonconsensual third-party
releases.
I want to say at the outset that an outright prohibition
against third-party releases is one plausible path forward, but
it is important to note that taking this course is neither
obvious nor compelled. Let me focus on what I think is the hard
case. The hard case arises when the debtor has the exclusive
right to bring an action against a third party for the benefit
of all creditors, including tort victims, and this action
dwarfs the value of an independent action that tort victims
have against the same party. In many of these cases, the third
party is unwilling to settle with the debtor without resolving
the other litigation. Settlement with the debtor alone is
unacceptable to the third party, even though the stakes in the
other action are comparatively small.
Without a release, a third party would have to go through
the time and effort of litigating many of the same factual
issues again. In such a case, the ability to negotiate and
implement a global compromise that includes both the State
claims, and the direct actions of the tort victims can bring
about a resolution that produces the best possible outcome in
the shortest amount of time. This is appropriate when the
settlement enjoys broad support from a vast majority of each
class of shareholders, including the tort victim class.
Now, what often happens, even when there is widespread
acceptance of a Chapter 11 plan, there are holdouts. Overcoming
such holdout problems, however, is a standard function of
bankruptcy law. Third-party releases in the hands of able
professionals and a fair judge can bring about the resolution
of a hard case, such as my hypothetical, relatively quickly and
on terms that are much better than could be achieved without
them.
Much depends, of course, on the judge. This country is
blessed with a strong bankruptcy bench. Judges tend to approve
nonconsensual third-party releases only if a number of
conditions are satisfied. Judges are rarely willing to approve
third-party releases unless the plan enjoys broad support from
a large majority of the tort victims themselves. Judges are
inclined to approve a third-party release only when the non-
debtors' action against the third party is a small part of the
picture, and even then, only when the settlement gives the tort
victims as much as they would receive in any other fora.
In addition, a strong bankruptcy judge ensures that due
process is given and that everyone has the right to be heard,
and she also approves releases only when the reorganization
could not go forward without them. It should be emphasized that
this justification for third-party releases has nothing to do
with solicitude for the tortfeasors. They have no right to
enjoy any of the protections of the Bankruptcy Code. They're
getting releases only because they can exploit the doubts and
uncertainties in the causes of actions against them. This gives
them the ability to demand releases as a condition of
settlement.
Of course, this is only one side of the story. There is a
risk that permitting such releases gives the bankruptcy judge
too much discretion. The multifactor test for third-party
releases that permeate the case law are themselves a recipe for
mischief. For this reason, it is possible and reasonable to
conclude that nonconsensual third-party releases should be
prohibited categorically. Such a prohibition may lead to the
liquidation of some businesses and lower recoveries for tort
victims in some cases, but this may be a price worth paying, if
the potential for abuse is too high.
The matter, in short, is not clear-cut. As illustrated by
the provisions in the Bankruptcy Code, explicitly allowing such
releases in asbestos cases--something between maintaining the
largely direction-less status quo and outright prohibition--may
be the most sensible course. Third-party releases might be
explicitly authorized, but only if specific procedural and
substantive hurdles are met.
Again, the challenges presented by third-party releases,
like others facing the bankruptcy system, resist simple
solutions and easy answers. As you pursue the hard challenges
you face here, the National Bankruptcy Conference stands ready
to provide its assistance.
Thank you.
[The statement of Mr. Baird follows:]
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Mr. Cicilline. Thank you very much, Professor.
I now recognize Professor Skeel for five minutes.
STATEMENT OF DAVID A. SKEEL, JR.
Mr. Skeel. Thank you for the opportunity to testify this
morning. It is a great honor to appear before you.
My testimony can be distilled to two simple points. First,
the danger of abuses in the system is very real, and we've
already heard about some of those concerns about abuses. I
applaud you for devoting multiple hearings, along with this
one, to investigating these issues.
Second, many of the key issues under discussion are
complicated and involve provisions or transfers that can be
either beneficial or pernicious. In my view, it's very
important to take the risk of possible unintended consequences
into account before amending the bankruptcy code in these
areas.
Bankruptcy is designed to provide a collective forum for
resolving financial distress. In my view--and here I'm
following insights that were first developed by Professor Baird
and a colleague, Thomas Jackson--the Bankruptcy Code generally
should not deviate from non-bankruptcy law, except where the
deviation is needed to provide that collective forum.
Otherwise, there may be significant costs and unintended
consequences from having two different sets of rules--one
outside of bankruptcy and one in bankruptcy.
The first topic listed for this hearing, and one that we've
already talked a great deal about, is non-debtor releases,
which are also sometimes called third-party releases. In my
view, there are good arguments both for and against non-debtor
releases, both as a legal matter and as a policy matter.
One argument against non-debtor releases which we've
already heard is that the benefits of bankruptcy shouldn't be
extended to individuals or entities such as the Sacklers that
are not themselves in bankruptcy. Another argument, which we've
also heard, is that it's unfair to release claims that victims
or others would otherwise be able to bring in a situation where
those victims haven't agreed to release those claims.
On the other side are arguments that the treatment of non-
debtors such as the Sacklers, that treatment is so closely
related to the debtors' bankruptcy case that you really can't
resolve the financial distress of the company without also
resolving the claims against the non-debtors. It's also
possible--and it's sometimes argued--that victims may actually
in some cases receive better compensation in connection with a
release than they would be if they litigated against the non-
debtors outside of bankruptcy.
So, what should be done to limit abuses? It seems to me, at
a minimum, that a sensible solution might be to insist on more
transparency about the non-debtors' assets and ability to
contribute--the same kinds of things we expect from debtors in
opening their books to be looked at. Perhaps there should be a
structured inquiry by the bankruptcy court into the question of
whether the contribution is significant enough.
Another issue on the hearing's agenda is executive bonuses
shortly before or after filing for bankruptcy. Once again,
bonuses can be pernicious or beneficial, depending on how
they're used. In my view, the risk of self-dealing, the risk of
misusing bonuses, is much more severe if the bonus is given
before bankruptcy, when nobody's watching, than it is once the
debtor has filed for bankruptcy, or what are called post-
petition bonuses. With post-petition bonuses, there's more
transparency; there's a requirement of a hearing, and
participants have an opportunity to challenge or to question
the bonus. In my view, as a result, pre-bankruptcy bonuses
should be viewed with more skepticism than post-petition
bonuses, not less.
In 2005, Congress enacted a reform that essentially had the
opposite effect. It largely banned all post-petition so-called
stay bonuses. In my view, this provision has not worked
particularly well in practice, and it really underscores the
importance of being mindful of the possibility of unintended
consequences from legislation.
Given the complexity of the issues that we're talking about
this morning, my hope is simply that you be especially mindful
of potential unintended consequences, as you decide which
changes or whether to make changes to the Bankruptcy Code in
the coming weeks and months.
Thank you.
[The statement of Mr. Skeel follows:]
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Mr. Cicilline. Thank you, Professor Skeel, and thank you to
our Witnesses for your opening statements.
Before we turn to our round of questions, I would like to
recognize the Chair of the Full Committee, Mr. Nadler, for his
opening statement.
Chair Nadler. Thank you, Mr. Chair.
Before I begin, I just want to thank the Witnesses for
sharing their powerful testimony with us today.
Today's hearing is the first in a series of hearings
examining potential reforms to ensure that commercial and
consumer bankruptcy processes function effectively to support
the economy, provide a meaningful option of last resort for
individuals and businesses, and that they are not abused to
deprive people of their rights or livelihoods.
In 2005, as the Ranking Member of this Subcommittee, I
fought against the Bankruptcy Abuse Prevention and Consumer
Protection Act, a disastrous amendment to the Bankruptcy Code
that stacked the deck against everyday consumers in favor of
creditors and giant companies. Many of the problems of our
bankruptcy system stem from that law, which makes it more
difficult for Americans who have fallen on hard times to escape
crushing debt.
With that in mind, it is essential that we examine a wide
range of topics as part of this series. This includes how
student loans are treated in bankruptcy; the racial disparities
that exist in the use of the consumer bankruptcy system; the
rights of workers and retirees in bankruptcy, and the role of
the U.S. Trustee Program. These hearings will explore solutions
to help people get a fresh start and a fair deal through the
bankruptcy system.
Those principles are also at the heart of today's hearing,
which will examine corporate misuse of the bankruptcy system,
especially a procedure by which wrongdoers can be immunized
from liability without agreement from the wronged party in
another entity's bankruptcy proceeding.
The bankruptcy system is supposed to work for everyone, but
in many cases, it works only for the powerful. Too often, it
works best for big corporations and the very wealthy, who have
not even filed for bankruptcy, who have figured out how to make
the system work to their benefit, nonetheless.
That is exactly what we are dealing with today, bankruptcy
grifters, a term coined by Professor Lindsey Simon, that leach
off another entity's bankruptcy to hide their misdeeds, silence
victims, and secure their ill-gotten gains.
As Chair Cicilline said, today's hearing also builds off
the important work of my good friend, Chair Maloney. She has
conducted a thorough, tireless investigation of the role of the
Sackler family and Purdue Pharma in the opioid crisis. Under
her leadership, the Committee on Oversight and Reform has shown
the devastating impact that the corporate bankruptcy process
can have on ordinary Americans.
