[Congressional Record Volume 145, Number 125 (Thursday, September 23, 1999)]
[Senate]
[Page S11357]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 SHOOTING DOWN THE BANKRUPTCY LOOPHOLE

  Mr. LEVIN. Mr. President, I am very disappointed that the Senate 
majority leader brought up the bankruptcy reform bill and then 
immediately filed for cloture on the bill. If this week's cloture 
motion had passed, debate would have been blocked and relevant 
amendments designed to reform the bankruptcy system would have been 
prohibited from being offered.
  I was planning to offer an amendment that would have prevented one 
abuse of the bankruptcy system. My amendment was very straightforward. 
It would have prohibited manufacturers, distributors and dealers of 
firearms from discharging debts which are firearm related incurred as a 
result of judgments against them based on fraud, recklessness, 
misrepresentation, nuisance, negligence, or product liability.
  Currently, under the Bankruptcy Code, such persons and companies are 
able to evade responsibility and ``take advantage of the system.'' 
That's what Lorcin Engineering Co., a manufacturer of cheap handguns, 
told Firearms Business it was doing when it filed for Chapter 11 
bankruptcy protection in 1996. At the time, Lorcin was one of the chief 
manufacturers of ``Saturday Night Specials'' or ``junk guns'' and in 
1998, their inexpensive semiautomatic pistol was number two on the list 
of guns traced to crime scenes by ATF. Lorcin's low quality guns, which 
caused innumerable deaths because of their cheap construction and easy 
availability, were the basis of more than two dozen product liability 
lawsuits. Once Lorcin decided they could not defend their practices 
against the multiple liability claims filed against them, they decided 
to protect themselves by using the bankruptcy system to settle these 
lawsuits for pennies on the dollar and be exempted from an additional 
lawsuit filed by the city of New Orleans.
  Lorcin was able to evade judgments by filing for bankruptcy, and 
other manufacturers are lining up in bankruptcy court to follow their 
lead. Davis Industries, another manufacturer of Saturday Night 
Specials, has also sought refuge in bankruptcy court, perhaps hoping to 
dismiss the wrongful-death and personal injury suits filed against them 
by individuals and the multiple lawsuits filed against them by local 
governments.
  Currently, there are eighteen categories of debt that are 
nondischargeable under the Bankruptcy Code. The Code makes certain 
debts nondischargeable when there is an overriding public purpose. One 
specific example is the nondischargeability of debt incurred by a 
debtor's operation of a motor vehicle while legally intoxicated. This 
addition to the Bankruptcy Code demonstrates Congress' unwillingness to 
allow debtors to escape debts created by illegal and improper conduct. 
Debts for death or personal injury resulting from unsafe firearms and 
their negligent distribution should also be nondischargeable under the 
Bankruptcy Code. Like debts incurred by drunk driving, Congress must 
send a message that it will not permit debtors to escape debts incurred 
by improper conduct.
  I urge the Senate to begin a reasonable debate on bankruptcy reform 
that truly address the abuses of the system. I ask unanimous consent to 
have printed in the Record, an article from the New York Times, showing 
the link between some gun manufacturers and the abuse of the bankruptcy 
system.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                [From the New York Times, June 24, 1999]

             Lawsuits Lead Gun Maker To File for Bankruptcy

                          (By Fox Butterfield)

