Bankruptcy courts nationwide have seen more litigation-funding deals in recent years, as distressed companies and their creditors sell the rights to pursue lawsuits in exchange for upfront cash, WSJ Pro Bankruptcy reported. With the pace of corporate defaults picking up, litigation funding could fuel more disputes in bankruptcy court that can alter creditors’ recoveries. “We’re seeing a recognition of litigation assets as another source of value for companies and their unsecured creditors in a more robust way than we have in the past,” said Ken Epstein, investment manager and legal counsel at litigation funder Omni Bridgeway. Benefit Street and three other investment firms put up nearly $5.6 million to bankroll a lawsuit on behalf of unsecured bondholders of Sanchez, which exited bankruptcy in 2020 under the new name Mesquite Energy. Earlier this month, a bankruptcy judge ruled that 70% of the company belongs to unsecured creditors, rather than to its former bankruptcy lenders Fidelity Investments and Apollo Global Management. Benefit Street and the three other asset managers negotiated for 90% of the lawsuit’s proceeds in return for their financing. That means only 10% of the recent award would be spread among all the company’s unsecured creditors. One of them, Lake Whillans Capital, sued earlier this month to challenge the litigation loan, saying that a court-appointed creditor representative signed away too much of the lawsuit’s value.
The Supreme Court recently announced that it will review Purdue Pharma’s bankruptcy settlement, which would release the company’s owners, the Sackler family, from future civil liability for the harms they imposed on millions of opioid victims. Some see this as an opportunity to vindicate victims and prevent abusive bankruptcy settlements. That is wrong. The reality is that the Supreme Court’s review comes at a major cost to opioid victims, potentially delaying compensation they would receive by months or even years, according to a commentary today in the Washington Post by Profs. Anthony Casey of the University of Chicago Law School and Edward Morrison of the Columbia Law School (New York). It might also cost the entire legal system. If the court rejects the settlement in this case, it would cripple our bankruptcy courts, which play a key role in remedying mistreatment of mass tort victims by our legal system. The Sacklers played a key role in these misdeeds, yet they never filed for bankruptcy, and victims never had an opportunity to pursue lawsuits against them in civil courts. Instead, Purdue commenced a bankruptcy case, which brought all victims, governments and other injured parties into a single court. The Sacklers agreed to offer settlement money in exchange for a release from liability. After injured parties pushed back, and after months of mediation, the Sacklers increased their offer from more than $4 billion to nearly $6 billion for a release. The company has twice pleaded guilty to criminal charges — first in 2007, for misleading the public about the safety of its products, and again in 2020, for defrauding the United States and violating the federal anti-kickback statute. Today, more than 95 percent of victims who voted did so in favor of this settlement; so have nearly 80 percent of the states and territories and more than 96 percent of tribes and other non-state governments with claims against Purdue and the Sacklers. Read more.
*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