In particular, she has helped shine a light on one of the
most troubling aspects of the Purdue Pharma settlement--the use
of a lifetime ``get out of jail free'' card, known as a
nonconsensual non-debtor release. Under this provision, the
Sackler family, who have not had to file for bankruptcy
themselves, will escape liability entirely for their role in
precipitating the opioid crisis, despite the objections of many
of their victims.
The families of the people who died from addiction and
misuse of OxyContin should be able to hold accountable the
people that flooded the country with a dangerous drug they knew
would be abused. That is why today I was proud to introduce,
along with Senator Warren, Senator Durbin, Chair Maloney, and
Chair Cicilline, the Non-Debtor Release Prohibition Act of
2021. Our bill will ban nonconsensual non-debtor releases in
most circumstances, impose strict standards for consensual non-
debtor releases, and address the use of divisional mergers to
shield a company's assets from bankruptcy.
I want to thank Senator Elizabeth Warren for our work
together to develop this important legislation. She is a
powerful advocate for ensuring that the bankruptcy system works
for people instead of against them, and I am proud of our
partnership on these crucial reforms to the Bankruptcy Code.
Most important of all, I want to thank the victims,
survivors, affected families, and advocates who have come
forward to say that the bankruptcy laws should not be allowed
to force anyone, no matter who you are, into giving up their
last chance at some semblance of justice against someone
grifting off the bankruptcy process. Victims of sexual assault
should be able to hold their abusers and the people and
institutions that enabled those abusers accountable. No one
should be coerced into giving up their right to a fair trial
before a jury of their peers. No one should be powerless to
stop a corporate insider from looting the company they invest
in, and no one should be able to evade accountability by gaming
the bankruptcy system. Coerced non-debtor releases fall far
outside the limited jurisdiction of the bankruptcy courts and
they are inconsistent with the Fifth Amendment's right to due
process of law.
Today's hearing is an opportunity to conduct meaningful
oversight over this concerning trend and other abuses of the
bankruptcy process and to examine potential solutions to
reverse them. I thank Chair Cicilline again for holding this
important hearing. I enjoyed the testimony from our exceptional
panel of Witnesses.
I yield back the balance of my time.
Mr. Cicilline. The Chair yields back.
We will now proceed under the five-minute rule, and I will
recognize myself for five minutes.
First, I want to say thank you to our Witnesses for your
testimony, and particularly, thank you, Ms. Schwikert Moser and
Ms. Pleus, for your really important testimony. I know every
time you are asked to come and share these experiences, it
causes you to again experience some tremendous pain, but know
that it is very valuable for the Members of this Committee and
for the American people to understand that there are real
people who are hurt by the current failures in our bankruptcy
system. I am grateful for your courage and your willingness to
come forward and share that with the Committee.
I was really struck by, as I listened to both of your
testimonies, is kind of how common your experiences sounded. I
wondered, maybe starting with you, Ms. Schwikert Moser, what
about Ms. Pleus' experience kind of resonated with you, and
similarly, what about Ms. Schwikert Moser's resonated with you,
if you wouldn't mind sharing those thoughts?
Ms. Schwikert Moser. I think it's the pain. It's not being
able to get your day in court, not being able to hold USA
Gymnastics and the Olympic Committee accountable, just like
Alexis and her son, and not being able to hold the Sacklers
accountable. They get to swoop in and barely put any money in
the pot, and then, they just get off--get off; they're not
liable, and they get to go on with their lives, but we're
sitting here holding the bag, holding the pain. At the end of
the day, that's what we have to live with.
Mr. Cicilline. Thank you.
Ms. Pleus. I think the situations are so incredibly
similar. When we think about corporations, I think a lot of
times people and organizations, they think of these decisions
not being made by individuals, or there not being a specific
person that you can point to the blame of who caused the harm.
Certainly, in Tasha's case, we can see that there was one
perpetrator who very specifically caused these harms and
somehow is protected.
It's the same thing with Purdue and the Sacklers. We see
that the Sacklers played a specific role in this. They were the
people who caused the harm, just like in Tasha's situation, and
yet, they found a way to be protected. That is our laws that
are doing that, and it makes all of us feel like there is no
justice in this world. I think that those of us who have
survived things like this want to see the world in a different
way.
Mr. Cicilline. Thank you so much.
Professor Levitin, it seems that, for large corporate
bankruptcies, the Chapter 11 process has markedly diverged from
its ideal as bringing parties together to maximize the total
return. You have described a wide-scale breakdown of Chapter 11
bankruptcy's checks and balances. Other observers have warned
that Chapter 11 has taken on a Wild West approach that has led
to chaos, bankruptcy hardball, and an all-out war between
creditors, debtors, and powerful non-debtors.
I am just wondering, Professor Levitin, how do the abuses
you and Attorney General Tong have described, that Ms.
Schwikert Moser and Ms. Pleus have described, fit into this
broader breakdown of the Chapter 11 process?
Mr. Levitin. Sure. I think there are three key pieces to
what's going on.
One is that you have a situation in which debtors are now
able to handpick the judge for their case. When debtors are
looking for a judge, they're looking not--they don't want a
judge who's a great judge. They want a judge who's great for
them. Indeed, some debtors' attorneys have told me that they
feel they actually have a duty to their clients to try and pick
the judge that's best for them.
So, debtors are hand-selecting a judge on the belief that
judge is going to favor them on every key issue. They know that
there's not going to be effective appellate review in most
instances, in particular, because of this doctrine called
equitable mootness. Once they have that, that gives debtors
free rein to engage in very aggressive restructuring
techniques, including non-debtor releases, but there's a whole
host of other practices that they engage in, and they know that
there's really no check, other than that single bankruptcy
judge.
They've picked the bankruptcy judge knowing that the
bankruptcy judge isn't going to stand in the way, in part,
because the handful of bankruptcy judges who are landing the
big cases right now, they're actively competing to get these
cases. The way judges are competing to get cases is by
indicating that they're going to accommodate debtors' requests.
Most bankruptcy judges are not competing, but there's a handful
who are, and that's creating a race to the bottom among
bankruptcy courts and it's a real problem.
Mr. Cicilline. Thank you, Professor.
Before I conclude, I just want to thank Attorney General
Tong for his extraordinary leadership and being such a
trailblazer in this area, and again, for being here today.
My time has expired, and I now recognize the gentleman from
North Carolina, Mr. Bishop, for five minutes.
Mr. Bishop. I thank the Chair.
Professor Levitin, I am trying to remember--I practiced as
a commercial litigator in sort of a small firm. So, I
represented a lot of--I had a lot of frustrations on their
behalf in bankruptcy court over the years. I had some
understanding of some of this and some of it is leaking from my
memory.
Let me ask you this, if I could, Professor Levitin: If you
had, let's say, a concern of some size--I don't know--$100
million in revenues, but they were a client of a huge
accounting firm, and there is a basis for alleging that the
accounting firm had been neglectful in preparing an audit. So,
as part of the claims of the bankruptcy estate, that entity
was, the $100 million company, was in bankruptcy. You could
pursue those claims, the trustee, or whatever, could pursue
those claims against the accounting firm.
I assume that one use of this non-party release would be to
enter into a settlement with the accounting firm. You wouldn't
have a claim that would be anywhere near big enough to have any
prospect of bankrupting the accounting firm, let's say. You
want to be able to get a recovery from the accounting firm, if
you can. I assume you would use one of these non-party releases
to affect that settlement.
If they were willing to contribute to the bankruptcy estate
something to settle that liability, they would get a release. I
assume that would be part of the plan, and then, it would have
to be confirmed by a vote of the creditors. If somebody
objected, the Bankruptcy Court could just cram down on that one
category.
Am I right? Would that be one of the uses of this?
Mr. Levitin. So, I think it's important to distinguish two
different types of releases that are going on, who's claims are
being released. It's completely standard and not in any way a
problem for the claims of the debtor corporation against that
accounting firm to be released. That's like the claims of
Purdue against the Sacklers. So, Purdue, as a debtor, has
claims against the Sacklers for fraudulent transfers. If Purdue
wants to settle those claims, that's not this issue.
Instead, the issue is when there are direct claims of
creditors against the third party. So, if there is an opioid
victim who says, ``I have a direct suit against the Sacklers.
I'm not suing Purdue; I'm suing the Sacklers''--
Mr. Bishop. Right.
Mr. Levitin. That's what's getting released and that's
different.
Mr. Bishop. Okay.
Mr. Levitin. That's really the problem.
Mr. Bishop. That is helpful. I remember at the vague edge
of my memory a distinction between claims that can be
administered by the Bankruptcy Court and claims that cannot of
creditors. I think what you are into--and I have forgotten the
details, but let me pose another example.
Like in the asbestos case is where the Bankruptcy Court
creates a massive, perhaps essentially all the worth of a
corporation that has been engaged in the sale or distribution
of asbestos or a manufacturer, and they create these asbestos
trusts. Then, people who have been injured by it--and I assume
those are the categories of claims you are talking about--have
sole recourse against the bankruptcy trust and can't go out in
the State court and keep suing that entity, I guess. Again, I
am sorry of I am mangling this some.
Would that be precluded? Is that the kind of thing you want
to preclude?
Mr. Levitin. Yes, generally. Asbestos cases are different.
