Politics

How corporate chiefs dodge lawsuits over sexual abuse and deadly products

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Hollywood producer Harvey Weinstein’s rape conviction landed him in prison. Allegations of serial sexual abuse cost him his career and his movie studio. His company went bankrupt and later settled legal claims by about 50 women. 

But one group of wealthy insiders walked away relatively unscathed — the Weinstein Company’s board of directors. 

Some women alleged that the board knew for years that the producer had paid off some of his accusers, buying their silence through nondisclosure agreements. But the studio’s Chapter 11 filing ended up legally shielding the directors. As part of the settlement, a bankruptcy judge granted the board members — some of them billionaires — lifetime immunity from lawsuits related to the movie mogul’s alleged abuse. 

Most of Weinstein’s accusers approved the settlement, with its liability releases. But eight voted against it, and four jointly filed a formal objection to the releases for the directors, whom the women had sued or planned to sue. One of them, Dominique Huett, alleges Weinstein sexually assaulted her in 2010. She told Reuters she wanted the board members to answer for their actions in court. The judge’s approval of the settlement with liability releases, over her protest, “felt like I was being coerced into something once again,” Ms. Huett said. 

Such immunity grants have become a pervasive but little-understood feature of the US bankruptcy system. The releases are now granted by judges in 9 of 10 major Chapter 11 cases, a Reuters examination has found. Corporate scandals regularly bring down US companies. But their wealthy executives and directors often escape accountability for alleged wrongdoing by demanding these liability releases as a condition of any company settlement with creditors, including lawsuit plaintiffs. 

The Weinstein Company’s board members had no comment. A Weinstein spokesperson said the producer denies assaulting any women. 

The lawsuit shields, requested by the company or organization in bankruptcy, are called “nondebtor” releases because they are bestowed on people and entities that never have to declare Chapter 11 themselves. The recipients effectively get the benefits of bankruptcy protection without the associated financial or reputational damage. 

The releases shield them from any legal claims from creditors, including lawsuit plaintiffs, outside of a bankruptcy-court settlement. The released parties often include the same people who control or influence the amount and terms of the company’s proposed settlement — owners, executives or directors. 

Nondebtor releases first emerged in the late 1980s as a tool to help resolve a unique legal dispute: an avalanche of lawsuits over cancer-causing asbestos. Three decades later, the immunity grants are ubiquitous: Judges approved such releases in 90% of the largest U.S. bankruptcies completed between 2012 and 2021, according to a Reuters review of 626 cases compiled by BankruptcyData, a division of New Generation Research Inc. 

Reuters reviewed bankruptcies of companies with more than $100 million of assets. It’s the first comprehensive examination to show how pervasive these liability shields have become. 

Reuters separately examined 29 US bankruptcies that were preceded by mass tort litigation against companies or other entities, many of which included allegations involving dangerous products or sexual abuse. The review found that about 1.2 million claimants in these cases have signed away their rights to sue related parties or face pressure to approve such releases in ongoing bankruptcy-court negotiations. 

Judith Fitzgerald, a former bankruptcy judge who served for more than 25 years, called the large number of affected claimants identified by Reuters a “shock.” Some judges, she said, are handing out releases liberally and with little regard to objecting plaintiffs’ concerns. 

The 29 bankruptcies included those of 14 Catholic dioceses or religious orders and the Boy Scouts of America amid lawsuits alleging child molestation; the collapse of opioid suppliers Purdue Pharma LP and Mallinckrodt plc over their alleged roles in a deadly addiction epidemic; and the controversial “Texas two-step” bankruptcies executed by major companies including Johnson & Johnson and Saint-Gobain, which created subsidiaries to absorb their liability from lawsuits over allegedly dangerous products. 

Saint-Gobain and Johnson & Johnson said in statements that their subsidiary bankruptcies provided a fair and equitable way to resolve litigation through settlements the companies have agreed to fund. The Boy Scouts declined to comment; a judge in September approved a settlement in which the organization will pay abuse victims $2.46 billion. The United States Conference of Catholic Bishops declined to comment on the bankruptcy filings of local Catholic organizations. 

Some beneficiaries of the legal shields agree in negotiations to contribute to settlements in exchange for their releases; but others pay nothing. That was the case with Mark Trudeau, the former chief executive of opioid supplier Mallinckrodt, who was accused of playing a pivotal role in the opioid crisis that landed his company in bankruptcy. Mr. Trudeau allegedly pushed the drugmaker to boost sales of the potent painkillers by keeping patients on higher doses for longer periods. 

Mr. Trudeau and Mallinckrodt have denied any wrongdoing. They had no comment for this report. 

