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  • Writer's pictureKirk Hartley

A Chapter 11 Filing By BP and Other Entities Could Actually Provide Positives for Chapter 11 Cases R

Will the oil rig fiasco result in a chapter 11 filing by BP entities or others ? If so, it could well be a positive for chapter 11 cases related to mass tort claiming. It’s been obvious for some time that it’s likely that chapter 11 could and probably would be used to resolve claims for at least some of the many entities tangled up in the oil rig situation. Now, the popular press has caught on, and so recently there are more articles mentioning that lawyers and financiers are talking about preserving financial value in BP’s share price via chapter 11.

No doubt the lawyers and financiers are talking about chapter 11 for entities other than just BP. Why ? Because, as proved by the chapter 11 cases of Manville, GM, Chrysler, and other events, judges in the Second and Third circuits take broad views of the powers of bankruptcy courts. And, about 15 years ago, professionals in those circuits learned to happily embrace the bankruptcy court’s perceived power to quickly blunt some of the sting of massive errors. The professionals also learned that complex mass tort claims can generate hundreds of millions of dollars in barely scrutinized chapter 11 fees earned in forum shopped bankruptcy courts via cases that ultimately will generate decades of issues and work.

What could be good about BP and others using chapter 11 filings to resolve massive tort claiming ? Start with intense federal government and public scrutiny of what is done to resolve tort claims arising from this very large and very public event. Other mass tort chapter 11 cases are barely noticed by most lawyers, much less the federal government or the public. And, chapter 11 cases often but always operate with little if any transparency or useful public information due to absurd rules that bankruptcy courts and lawyers have put in place to seal most but not all hearing transcripts for 90 days.

An oil rig chapter 11 also could be good because it will force state governments to pay attention to chapter 11’s impacts on persons and businesses in their states. Until recently, most states have failed to pay meaningful attention to mass tort chapter 11 cases. That’s been an ongoing mistake because the chapter 11 mass tort cases involve sickness in state citizens, tens of billions of dollars being funneled to those persons, and chapter 11 games and orders that are used to circumvent and/or ignore state law rules which are supposed to govern tort claiming.

Resolving the oil rig fiasco in chapter 11 also could produce good things for chapter 11 mass tort cases because there will hundreds or thousands of lawyers and other professionals involved, and most will not be repeat players in the chapter 11 system. It would be refreshing to see a mass tort chapter 11 case with actual diversity of thought, and lawyers really acting as adversaries. In contrast, the recent world of asbestos chapter 11 cases involves a relative handful of lawyers who know the dance by heart and seldom challenge much of anything for very long. The few challenges that are raised virtually always settle. And, the issues quite often settle before appeals are heard due to most of the repeat players having a well known price, and the knowledgeable players banking on appellate courts rejecting appeals by invoking the due process defying doctrines of legal and equitable mootness.

Another good could arise because an oil rig chapter 11 claiming process would force the courts and lawyers to really think about science and the long term. Thoughtful professionals already say that the impacts of the fiasco will have consequences for decades, and many of the consequences are not now known. These realities hopefully will cause real scrutiny of what the future may bring. Better yet, it seems obvious that the chapter 11 court will have no choice but to appoint multiple different futures representatives who will not sacrifice their constituencies, and instead will have no choice but to engage real scientists (instead of statisticians) to really think about the future impacts from the massive release of "toxins" in oil. No doubt scientists will speak of myriad deaths of creatures of all kinds. No doubt some will also speak of toxins causing gross malformations of bodies due to disruption of endocrine systems, and of toxins causing genetic mutations that will be passed down for generations, with some changes producing future cancers. They probably also will say that the future is not scientifically knowable today, and that a prudent course would be to let better judgments be made in the future after future events unfold. Hopefully such testimony will cause bankrutpcy courts and scholars to see the massive flaws in the current rush to carve the pie all at one time, with large portions still being given to people who are not really sick and through carving the pie with little regard for future scientific developments.

An oil rig chapter 11 also could be good because it will force US courts and lawyers to actually honor rights of persons in other nations. BP as an entity obviously brings its own international and parochial views from the UK. Moreover, Mexico and other nations around the Gulf may be impacted. Unfortunately, in chapter 11 mass tort cases to date, bankruptcy judges approve "global" notices and injunction terms said to apply to non-US claimants, without providing due process notice to potential claimants. Instead, notices are usually only in English, and are usually only in newspapers. In this age of Internet, email, databases and translation engines, much more can and should be done to provide actually meaningful notice to persons in other countries. Because BP’s oil apparently will be spreading through global seas for decades to come, other nations inevitably will care, and will pay at least some attention. Hopefully the international claims will actually be considered with real respect for the laws of other nations.

An oil rig chapter 11 claim estimation process also will need to occur, and could be a positive. In mass tort chapter 11 cases to date, the courts and parties have used estimation processes that make a mockery of science, as demonstrated by this detailed declaration from Professor James Heckman, a Nobel prize winning economist. With a very public and global set of oil rig chapter 11 cases, one hopes science actually will be used to the fullest extent possible. Consider, for example, the need to estimate the volume of oil released. Where it will go ? How many living things the oil already has killed ? How many will die next year, or in five years ? How many organisms will ingest oil and will then be consumed by other large creatures, thus spreading the consequences far and wide and into future generations. Will there be a future Silent Spring in parts of the vast unseen ecosystems beneath the waves ? Hopefully Congress and/or the bankruptcy courts will make new law and will actually force the litigants to apply the best possible science instead of the statistical voodoo too often used in asbestos chapter 11 cases.

In short, bring on chapter 11 filings from some or all of the entities involved with the oil rig. Let’s hope they become the vehicle by which the bankruptcy process is actually made to work well. Working well would include embracing science. Working well also would include recognizing the obvious flaws in the current system of futures representatives. Working well also would mean recognizing that one time liability estimates are not wise because future liabilities are too often badly underestimated. When estimates are too low, the burden of shouldering the shortfall goes to either injured plaintiffs or co-defendants who remain in the tort system. Accordingly, the courts or Congress should require some form of remedy that leaves investors at risk until it’s certain others are no longer at risk.

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