There's a special statutory provision for asbestos cases.
Mr. Bishop. Yes, yes.
Mr. Levitin. One of the implications of that is that it's
not allowed in other situations. Yet, the asbestos technique
has been extended to situations not involving asbestos.
Even with asbestos, there are only four limited categories
of parties that are entitled to a third-party release under
that provision. That relates to, it's the owners of the debtor,
officers and directors of the debtor, insurers, and parties
that were involved in, basically, financing the debtor. They
all have, to get that release, they have to make a substantial
contribution to the bankruptcy estate.
What's going on now, are not just releases of those parties
in exchange for a substantial contribution, but we're getting--
it's a standard practice to see releases of all kinds of
parties that have made no contribution whatsoever to the
bankruptcy estate. This is what's going on in Purdue. There is
a laundry list of consultants, attorneys, lobbyists for Purdue
for all--
Mr. Bishop. Okay, I get your point. Let me cut you off,
just because I have got about 30 seconds left and I want to get
one more question to you, sir, because it's has been helpful to
me.
I know we are going to have a lot of looking into this,
but--I am sorry, I lost my train of thought. Oh, yes, you said
about the judges, this ability to pick your judge. What sort of
reform could we--it sounds like there is a problem of exercises
of discretion. How can we fix that problem, if you didn't want
to go to the issue of taking this tool out entirely?
Mr. Levitin. Sure. There's an easy fix. Require that all
non-Subchapter V cases under Chapter 11--that's everything
except the small business bankruptcies--that those cases be
randomly assigned among judges within a district without regard
to divisions, geographic divisions, within the district.
Mr. Bishop. Why isn't that--
Mr. Levitin. That solves, that solves the problem.
Mr. Bishop. I'm asking for indulgence. Why isn't that
happening now? How are they assigned now?
Mr. Levitin. The assignment varies by district. In some
districts, like the Southern District of Texas, you actually
have a complex case panel. That's only two of the five judges.
So, you're getting one of two judges, if you file in the
Southern District of Texas. The other three judges, even though
they're equally qualified, never see a big Chapter 11 case.
In other districts it's done geographically in some cases.
In other places, say Arizona, it's just random. The Middle
District of Florida says it's going to be geographic, but if
there's any indication that a debtor is trying to maneuver in
front of a judge, it's then going to be randomized. So, it
really is done on an individual court level.
Mr. Levitin. I thank you.
I yield back.
Mr. Cicilline. It sounds like a bill there, Mr. Bishop.
I recognize the gentleman from New York, Mr. Nadler, for
five minutes.
Chair Nadler. Thank you, Mr. Chair.
Professor Levitin, you described the problem of judge
picking, where I think you said three out of over 337 judges
get all the big cases. How would you stop this judge picking?
What can we do to stop this judge picking?
Mr. Levitin. In the first instance, I think that it would
be to require, as I was just saying to Mr. Bishop from North
Carolina, that cases, large Chapter 11 cases, or really all
Chapter 11 cases other than the small business cases and the
individual debtor cases, should be randomly assigned to judges
within a district without regard for geographic divisions or
complex case panels, or the like. Basically, you should have a
random draw within districts.
It doesn't entirely solve the problem, and you do have some
districts where there's only going to be one or two judges, but
I think it substantially solves the problem, because the judge
picking is going on in districts where you have a large number
of judges already and most of those judges are being ignored.
So, take your own district. The Southern District of New
York, most of the cases are going to one particular judge,
Judge Robert Drain who's sitting in White Plains, New York.
There are seven other excellent judges sitting at Bowling
Green, in the Bowling Green Courthouse in Manhattan. They're
not getting the cases. So, they're going to White Plains.
If you have--and that's debtors are doing really incredible
maneuvers to manipulate the judicial, the local role in case
assignment there. So, cases filed in Westchester County go to
Judge Drain. What do debtors do? They rent short-term office
space in office parks--
Chair Nadler. How would you prevent this statutorily?
Mr. Levitin. I think that you--I'm not--so, the process
would probably be best done, handled by the Rules Committee for
the courts to have a Federal Rule of Bankruptcy Procedure that
deals with case assignment. I assume that you could do this
with direct legislation yourself.
Chair Nadler. Thank you.
Ms. Pleus--I hope I have the pronunciation correct--Ms.
Schwikert Moser described the USA Gymnastics bankruptcy as a
``black hole of truth and accountability.'' Would you say that
also describes the Purdue Pharma bankruptcy? How would banning
non-debtor releases help bring truth and accountability to the
Sacklers?
Ms. Pleus. Could you repeat the question. I'm sorry.
Chair Nadler. Ms. Schwikert Moser described the USA
Gymnastics bankruptcy as a ``black hole of truth and
accountability.'' Would you say that also describes the Purdue
Pharma bankruptcy? How would banning non-debtor releases help
bring truth and accountability to the Sacklers?
Ms. Pleus. Yes, absolutely, I would say that the situation
is very similar. What we know, as I mentioned in my testimony,
is that Richard Sackler played a direct role, the Sackler
family played a direct role in the decisions that were made for
Purdue Pharma. Yet, when we see the numbers from this
bankruptcy, we see that the settlement is $4.3 billion over
nine years, but the Sacklers were able to take $11 billion off
the top of the company first. So, they're walking away with
more money in their pockets than the U.S. Government--it's not
even individuals who are getting this claim. We have to
understand that it's mostly the States. It's very few of us who
have lost a loved one who will get a claim at all. Most of us
sit confused wondering what--
Chair Nadler. How would banning non-debtor releases help
stop this?
Ms. Pleus. Say that again? I'm sorry.
Chair Nadler. How would banning non-debtor releases help
bring truth and accountability?
Ms. Pleus. Well, then, we would have that $11 billion
upfront. The $11 billion that the Sacklers took, we would have
upfront. So, yeah.
Chair Nadler. Thank you.
Ms. Schwikert Moser, the bankruptcy process is supposed to
be about fairness, about getting a fresh start, and how money
is distributed when there is not enough to go around. Of
course, the process of holding people accountable for sexual
abuse is about much more than money. From what you have seen of
the bankruptcy system, do you think it is ever appropriate to
force victims of sexual abuse or other misconduct to give up
their rights against the third parties who harmed them?
Ms. Schwikert Moser. Absolutely not. I think Professor
Levitin hit the nail on the head when he mentioned third-party
releases where creditors have direct claims against the debtor.
I was abused by Larry Nassar, the team doctor picked by USA
Gymnastics and the Olympic Committee, in the Olympic Stadium,
in the actual stadium, during the Olympics.
I have direct claims against the Olympic Committee. They
are an entity that has the ability to pay but they want to
abuse the bankruptcy process by forcing victims like me and my
other sister survivors to release our claims against them. It
is absolutely unfair, and it needs to be stopped.
Chair Nadler. Thank you. Finally, Attorney General Tong,
people who defend the use of non-debtor releases say that they
can deliver a bigger settlement in the bankruptcy process which
benefits everyone. What would you say to that argument?
Mr. Tong. I would say that is clearly not the case, and the
threat of being able to abuse this process like the Sacklers
might be able to secure nonconsensual, non-debtor releases,
that that threat looms large over this entire process. With
respect to my colleagues and lawyers for victims and families
like Ms. Pleus's family, the threat that the Sacklers might get
away with it pushes that number down, right. So, people rush to
make a deal because they are worried if they don't make a deal,
the judge will cram the deal down and force us to accept
releases and that is one of the real problems with these
nonconsensual, non-debtor releases.
Chair Nadler. Thank you. My time is expired. I yield back.
Mr. Cicilline. The gentleman yields back.
I now recognize the very distinguished gentleman from
Louisiana, Mr. Johnson, for five minutes.
Mr. Johnson of Louisiana. Thank you, Chair Cicilline. I
just want to reiterate before I start here, we really do
appreciate the Witnesses coming in. It is not easy to tell your
stories and it is tragic and disgusting, and what else can we
say? Thank you for your courage. I practice constitutional law,
so bankruptcy law is a new field for me and I am trying to wrap
my mind around it, so I appreciate all the expertise.
There has been a lot of talk about the nonconsensual, non-
debtor releases and let me ask a question that maybe Professor
Baird, how much scrutiny do these releases get before a plan is
confirmed? So, for example, do claimants challenge these
releases? Do U.S. Trustees ever object, or how common would
that be?
Mr. Baird. No. Again, it depends on the judge, and it is
certainly possible for judges not to exercise the kind of
oversight they should. The U.S. Trustee will typically object.
The unsecured creditors' Committee should object. All the tort
victims themselves are parties of interest who have the ability
to appear.
Again, a large part of the design of the bankruptcy code is
to create an environment in which there are negotiations, and
the bankruptcy judge has to exercise oversight and the hard
question for you is whether or not there is sufficient
direction on the bankruptcy judge and whether or not specific
procedural and substantive standards should be imposed in this
area in order to ensure that bankruptcy judges do the job they
are supposed to do.
I want to emphasize; I agree with Professor Levitin that we
have an extraordinarily capable bench of bankruptcy judges
and--but just because they are extraordinarily capable doesn't
mean that they shouldn't be given direction.
Mr. Johnson of Louisiana. Some of these judges, some courts
have barred nonconsensual, non-debtor releases, related
injunctions they believe they are unlawful. What is the basis
of that conclusion?