       In the first sign of the impact of the growing number of 
     municipal lawsuits against the gun industry, a well-known 
     manufacturer of handguns has filed for bankruptcy protection, 
     raising concern among city officials across the country that 
     other firearms companies may also use bankruptcy to try to 
     avoid the suits.
       The bankruptcy filer, Davis Industries, one of a group of 
     companies in suburban Los Angeles that are controlled by a 
     single family and its friends, produces Saturday night 
     specials, cheap handguns favored by criminals. Davis is one 
     of the 10 largest makers of handguns, and studies have found 
     that its products tend to be characterized by a short ``time 
     to crime''--that is, a remarkably brief period between sale 
     and the point at which they show up as weapons used in 
     criminal acts.
       In another indication of the pressure created by the 
     municipal lawsuits, Bob Delfay, president of the gun 
     industry's largest trade association, says he plans to 
     propose an unusual conference with senior law-enforcement 
     officials, representatives of the National Rifle Association 
     and executives of gun companies to discuss how the industry 
     and government might curb trafficking by people who buy 
     firearms on behalf of criminals and juveniles.
       It is unclear precisely what measures Mr. Delfay, of the 
     National Shooting Sports Foundation, has in mind to stop 
     these so-called straw purchases. But any proposals by the gun 
     companies for greater government regulation or industry self-
     policing of sales and marketing practices would be a 
     substantial departure from the manufacturers' insistence that 
     they are already sufficiently regulated by thousands of laws.
       Only last week, Mr. Delfay's group took over a more 
     conciliatory gun-industry organization, the American Shooting 
     Sports Council, which had been trying to open negotiations 
     with lawyers for some of the cities suing the firearms 
     makers. In an interview, Mr. Delfay insisted that his idea 
     for a conference was not intended to open the way for a 
     settlement.
       So far, 22 counties and cities, including Chicago, Los 
     Angeles and Detroit, have sued the gun makers, accusing them 
     of failing to include enough safety devices or negligently 
     marketing their guns in ways that enable criminals and 
     juveniles to buy them. The suits seek damages for extra 
     police and hospital costs resulting from gun violence, but 
     more important, city officials say, they want to force the 
     gun companies to accept greater regulation of the way they 
     design, manufacture and distribute their products.
       More cities are expected to file suit soon, and lawyers 
     familiar with the issue say New York is close to becoming the 
     first state to bring such a suit. ``If New York comes into 
     this, and there are more suits, at some point soon a critical 
     mass will be reached where the costs alone of defending these 
     suits are going to eat up the gun companies,'' said John 
     Coale, a lawyer in Washington who is representing New Orleans 
     and several other cities that have sued.
       Mr. Coale, one of the Castano Group of lawyers who were 
     active in suing the tobacco industry--the group is named for 
     a friend of several of them who died of a tobacco-related 
     disease--estimated that the cigarette companies had spent 
     $600 million a year defending themselves against the states. 
     ``The gun companies simply can't afford it,'' he said, since 
     they are so much smaller and sales of guns have been flat or 
     declining for a decade.
       ``So if you get too many cities and states suing,'' Mr. 
     Coale said, ``the manufacturers will go into bankruptcy 
     protection. And the day that happens, the suits stop and it 
     is lose-lose for everybody.''
       Davis Industries, of Chino, Calif., filed for bankruptcy 
     reorganization in the Federal bankruptcy court in nearby 
     Riverside on May 27, said Alan Stomel, a lawyer who 
     represented creditors in the unrelated 1996 bankruptcy of 
     Lorcin Engineering, another of the gun makers controlled by 
     the same owners as Davis Industries and known as the Ring of 
     Fire companies (because their locations form a ring around 
     Los Angeles).
       ``Bankruptcy is a very useful negotiating tool,'' Mr. 
     Stomel said, ``and predictably the more suits that are filed, 
     the more these gun companies are going to file for 
     bankruptcy.''
       A spokesman for Davis Industries, who declined to give his 
     name, confirmed that the company had filed for bankruptcy. 
     ``We do what we got to do'' in response to the suits, the 
     spokesman said. ``I'm sure other companies will do the same 
     thing.''
       Mr. Stomel said Davis Industries faced several problems: 
     the municipal lawsuits, wrongful-death and personal-injury 
     suits by individuals, a messy argument between the two 
     owners, Jim and Gail Davis, who were recently divorced, and a 
     bill that is expected to pass the California Legislature that 
     would bar the manufacture of cheap handguns.
       A lawyer for one of the cities suing the gun makers said 
     bankruptcy ``is going to be a huge pain'' because it will 
     require much more time and expense for the cities, limit the 
     amount of damages they may collect and, perhaps most 
     important, put the litigation in Federal bankruptcy court. 
     Bankruptcy judges, the lawyer said, are more likely to act 
     favorably to the gun companies than urban juries in state 
     courts.
       But Paul Januzzo, general counsel for Glock Inc., one of 
     the largest handgun makers, said it was unlikely that the 
     older, more established, mostly Eastern firearms companies 
     would turn to bankruptcy.
       ``We are confident we can win the suits, if we have a 
     number of companies litigating together,'' Mr. Januzzo said.
       Lawsuits, he added, are nothing new to the industry. ``It 
     would be an unusual gun company that doesn't have a dozen 
     lawsuits a year against it,'' he said. ``This is America.''
     
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