December 05, 2024

Warren, Lawmakers Seek to Protect Victims from Billionaires Exploiting the Bankruptcy System

Following the Supreme Court’s decision clearing the way for opioid victims to hold Sackler family accountable, lawmakers reintroduce bill to stop companies from using bankruptcy to escape accountability for hurting consumers, workers, and families 

Bill Text (PDF) 

Washington, D.C. – U.S. Senators Elizabeth Warren (D-Mass.), Dick Durbin (D-Ill.), and Richard Blumenthal (D-Conn.) reintroduced the Nondebtor Release Prohibition Act to explicitly prohibit the use of non-consensual, non-debtor releases in bankruptcy. This legislation would protect consumers, workers, and families from companies and individuals attempting to exploit the bankruptcy system to evade accountability to victims. 

The bankruptcy system is designed to give debtors, or individuals or corporations struggling financially, a fresh start. In exchange for receiving the protections of bankruptcy, debtors must disclose details about their finances to the bankruptcy court. But in some cases, non-debtor, or third-party, billionaires and corporations who have not themselves filed for bankruptcy attempt to obtain the protections of bankruptcy, including releases from future liability, even without the consent of victims who would be bound by the releases. This behavior can leave victims of bankrupt corporations, including victims of the opioid epidemic or widespread sexual assault scandals, without a pathway to justice. The Sackler family, owners of Purdue Pharma, attempted to use this mechanism to protect themselves from lawsuits related to the opioid crisis. The Nondebtor Release Prohibition Act would curb that abuse of our bankruptcy system by prohibiting liability releases for non-debtors unless victims affirmatively consent.

In June 2024, the United States Supreme Court ruled in Harrington v. Purdue Pharma that the use of non-debtor releases without the consent of claimants is illegal under bankruptcy law. This bill would codify that decision, and goes further by: 

  • Defining what constitutes consent by claimants to prevent companies from using deceptive or extortionary tactics to extract consent;
  • Forcing the dismissal of any Chapter 11 bankruptcy where a company has split their assets and liabilities into separate companies, known as the Texas Two-Step, in the 10 years leading up to the bankruptcy filing; and
  • Severely restricting bankruptcy courts’ ability to slow or limit lawsuits against a non-debtor even if that litigation impairs a corporate debtor’s ability to reorganize. 

“Billionaires and corporations should not be able to use our bankruptcy system to escape accountability for serious allegations, including medical malpractice, sexual abuse, or national public health crises like the opioid epidemic,” said Senator Warren. “Our bankruptcy system is meant to grant struggling individuals and companies a fresh start, and this bill will protect our bankruptcy system and victims from abuse.” 

“For years, bad actors exploited the bankruptcy system to evade accountability for egregious wrongdoing—like igniting America’s opioid crisis.  While the Supreme Court narrowed this loophole earlier this year, it’s up to Congress to close it once and for all,” Senator Durbin said.  “The Nondebtor Release Prohibition Act will ensure that non-debtor releases are not weaponized against victims seeking accountability.”

“Current bankruptcy law is unjust and unacceptable—allowing individuals and entities to use bankruptcy proceedings as a means to evade justice. For too long, bad actors—including the Sackler family, USA Gymnastics, and Boy Scouts of America— have taken advantage of this glaring loophole to escape accountability for serious wrongdoings. Commonsense legislation, like the Non-Debtor Release Prohibition Act, is desperately needed to put an end to special treatment and stop this abuse of justice,” said Senator Blumenthal.

Senator Warren and Representative Nadler first introduced this bill in July 2021. 

Representative Nadler reintroduced this bill in the 118th Congress in July 2024 with the following Representatives as co-sponsors: Steve Cohen (D-Tenn.), Mark DeSaulnier (D-Calif.), Eleanor Holmes Norton (D-D.C.), Henry “Hank” Johnson (D-Ga.), Katie Porter (D-Calif.), and Rashida Tlaib (D-Mich.). 

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