Mr. Baird. The bankruptcy code has specific provisions for
asbestos. It is silent with respect to non-debtor, third-party
releases except there is very broad language in the section
called 105 that gives broad powers to the bankruptcy judges.
So, the open question on which the circuit courts are split is
whether or not that broad discretion includes third-party
releases.
As you have heard, there are some policy arguments why, if
appropriately used, it is appropriate, but some courts have
said no, that is a bridge too far; we don't want to do it.
Again, there is an opportunity to voice a specific view here,
whether to ban them outright, whether to permit the status quo
to continue in which most of the circuit courts--the 2nd,
especially the larger ones, the 2nd Circuit, the 3rd Circuit,
the 7th--admit that you can keep in place the status quo or you
can corral the discretion.
This is, I will emphatically agree with what has been said
before, this is an area where serious oversight is necessary
and reassessing these third-party releases is something that is
very important.
Mr. Johnson of Louisiana. I lived and worked and practiced
in the 5th Circuit--Louisiana, Texas, Mississippi. Where is the
5th Circuit on this? Have they--
Mr. Baird. The 5th Circuit has opposed it.
Mr. Johnson of Louisiana. Opposed it. I have just a minute
and a half left. I will yield back, Mr. Chair.
Mr. Raskin. Would the gentleman yield?
Mr. Johnson of Louisiana. Yes, I will happily yield, sure.
Mr. Raskin. Thank you, Mr. Johnson. I think I might be
next, and I wanted to start with this.
I mean the chances that three judges would be drawn out of
375 judges 57 percent of the time is less than one in a
million. Anyway, I have a young mathematician on my staff who
is going to give us the exact number of what the chances are
that that would happen randomly. Of course, it should be random
and I am totally for random assignment. If Mr. Bishop wants to
co-sponsor a bill or Mr. Johnson, I would love to do it with
you guys.
Let me ask you this. Professor Levitin, my distinguished
constituent, why are the judges competing to get the cases, how
are they competing, and to what detriments of the public
interest?
Mr. Levitin. So, why they are, the motivations, I would
have to speculate. I don't know what is driving any particular
judge. Remember, most judges do not seem to be competing for
large cases, but I think for the handful that are, part of it
is that they like being at the center of attention with a big
matter. That they would rather be dealing with, they come from
large case Chapter 11 practices themselves and they would--that
is the bar that handles the big cases. Those are their people,
and they would rather deal with those lawyers than deal with
the local lawn care business or the--
Mr. Raskin. Okay, but how do they compete?
Mr. Levitin. How do they compete? They compete by sending
out signals to debtors that if they file in their court that
the debtors are going to get favorable treatment. The way that
you--here is an example of how they send out a signal. In
Texas, the Southern District of Texas has a complex case panel,
and it has an advisory panel for that. If you look at who is on
the advisory panel, over half of them are not even admitted to
practice in Texas.
So, they are getting instead--who is on the advisory panel?
It is the heads of major debtor-side practices. It is a way of
saying, hey, we are here to listen to you and we are going to
do--and we are going to--our courtroom is ready for you. In
fact, one of the Texas judges has even raised--talked about
making the court more customer-friendly. I am not aware of
courts having--
Mr. Jones. [Presiding.] The gentleman's time is expired.
Regrettably, to the gentleman from Maryland, his time was not
next. The Chair now recognizes himself for five minutes of
questioning.
Thank you to Chair Cicilline and, of course, to the Ranking
Member, Mr. Buck, and thank you to all our Witnesses. My
heartfelt thanks, especially to Ms. Schwikert Moser and Ms.
Pleus, in particular, for your courageous testimony. We are all
profoundly grateful and we stand with you in this fight for
justice.
Now, as the Member representing the great city of White
Plains, I feel obligated to apologize for the behavior of Judge
Drain. I, myself, was a lead attorney on a case that ultimately
ended up before him in bankruptcy court, and I associate myself
with those of you who have suggested that he is overly
solicitous of wrong-doing corporations.
As we have heard this morning, the powerful are exploiting
the Chapter 11 bankruptcy process. Bankruptcy law is
complicated, but their playbook is simple. They harm people for
profit then use bankruptcy law to make the people they have
harmed pay the price.
With my time, I would like to discuss another powerful
industry that has been exploiting the bankruptcy process and
that is the fossil fuel industry. The fossil fuel companies
make their billions by polluting air and water, degrading land
and emitting the greenhouse gases that fuel the climate crisis,
often in blatant violation of Federal law. Then they exploit
Chapter 11 bankruptcy, so they don't have to clean up the
messes that they have made or make amends to the communities
whose health, land, and livelihoods they have harmed.
Through the Chapter 11 bankruptcy process, fossil fuel
companies can split up their assets and their liabilities,
keeping their most valuable assets in one company and
offloading their environmental debts to another. Once they have
divided up like that, neither communities nor environmental
regulators can enforce the payment or clean-up duties otherwise
required by law.
In theory, these are illegal, fraudulent transfers, but in
practice fossil fuel companies are getting away with them.
Since Peabody Energy first pulled this trick off nearly 15
years ago, many of the country's biggest fossil fuel companies
have followed suit. In the last six years, over 260 oil and gas
companies have declared bankruptcy. Since 2012, over 50 coal
companies have done the same. Those coal companies alone have
exploited Chapter 11 to offload billions in environmental
obligations onto the American people.
The EPA estimates that it will cost taxpayers 50 billion
dollars to clean up the hundreds of thousands of mines
companies have abandoned to protect their profits. While the
rest of us are expected to clean up the messes that we make,
fossil fuel companies responsible for environmental destruction
on a global scale are exploiting Chapter 11 to avoid this basic
responsibility.
Professor Levitin, in your written testimony you discuss
the importance of enhancing remedies for fraudulent transfers
like these, including divisive mergers. Could you walk us
through your recommendations?
Mr. Levitin. Sure. So, there is--let's do this in two
parts. Let's talk about fraudulent transfers, generally, and
then divisive mergers as a second subset. Fraudulent transfer
law is among the--some of the oldest law we have in the United
States. It goes back to the time of Queen Elizabeth the 1st.
South Carolina statute is actually the original Elizabethan
statute.
Fraudulent transfer law, it includes, it covers what is
called actual fraudulent transfers. Those are transfers maybe
hinder, delay, or defraud creditors, and the basic remedy for
fraudulent transfers is rescission. You have to give back what
you took, right, but that fails to create any disincentive to
engage in fraudulent transfers. You get caught with your hands
in the cookie jar--you took three cookies, the law says you
have to put back three cookies, except what usually happens is
a settlement. You took three cookies out and you settle, and
you give one cookie back. You keep two cookies.
So, I think that fraudulent transfer law needs a stronger
remedy. It needs to probably have something like treble damages
for actual fraudulent transfers. Additionally, there should
probably be some light criminal penalty for actual fraudulent
transfers because that will mean that attorneys cannot advise
clients to do this transaction. They would have an ethical
problem of doing it. Right now, attorneys are advising clients,
yes, go ahead with the fraudulent transfer. It is not actually
fraud, and they feel they can advise this. The divisive merger
problem is a flavor of this. It is a feature of Texas and
Delaware law that is being used to end-run fraudulent transfer
law because Texas and Delaware law says certain transactions
are not transfers even though--
Mr. Jones. Professor, bankruptcy scholars, Macy and
Solivera have proposed giving regulatory liabilities like
environmental clean-up obligations top priority in Chapter 11
proceedings. Could that proposal help?
Mr. Levitin. That certainly could. It would help with one
subset. It wouldn't help with every flavor of fraudulent
transfer like Purdue, but certainly that would be an option.
Mr. Jones. Thank you. My time is expired. I now recognize
the gentleman from Florida, Mr. Steube, for five minutes.
Mr. Steube. Thank you, Mr. Chair. It would be unwise for
Congress to have a knee-jerk reaction to one or a handful of
sympathetic cases in bankruptcy.
With that in mind, my questions are to Professor Baird and
Skeel. If you could speak further about the balances struck in
Chapter 11 and how it generally does a good job and the dangers
of changing the system based on one or two less than ideal
outcomes would be dangerous for our country.
Mr. Baird. If I could go first, the--
Mr. Steube. Yes, go ahead.
Mr. Baird. --bankruptcy code as designed in 1978 created an
effective environment in which thousands of businesses have
been able to reorganize. It tries to create an environment in
which parties are brought together and it has had a remarkable
track record.
I think the challenge that you need to think about is not
particular cases, not particular pathologies, but rather
changes in the way, changes in financial structures, changes in
the players--the bankruptcy process, innovations in the various
devices like restructuring, support agreements, debtor in
possession financing--that have evolved over time, and
carefully assessing whether more regulation needs to be done to
ensure the playing field is level and stays level.
Mr. Steube. I would like to discuss the protections and
safeguards already in place during Chapter 11 proceedings. As
you mentioned in your testimony, much about the current system
works very well. Can you talk further about how bankruptcy
courts work to ensure that the creditors' interests are
protected?
Mr. Baird. The bankruptcy code has a number of substantive
provisions. The 1129(A) lists the provisions that say this is
what is required for the plan of reorganization. The bankruptcy
judge has an independent obligation to review that list and
ensure that these criteria are actually met. One of those
criteria, for example, is something called the ``best interest
test'' that requires that non-consenting creditors do at least
as well in the bankruptcy as they would do outside of
bankruptcy.
Again, that is an example of a substantive provision that
if the bankruptcy judge applies it rigorously will protect even
those people who don't consent to the plan. That is one
example. I could give others if you would like.
Mr. Steube. Mr. Skeel, is there anything that you would
like to add to that?
Mr. Skeel. Thank you. I will just add a couple of things. I
completely agree with everything that Professor Baird has said.
A general comment I will make is that bankruptcy is designed to
bring everything into the process. It is designed to reach a
global resolution of the financial distress. It is much broader
than prior law was. Under prior law, lots of things would fall
between the cracks, and that doesn't happen anymore. In
addition, there is an enormous amount of transparency in
bankruptcy. The debtor basically has to open up all the drawers
and cupboards and let everybody look at what is going on with
the company.
Finally, I would say that any time that the debtor does
anything that is out of the ordinary course, anything unusual,
there has to be notice and a hearing and an opportunity for
creditors and other interested parties to object before it is
approved. So, it is a very, very transparent process and on the
whole it has been extraordinarily effective.
Mr. Steube. Can both of you speak further about how Chapter
11 reorganizations when conducted properly have the potential
to preserve jobs by keeping companies afloat and in turn
helping workers and workforce?
Mr. Baird. I think if you simply look at vast areas of the
economy, whether it is the retail industry or the airline
industry, the automobile industry--I think it is unlikely
General Motors or Chrysler would still be with us today if we
didn't have an effective Chapter 11--you look at almost every
major airline--American Airlines, United Airlines, Delta
Airlines--they have all been through bankruptcy. Not simply the
retailers you have heard of recently, but Bloomingdale's and
Macy's also went through bankruptcy.
Again, I wouldn't stop just with the large companies. There
are lots of small companies that have reorganized successfully.
The bipartisan introduction of Subchapter V two years ago has
also facilitated small businesses who tried to reorganize
during the pandemic. I think you could point to a lot of
success stories.
Mr. Skeel. Well, I will just add, I completely agree. Our
system is better at preserving viable businesses when they are
in distress, I think it is fair to say, than any other system
in the world, and countries all over the world are trying to
replicate the Chapter 11 process.
Mr. Steube. Just quickly because I have only a couple
seconds left, an issue that gets lost in this discussion, the
role of bankruptcy judges. What would be the impact of
legislation that limited judicial discretion?
Mr. Baird. Well, as soon as you limit judicial discretion,
when new things arise judges can have their hands tied. Now,
sometimes hands-tying is a good thing. For a judge to be able
to say, I just can't do that, may actually facilitate
negotiations. As soon as you tell a judge, this is out of
bounds--I think one of the failures of the Chandler Act, from
Chapter X that was replaced, is that judges didn't have enough
jurisdiction. They didn't have enough power to decide things,
people went to other venues, and as a result, proceedings
dragged out and many companies failed.
One of the reforms of the 1978 Bankruptcy Code was to
ensure that you could have one-stop shopping in which a judge
would supervise the case, Act as a judge in the case, and would
have jurisdiction over all the problems that arose in the case.
To the extent you take that away, you are going to introduce
problems.
Mr. Steube. Thank you both for you time today. My time is
expired.
Mr. Cicilline. The gentleman's time is expired. I now
recognize the gentleman from Maryland, Mr. Raskin, for five
minutes.
Votes have been called so we are going to try to squeeze in
one on each side because I know Mr. Bentz has a scheduling
issue too, so we will try to do that.
You are recognized, Mr. Raskin.
Mr. Raskin. Mr. Chair, thank you very much.
Quick update here, the chances that the same three judges
would be drawn 57 percent of the time out of 375 bankruptcy
judges is basically one over infinity. I have two different
mathematicians came back and said the number is too large to
quantify.
So, we need random assignment of the judges, so we don't
get the bankruptcy debtors essentially picking their own judges
or the judges picking their own cases for different reasons.
So, again, I hope we can make this a bipartisan commitment on
the Committee to move to random assignment. I have asked my
staff to get going on that right away.
Professor Levitin, back to you. What we have just heard in
the last set of questions were very abstract and generalized
statements about the virtues of bankruptcy. Of course, that
doesn't go at all to this separate question of the
nonconsensual, non-debtor provisions. When I listen to
Witnesses, and I want to get to them quickly, so--but if you
could answer quickly on this, is there anything to the idea
that there is a benefit to allowing the judges the power to
grant protection to non-creditors in a way that is
nonconsensual to the victims of the underlying corporate
misconduct?
Mr. Levitin. No, absolutely not. I think it is, I cannot
point to a case in which a debtor was unable, would have been
unable to reorganize and would have to liquidate because there
couldn't be a release of a non-debtor, right. The bankruptcy
system works really well, generally, as Professors Baird and
Skeel point out, but it doesn't require nonconsensual, non-
debtor releases to do its job. That is just a separate issue,
the same way that we wouldn't allow a bankruptcy judge to grant
a divorce of the debtor's owner or something like that.
Mr. Raskin. Yes.
Mr. Levitin. It is just outside of the lane of the
bankruptcy court.
Mr. Raskin. I mean when I first heard that it was even
happening, I said that is not possible. It violates due
process. How can they blockade my ability to sue a third party
without ever hearing my case or my having my ability to state
what happened? That is exactly what happened to Ms. Pleus and
to Ms. Schwikert Moser.
Ms. Pleus, I was moved by what you had to say that your
family is politically active. I don't know if they are
Democrats or Republicans or if you meant something else, but
you said you didn't understand the rule of corporations. Here
is Thomas Jefferson.
I hope we shall crush in its birth the aristocracy of our
moneyed corporations which dare already to challenge our
government to a trial of strength, and to bid defiance to the
laws of their country.
So, tell us again, Ms. Pleus, how did you feel your basic
rights to due process were violated in your situation? Then I
will give a minute to the other Witness.
Ms. Pleus. Actually, I think it is important for people to
know that the victims had no voice in the Purdue bankruptcy
hearing. Unless you have tens of thousands of dollars available
to you for private attorneys, which most of us do not have. We
spent that keeping our kids alive--we could not bring a claim
of our own. So, we are all lumped in together, represented by
attorneys that we actually have no access to.
We have no access to the process. We have no access to the
attorneys. We don't know what our rights are. We receive
packets of papers in the mail that I would probably need the
professor to read for me. At Truth Pharma we have over 30
families who have filed claims in the Purdue hearing and that
is 30 families who are completely confused about the process
and most likely will receive no funds as a result of this
bankruptcy hearing.
Mr. Raskin. I mean that is a tragic situation.
Let me come to Ms. Schwikert Moser. How did the U.S.
Olympic Committee get off scot-free when they weren't even a
party to the proceeding, and you never had an opportunity to
state your case against them?
Ms. Schwikert Moser. To me, this is an overarching theme of
freedom of choice. Just like what is happening right now in
Tokyo with Simone Biles and Naomi Osaka they had a choice to
prioritize their mental health. Not to go too far off-topic, I
don't care if Simone Biles steps foot on the Olympic floor. She
is and forever will be the greatest gymnast of all time, and I
applaud the stand she took these past few days.
To bring it back to the matter at hand, I and other
survivors did not have a choice in the medical provider that
USA Gymnastics and the Olympic Committee made us see. We should
have a choice in how we seek justice against these non-bankrupt
parties.
I am not opposed to consensual releases and consensual
settlements. I am opposed to cramming down releases. This
legislation does not prevent agreed or consensual settlements.
It is preventing forced ones. This legislation addresses the
bailout by bankruptcy and abuse of process and allows these
third parties to drag their feet and delay and prevent our
ability to seek justice.
So, to reiterate, I do not oppose third-party releases
through the bankruptcy process. I oppose nonconsensual third-
party releases where victims like myself do not have a choice.
Mr. Raskin. Because it is unconstitutional. I yield back to
you, Mr. Chair. Thank you.
Mr. Cicilline. Thank you, Mr. Raskin. I now recognize Mr.
Bentz for five minutes.
Mr. Bentz. Thank you, Mr. Chair. Very quickly, this is a
question for Professor Baird. The court in the Purdue case
decided that four billion was the most it could negotiate for,
and I recall listening with some interest to reports and
wondering why the number was so small.
Can you explain why this number in your opinion was reached
when, apparently, and what standard was being applied that
resulted in such a modest sum given what we have heard today?
Mr. Baird. Yes, I will answer the question, but I want to
emphasize that I can't speak to the particulars of Purdue, but
let me just explain what the challenge is for if you had an
aggressive trustee or Committee going after the Sacklers. To
recapture a dividend, you have to show the dividend was made at
the time the firm was insolvent, and there is a four-year
statute of limitations. So, it is transfers, the transfers that
are vulnerable are transfers made within four years and you
have to show that at the time of each transfer Purdue was
insolvent.
If Purdue had no financial debt, which to my understanding
it did not, then you have to show when, at what moment in time
the billions that Purdue had made and still had, weren't
sufficiently large to cover the causes of action against them
brought by States, brought by an individual, even though
perhaps no suit to get them was filed.
Again, I don't know the particulars, but you have to say,
okay, in expectation, what was the financial condition of
Purdue, and can you show that at the time each and every
dividend was made it was within the statute of limitations and
solvency was shown. Now again, that is a function of fraudulent
conveyance law and fraudulent conveyance tools can be sharpened
and so forth. Its statute of limitations can be extended.
That is the technical problem that an independent
aggressive party representing Purdue would face to try to
recover with the Sacklers, and they end up with four billion,
which is not a lot relative to their wealth. It appears that is
the judgment they have made about that, given the uncertainties
and litigation they face. Again, I can't speak to the
particulars, but those are the types of technical challenges
that would be encountered.
Mr. Bentz. Thank you. I wish we had 45 minutes for me to
ask you all the proper follow-up questions, but we don't.
So, Attorney General Tong, you recently mentioned, about 30
minutes ago, the fear--you were talking about the leverage that
the Trustee and others enjoy, or the fear, is what you put it
that the debtor or the third-party has in making whatever
settlement it might choose to make. Frankly, I didn't quite
catch the choices of what was worse. Can you please briefly
explain what you were alluding to?
Mr. Tong. Yes, and thank you for that question,
Congressman. I can answer the previous question because I have
been at the negotiating table all along in this process. The
reason why the number is so small is because the Sacklers have
known all along that they can get away with this. They have
known all along that in their back pocket there is a very
strong possibility in the Southern District of New York in
Judge Drain's courtroom that they may get nonconsensual, non-
debtor releases.
So, to be very candid, the Sacklers put a number on the
table, roughly in the neighborhood of the number that is on the
table right now, and they haven't moved over a couple of years
of negotiation. They have stuck to this three- or four-billion-
dollar range because they knew they could hang there. They also
knew that there was a very real risk that the court would go
beyond the scope of the bankruptcy which should be focused on
the debtor, on the company Purdue Pharma, and consider the
Sacklers' interest when they are not debtors.
This is the real problem, in going back to Ms. Pleus, the
real problem with granting nonconsensual, non-debtor releases
is we will never get to face the Sacklers in court. We will
never put them on the stand, under oath, and go through the
evidence. We will never put them on trial. We will never get
the transparency that victims and States deserve. Instead, you
have the Sacklers drafting behind, hiding behind the company
Purdue Pharma and somebody said ``piggybacking,'' piggybacking
their way to absolving themselves from liability.
Mr. Bentz. Thank you. Mr. Chair, I yield back.
Mr. Cicilline. The gentleman yields back. We will now stand
in recess so we can vote, and we will resume immediately after
votes and I ask for the indulgence of our Witnesses.
[Whereupon, at 11:42 a.m., the Subcommittee recessed, to
reconvene at 12:51 p.m., the same day.]
Mr. Cicilline. Call the Committee back to order.
I now recognize the gentlelady from Washington, Ms.
Jayapal, for five minutes.
Ms. Jayapal. Thank you, Mr. Chair, and thank you to our
Witnesses.
Our Bankruptcy Code presents a last resort to bring
indebted businesses and their creditors to an agreement that is
fair for all parties involved including workers, retirees, and
their families. Non-debtor corporations and individuals have
increasingly abused our Bankruptcy Code and relied on Chapter
11 to insulate themselves and their fortunes from justice. From
the opioid epidemic to product liabilities and sex abuse
scandals, wrongdoers evade justice as their victims suffer.
Ms. Schwikert Moser, thank you so much for your advocacy
and your courage in helping generations of gymnasts like
yourself to pursue justice against the U.S. Olympic and
Paralympic Committee, USA Gymnastics after their failure to
take sexual abuse allegations against Larry Nassar seriously,
and holding everyone involved accountable.
Like so many, I am proud to cheer for Team USA in Tokyo,
but it breaks my heart that they have done everything we have
asked of them; those tasked with protecting them from harm,
from USA Gymnastics to the FBI, have failed to intervene. USA
Gymnastics has proposed a new, 217-million-dollar bankruptcy
settlement that 512 of the 517 attorneys representing survivors
have said does not allow them to present proofs of specific
harms.
Why is it necessary for survivors to be able to present
their harms individually?
Ms. Schwikert Moser. The bankruptcy process, especially for
non-debtors like the Olympic Committee, allows them to get away
with horrific acts, right? So, I mean they picked the Olympic
team doctor, Larry Nassar; he abused us. I was abused in the
Olympics Stadium. They are allowed to come in and put little to
no money in the pot and just escape liability.
It all comes down to choice. I didn't have a choice on the
medical provider that they made me use and I should have a
choice in how I want to seek justice against the Olympic
Committee. I also think bankruptcy allows them to hide behind
the curtain. We will never find out what, where, when, why, who
knew what with this whole tragedy that went down. As a
survivor, and I believe I can speak for other survivors, we
want answers.
Ms. Jayapal. How important is it for you to be able to tell
your personal story in the context of this?
Ms. Schwikert Moser. Telling my personal story is
obviously, every time I do it publicly it is very hard. Being
vulnerable, especially when it comes to sexual abuse, is
traumatic, but I can't change the past. So, if telling my story
will help change the future, change laws to protect survivors
in current and future generations, I am willing to do it.
I also believe that telling my story personally is
therapeutic and my goal is to leave my mark on this world and
to leave a legacy, and if I can help change the bankruptcy laws
to protect survivors and victims of the horrific things that
third-party releases do to people, I am going to do it.
Ms. Jayapal. I am so grateful to you for that, and I think
that holding abusers and their enablers accountable is, it is
how our justice system should work if we want to deter future
instances of sexual abuse. When you and many others came
forward and pressed charges, you did it with expectation of
holding all bad actors accountable. Instead, without them
declaring bankruptcy on their own, they have used USA
Gymnastics bankruptcy proceedings to release themselves from
liability.
Would you explain how releasing actors like Steve Penny,
the former National Team director, and U.S. Olympics Committee
impacts your right to justice?
Ms. Schwikert Moser. It doesn't give me a choice, right. I
mean if, like I said earlier, I am not opposed to consensual
releases. If the Olympic Committee and Steve Penny want to file
for bankruptcy, then they can. They shouldn't be allowed to
piggyback on the USA Gymnastics bankruptcy for pennies on the
dollar given the liability they had in this situation and the
responsibility to protect their athletes, and basically get off
scot-free.
Ms. Jayapal. Again, I am so grateful to you for speaking up
and for making this a cause that you fight for.
Professor Levitin, using Chapter 11 bankruptcy proceedings
to immunize wrongdoers from lawsuits prevents the courts from
understanding the full extent of harm to the many claimants and
it protects the non-debtors' reputation as they move on
unscathed to other endeavors without being held accountable.
Is this how Chapter 11 is supposed to be used and if not,
what is the intention of this bankruptcy process?
Mr. Levitin. No, this is not how Chapter 11 is supposed to
work and it is not how Chapter 11 used to work. Non-debtor
releases were not a practice one saw in Chapter 11 until the
Johns Manville asbestos bankruptcy and that case was an outlier
for many years. Then Congress enacted a provision for non-
debtor releases specifically in asbestos cases, and those cases
have some unique features that suggest that maybe they should
be treated differently, but we have seen them expanded since
and to the point that they are just standard practice now.
So, it is not just a couple of cases that look bad, like
Purdue and USA Gymnastics. It is the Boy Scouts. It is Harvey
Weinstein. It is Catholic Church dioceses. It is Takata
airbags. It is Dow Corning. This is a very standard thing. It
is not just releases. It is also stays of non-debtors during
the - of litigation against non-debtors during the course of
the bankruptcy.
Actually, there was a news headline yesterday in the Wall
Street Journal. The Limetree Bay Refinery within St. Croix in
the Virgin Islands. It rained--the refinery caused oil to
actually rain down on St. Croix, poisoning the water source
which is rainwater. They filed for bankruptcy in Houston not in
the Virgin Islands, and now the private equity owners of the
refinery are asking the court to stop litigation against them
without having to file for bankruptcy themselves. So, this is a
very common thing, unfortunately.
Ms. Jayapal. Thank you. It really is outrageous. I am so
grateful to you, Mr. Chair, for having this hearing. Thank you.
I yield back.
Mr. Cicilline. The gentlelady yields back.
Ms. Dean. [Presiding.] The gentlelady's time has expired.
The Chair now recognizes herself, myself, for five minutes of
questions. I am very thankful for the Chair bringing this
important hearing to us today. Part of this story is very
personal to me.
Ms. Pleus, I am very sorry about the loss of your son Jeff,
and I know that doesn't take us very far, but I am certain the
whole Committee wants to try to lift you up. My own son Harry
is in long-term recovery from opioid use from addiction to
opioids, eight years, almost nine months, but ours isn't
everybody's story.
As you point out in your own testimony, over the course of
about 20 years, a little more than 20 years, 930,000 people
have died. I am sure you are aware of the critical number last
year. We were up from a high of 73,000 people dying of overdose
to in 2020, during COVID, 93,331 lost souls. That is 255 people
a day. I call that a jetliner a day.
This country has to do something to ground that jetliner a
day, and that is just the one who overdose and die. There are
so many others who are struggling with this problem of
addiction fueled, jet fueled as some of you have used the word,
by the Sackler family and others for profit.
So, I guess my first question is to say we have to humanize
these numbers. Under the existing loopholes in bankruptcy law,
those responsible for recklessly harming millions of Americans
can continue to cause the harm. We are looking for
accountability. We are looking for legislation that would make
sure you and others get accountability. What, without our
action, more Sackler families will do this again to others'
harm.
Can you tell us, what would any measure of accountability
look like to you, to your family, to your community, to
families like yours directly harmed by these bankruptcy
loopholes?
Ms. Pleus. Thank you so much and a huge congratulations to
your son.
Ms. Dean. Thank you.
Ms. Pleus. It always gives me hope to hear about recovery.
So, justice, what justice would look like to us is that
treatment would be readily available, that the children who are
left behind by this crisis without parents because they lost
them to overdose would have funds that would help raise them,
that would address the trauma that they went through living
with parents who had substance use disorder. I know children
who found their parents dead and these children have this
trauma to carry the rest of their lives. No one is addressing
these needs. This settlement is not even going to be able to
touch the generational impact that we are going to see in this
country as a result of what the Sacklers have done. Instead,
what we are doing is moving this burden to the American people
because the cost isn't going away.
The cost is multigenerational. The cost to families like
mine is grief for life. We can't--there is no fix for that. I
never expected to receive any money. It has nothing to do with
that. It is about justice, holding the Sacklers accountable for
their direct actions in deceiving the American people to make a
profit and now they are able to walk away with and put that
burden that they have left with our society on the American
taxpayers.
Justice would look like the families that I know who have
lost their homes, lost their retirement accounts, lost their
children's lives, the Sacklers facing the same sort of fate for
their horrific actions that they would also be suffering. They
haven't suffered. They haven't even had to face families like
mine.
They have never had to be in front of anyone testifying.
They don't have to take an oath of honor that they are going to
tell the whole truth and nothing but the truth. They literally
are allowed to walk away with their name intact.
Ms. Dean. Pocketing billions.
General Tong, in the remaining time that I have, I know you
have worked with my own Attorney General Josh Shapiro of
Pennsylvania on the Purdue Pharma resolution. Under the current
bankruptcy laws following this month's resolution, what you
talked about in your opening testimony, what does addressing
this crisis look like? How will the funds be distributed? What
legislative changes must we make?
Mr. Tong. This is about treatment, prevention, and
addiction science and thank you for starting with Ms. Pleus and
her experience because this isn't just about money. It has
never been about the money. We have, Josh Shapiro and I, the
Attorney General for Pennsylvania and I and many other State
Attorneys General have an obligation every day to pursue
justice for victims like the Pleus family, like the Taylor
family in Connecticut.
I was telling Alexis over lunch I wish I could say that her
story was uncommon or extreme.
Ms. Dean. No.
Mr. Tong. Mike Taylor was a young man who worked on my
first campaign for elective office. He got a tennis injury. He
played tennis at Villanova. Fell into addiction from taking
opioids and we lost him. There are so many families like these
in Pennsylvania and Connecticut and across the country.
Ms. Dean. I see my time has expired. I thank you both and I
will take the opportunity to continue the conversation offline,
if I may.
Mr. Tong. Thank you.
Ms. Dean. I now recognize the gentleman from Wisconsin, Mr.
Fitzgerald, for five minutes.
Mr. Fitzgerald. Thank you, Madam Chair.
Mr. Baird, one of the premise for some of the legislative
proposals is that the bankruptcy process is broken and that the
corporate bad actors oftentimes use the bankruptcies as to
reduce wages, slash benefits, jettison pension allocations, I
mean there is a long list, right, so some seem to think that
every Chapter 11 filing automatically results in harm to
workers or others because of the defects in the Bankruptcy
Code.
It seems to me the case is that the Code already has some
protections for workers, and unhappiness with outcomes by any
given stakeholder may be because of how or when a firm enters
bankruptcy. Generally, no one is 100 percent happy with the
plan, right, I mean that is kind of the idea. Could you
describe at a high level what protections exist in the Code to
ensure that workers' interest is accounted for?
Mr. Baird. Well, Congress passed in the late 1980s, two
provisions to Chapter 11, 1113, and 1114, and what they aspire
to do is to create an environment in which the employer and
those representing the workers can sit down and renegotiate
deals that may need to be renegotiated, and imposes substantive
standards that shows that renegotiations can be approved only
when--collective bargaining agreements can be rejected only
when it is necessary for an effective reorganization.
Now, what we need to recognize is that whenever you put a
powerful tool like that in place, it is capable of doing good
and it is also capable of doing bad and we need to constantly
revisit provisions like this. For example, there are some cases
involving airlines where you have a combination between
bankruptcy law and a special set of rules governing airline
unions that may have produced some bad results.
So, I think it is important to revisit these areas and I
think we need to recognize that we do have strong provisions.
They have enabled some collective bargaining agreements to be
renegotiated, but it is a powerful tool, and like any other
powerful tool we have to be vigilant.
Mr. Fitzgerald. I don't want to put you on the spot, but
also any examples where in the end jobs were saved and maybe
the situation was clearly made better for some of the workers
in the long run?
Mr. Baird. Well, we have had steel cases where the pension
obligations and so forth were such that, again, a lot of
mistakes were made in the past, but the firm simply wasn't
going to continue going forward unless there is a
restructuring. We also look at the airline industry. The
airline industry is an example where we had collective
bargaining agreements renegotiated in United Airlines and other
cases.
In the automobile industry, many of the negotiations took
place in the shadow of what might happen in bankruptcy. That is
another example. Again, these examples tend to arise in
industries when there has been a shift and somehow you are
facing a different set of circumstances. Part of what
bankruptcy does is face these new realities. It is hard stuff,
and it is certainly subject to abuse, but I think you can point
to these very large industries that are better off as a result
of having these tools available.
Mr. Fitzgerald. I mean at some point, there is going to be
a judge and he is going to make a determination on stakeholders
and oftentimes if one of those stakeholders is empowered more
than the others, it tends to have an outcome that is not
desirable all the time, so.
Mr. Baird. It is the special responsibility of the judge to
be vigilant and to pay meticulous attention to due process.
When that doesn't happen in a particular case, it is extremely
unfortunate.
Mr. Fitzgerald. Thank you, Madam Chair. I yield back.
Ms. Dean. The gentleman yields back. I now recognize the
gentlewoman from Georgia, Ms. McBath, for five minutes.
Ms. McBath. Thank you, Madam Chair. I want to thank each of
you for being here today, and I especially want to thank Ms.
Schwikert Moser and, also, Ms. Pleus. I just thank you so much
for your bravery in coming forward to seek justice. Like so
many Americans, I am just filled with pride in our nation's
Olympic athletes and particularly Ms. Schwikert Moser. Your
achievements are just even more impressive in light of the
abuse that you and so many of your teammates faced and the ways
in which you and your teammates actually just have continued to
speak up and show true courage and leadership is really just a
commitment to helping others along the way.
Ms. Pleus, I know your fight all too well and I too am a
mother who lost my son, so I know exactly the pain that you
feel each and every single day and I can't thank you enough for
the work that you are doing because you really are working to
save lives and to make sure that no other parent is facing the
immeasurable pain that you have faced.
I have to say that I am really deeply troubled by the
abuses that we have heard about today, particularly those that
which the bankruptcy process has been used to avoid
accountability for allowing sexual abuse to persist and for
endangering people's lives.
Ms. Pleus, I will start with you. When you started your
advocacy work, I don't think you had any idea whatsoever that
bankruptcy proceedings might pose just all these great hurdles
and obstacles to your efforts. So, I know that you have covered
a great deal today. I have heard your testimony. I have heard
you this morning, but is there anything else that you have not
been able to say that you want people to know right now how the
system and these proceedings are failing families like yours
from getting justice that you deserve?
Ms. Pleus. Thank you so much. I appreciate that and I am
sorry to hear of your loss as well. Yes, so the fact that the
Sacklers never have to face a court themselves is really
astounding to me. The fact that the Sacklers never have to face
families like mine is astounding to me. When you hear the
numbers that are quoted--930,000 people since 1999 and just
last year, 93, over 93,000 lives lost in the United States--we
get really lost in those numbers.
The reality is, every single one of those people is
attached to someone who loved them, and their story is
important, and their loss is an incredible loss to our
communities and our society. What we need is for the Sacklers
to face that loss, to face those families, to hear those
stories, and to see the suffering that they have caused and
then for them to individually pay the price.
The fact that they have been able to escape paying the
price that they have put on the American people is just, it is
absolutely horrific and there is no justice here.
Ms. McBath. Thank you so much.
Ms. Schwikert Moser, I am going to pose the same question
to you as well.
Ms. Schwikert Moser. I just, I want justice for the
survivors and for the victims who, quite frankly, are hurt by
this bankruptcy law. I want transparency and accountability by
the Olympic Committee and USA Gymnastics. I no longer want to
live in a world where USA Gymnastics and the Olympic Committee
value medals and winning over the safety and well-being of its
athletes.
I think that is why it is so important that Simone Biles
and Naomi Osaka withdrawing and taking the stance that they did
at an Olympics or at a major international event to prioritize
their mental health and well-being is so monumental. The safety
of children and athletes should be the foremost, most important
thing for these organizations.
Again, I think this issue is broader than just gymnastics.
We see the same issue in the Boy Scouts, the Catholic Diocese
cases. Children are being abused and these organizations are
not held accountable. There is no amount of money that I or any
of the hundreds of other survivors would trade for the injuries
that result from sexual abuse. Larry Nassar went to prison for
his crimes, but what about the institutions who failed to
protect us and failed their responsibilities and obligations to
us?
My lawsuits against the Olympic Committee and the lawsuits
of the hundreds of other survivors will deter these failures
from ever happening again. The civil justice system will work
to prevent another serial pedophile from infiltrating these
organizations because these organizations like the Olympic
Committee will learn to Act more responsibly. The Olympic
Committee should face liability regarding their direct claims
and shouldn't escape liability through this bankruptcy
loophole.
Ms. McBath. Well, thank you to each of you for sharing your
stories and I hope that our reforms can really help the many
survivors and families that you represent. I am out of time. I
yield back the balance of my time.
Mr. Cicilline. The gentlelady yields back. I now recognize
the distinguished Ranking Member of the Subcommittee, the
gentleman from Colorado, Mr. Buck, for five minutes.
Mr. Buck. I thank the Chair.
General Tong, I wanted to ask you whether--and just if you
would answer briefly, I would appreciate it--whether venue
reform is part of the answer when we are talking about this
non-debtor's release.
Mr. Tong. Yes, absolutely. I think it will take a broader
view of it.
Mr. Buck. Professor Baird?
Mr. Baird. I agree, absolutely. I think it is a hard issue,
but having three judges decide this number of cases is not a
sign that the system is working effectively.
Mr. Buck. Professor Levitin?
Mr. Levitin. Yes, I would agree.
Mr. Buck. Last, Professor Skeel?
Mr. Skeel. Yes, on this issue of the appointment of
individual judges, I agree. It ought to be random within a
district.
Mr. Buck. I guess I would ask the four of you, briefly,
perhaps going in reverse order this time, it is amazing to me
that it is even constitutional. Does this not raise some sort
of due process issues when we are talking about the--and I
consider them victims. I don't consider them claimants of some
kind.
When the victims don't have the right to come forward in a
more meaningful way, Professor Skeel?
Mr. Skeel. I think it does potentially raise due process
issues and there are a variety of ways you can go at it.
Professor Levitin has suggested just banning all third-party
releases or non-debtor releases. I think you could also
consider a more middle of the road solution that allowed them
in some circumstances but required that victims have their day
in court.
I think victims' ability to have a day in court is
absolutely essential. So, both from constitutional
perspective--I am not a constitutional expert, but it seems to
me there are some issues there--and from a moral perspective,
there absolutely are issues there.
Mr. Buck. Mr. Baird?
Mr. Baird. Due process is essential in bankruptcy court or
anywhere else. If we are failing on that, that should be
something you should change.
Mr. Buck. Okay, legally?
Mr. Baird. Yes. I think they are--
Mr. Buck. I guess my question is, do we need to pass a law
that tells a judge they need to comply with minimum due process
requirements?
Mr. Baird. Well, again, one of Professor Levitin's points,
it is extremely hard to get appellate review in these
situations. It shouldn't be necessary, of course, but the
question is, is it within your power to do something here to
ensure that there is more due process in the case of third-
party releases? It emphatically is.
Mr. Buck. Well, those of us in Congress think everything is
within our power, but hopefully there are people in the
bankruptcy system who are listening today and understand the
concerns that are being raised.
Professor Levitin, your thoughts?
Mr. Levitin. Yes. I think there is a constitutional problem
here, and in the case of Purdue there is actually an objection
filed by the United States Trustee supported by the Department
of Justice challenging the constitutionality of the
nonconsensual, non-debtor releases. This is the first time I am
aware of that the United States Trustee has actually challenged
non-debtor releases on a constitutionality ground.
It is something that really needs to get decided, I think,
at the circuit level, but, unfortunately, the bankruptcy court
is very likely to confirm the release of the Sacklers and there
is unlikely to be any sort of appellate review because of the
equitable mootness doctrine.
Mr. Buck. General Tong?
Mr. Tong. Yes, I want to thank Professor Levitin for
bringing that up because one of the reasons why the Trustee and
the Department of Justice oppose these nonconsensual, non-
debtor releases is because we also have not just a
constitutional problem but a federalism problem. As we all
know, the Federal government, including its courts, the Federal
Government is a government of limited powers, and they exercise
the powers delegated to it by the states.
The States, including the State of Colorado, the State of
Rhode Island, the State of Connecticut, have retained our
police powers to hold people like the Sacklers accountable, and
no federal judge, as far as I know, and no bankruptcy judge has
the power to dismiss a State's sovereign claim when exercising
its police powers.
That poses a real federalism challenge here and a
constitutional problem when a Federal bankruptcy judge purports
to dismiss or otherwise eliminate a State's sovereign power to
protect its residents.
Mr. Buck. I thank you. I didn't mean to ignore either Ms.
Schwikert Moser or Ms. Pleus, but I wanted to get some of the
legal issues out. I thank both of you very much for your
testimony today and I know it is difficult and I can tell you
that you are making a difference and I very much appreciate
you. Thank you.
Thank you and I yield back.
Mr. Cicilline. The gentleman yields back. I, too, want to
say again, thank you to our Witnesses, particularly the
witnesses who traveled in person. I think this has been a
really productive discussion and very valuable to the Members
of the Committee. So, I want to say thank you again. Before we
conclude, I just want to give you, Attorney General Tong, and
you, Ms. Schwikert Moser, and you, Ms. Pleus, and Mr. Baird,
kind of any final thoughts you might want to share with us
before we conclude the hearing?
Mr. Tong. Thank you, Mr. Chair. Let me just summarize by
saying, you said in your opening remarks that one of our
principal purposes here today and in our justice system is to
pursue fairness. It is my job as a State Attorney General to
pursue justice. It is also the job of a U.S. bankruptcy court
to do justice. To let the Sacklers get off scot-free with a few
billion-dollar payment that is less than five percent on their
money every single year is not just, and it is not fair.
I think at the end of the day, the reason why I oppose this
proposed settlement is it is just not enough justice for all
the victims, thousands upon thousands of victims across the
country.
Mr. Cicilline. Thank you very much.
Ms. Schwikert Moser. Thank you, Chair.
In summary, my direct claims against the Olympic Committee,
with the current existing bankruptcy laws, it takes my direct
claims away from me. The foundation of our Constitution
includes due process and my right to a jury trial, and I am
enraged that my constitutional rights are being violated as a
result of the loophole of the existing bankruptcy laws.
I have to believe that the Olympic Committee knows that
these loopholes work in their favor and they are dragging their
feet to resolve claims with the survivors that they injured. At
this very moment, right now, the Olympic Committee is in Tokyo
at the Olympics making money off the very athletes that they
failed to protect.
We did not have a choice in the medical provider that USA
Gymnastics and the Olympic Committee made us see, and I do
believe that we should have a choice in how we seek justice
against these non-bankrupt parties.
Mr. Cicilline. Thank you so much.
Ms. Pleus. Thank you so much. One thing that I want to
mention is that if we take too long with this reform it won't
have an impact on the Purdue hearing at all. So, I appreciate
being here today and I hope that we make a difference for other
people in the future for similar issues. Because if we don't
change the laws now, what we are sending is a clear message to
all corporations that what they can do is lie to the American
people, cause mass destruction, profit off it and go home with
all of their money and be protected by the bankruptcy
proceedings.
So, even though this may not benefit the families who have
been impacted by the Sacklers, I think it is important that we
set this precedent. There is a chance though that you could
also pass the SACKLER Act in time to impact the Purdue hearing,
which I would love to see.
Then the last thing that I wanted to mention is we have, it
seems, two systems in the United States. One that applies to
corporations and wealthy people and one that applies to the
rest of us. We have a drug war that is raging on. My son spent
time behind bars. Countless families have loved ones behind
bars, and yet people like the Sacklers have caused countless
deaths in the United States and are walking away, not only
without time behind bars, but with the riches that they made as
a result of it. I think that we as a nation need to figure out
how we can change that, so that we don't have two separate
systems in the United States, because that is not justice.
Thank you so much.
Mr. Cicilline. Thank you again.
Professor Baird, any final thoughts?
Mr. Baird. Well, I think this hearing has been very
valuable and I think reminds us that our bankruptcy laws, as
good as they may be, are in need of reform and vigilance is
necessary and I am grateful for the chance to come and talk. I
hope that as you think about these reforms we can continue to
talk and we can continue to try to make the laws better.
Mr. Cicilline. Great. Thank you so much.
This concludes our hearing today. Thank you again to our
distinguished witnesses. Without objection, all Members will
have five legislative days to submit additional written
questions for the Witnesses or additional materials for the
record. I also seek unanimous consent to add a number of
letters and statements regarding the proposals to repair our
Bankruptcy Code discussed here today, for the record.
[The information follows:]
MR. CICILLINE FOR THE RECORD
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Mr. Cicilline. Without objection, so ordered. This hearing
is adjourned.
[Whereupon, at 1:25 p.m., the Subcommittee was adjourned.]
APPENDIX
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