Plaintiff-creditors typically have little choice but to sign away their rights to sue, according to legal experts. That’s because judges suspend trial-court lawsuits during bankruptcy negotiations, leaving plaintiffs who resist settlement terms unable to seek compensation elsewhere. 

Despite the releases’ impact on some victims, halting their quest for justice, many judges, bankruptcy attorneys and even plaintiffs attorneys defend their role in the process of bringing inevitably messy disputes to closure. Most claimants who alleged abuse by Weinstein, for instance, supported the settlement. 

“The last thing they want is to have to go through years of public litigation and risk getting nothing at the end,” said Debra Grassgreen, who represented all unsecured creditors, including lawsuit plaintiffs, during the January 2021 court hearing to finalize the agreement. The women, she said, chose the “certainty and privacy” offered by the settlement. 

Here’s how the process for granting nondebtor releases works: Judges must approve the bankruptcy reorganization plan that contains the settlement terms, including the releases. They typically view the liability shields as a tool that makes the organization in bankruptcy, along with related parties receiving the releases, more willing to pony up money for a settlement to resolve the case. 

Creditors, including lawsuit plaintiffs, also vote on the plan, and many who have no plans to pursue further litigation accept the releases as necessary to move the negotiations more quickly toward compensation for their claims. But judges can still sign off in cases where some creditors fiercely oppose the settlement or its liability releases — as in the Weinstein Company bankruptcy. 

Some attorneys, judges and academics question the legal basis of releases that require plaintiffs to give up their constitutional right to a jury trial. In practice, they say, large numbers of claimants who are bound by the releases never approve them. That’s because individual creditors often don’t vote at all on the bankruptcy reorganization plans that include the releases, in part because the key points are buried in impenetrable legalese. Further, they argue, the releases strip the legal rights of all potential future plaintiffs who might otherwise sue over the same harms. 

Proponents of nondebtor releases counter that large and complex bankruptcies often can’t be resolved without immunity grants as an enticement for decision-makers contributing money to settlements. In trial courts, they argue, a few plaintiffs might win big, while most get smaller judgments or nothing. The releases, they say, allow more plaintiffs to get paid more quickly through settlements. 

The liability shields’ effect on plaintiffs can transcend money, however, as was the case with some of Weinstein’s accusers. Ms. Huett wanted her day in court, she said, where her accusations could be fully aired and everyone involved held accountable. 

“He had so many enablers for so many years,” Ms. Huett said of Weinstein.  

WITHOUT CONSENTNondebtor releases were originally designed for a narrow purpose that had nothing to do with shielding corporate leaders. 

Manufacturer Johns-Manville, overwhelmed by asbestos lawsuits, declared bankruptcy and created a first-of-its-kind trust to compensate current and future plaintiffs. Manville’s insurers received nondebtor releases in exchange for giving the trust $770 million. The intent was to prevent plaintiffs from collecting twice, through the settlement and an insurance claim. 

Congress codified the practice in 1994 in a new law that only mentioned asbestos cases. Since then, however, some federal appeals courts have found that judges have broad power to approve such releases in all kinds of bankruptcies. 

Thomas Salerno, a Stinson LLP bankruptcy lawyer who represents companies and creditors, said the releases serve the greater good. He compared them to the immunity grants prosecutors give lower-level criminals to coax their cooperation as witnesses against more serious offenders. 

“As distasteful as it is, bankruptcy is about recovery to creditors, monetary recovery — not about moral victory,” he said. 

Lindsey Simon, an associate professor at the University of Georgia School of Law, used a different comparison in a paper published in February’s Yale Law Journal. She called recipients of the releases “bankruptcy grifters” who act as “parasites” on another entity’s Chapter 11 filing. She noted in an interview that released people and entities reap bankruptcy protections without ever filing. 

Judges are split on the crucial question of the consent required from claimants to grant the releases. 

If a reorganization plan wins enough support — usually a majority of creditors who bother to vote — some appeals courts allow judges to approve the plan, with its liability releases, over the objections of a minority. 

The US Trustee, a bankruptcy watchdog within the US Department of Justice, objected to nondebtor releases in more than a quarter of the cases that Reuters reviewed, often over a lack of consent from claimants. Clifford J. White III, an attorney who led the Trustee office for 17 years before retiring in March, said judges should not take away a victim’s day in court unless that person expressly agrees to it. 

“To be voluntary, you need affirmative consent,” he said. 

Judges have mostly rejected that philosophy. Only 7% of the cases examined by Reuters contained clauses that required such explicit plaintiff consent. In cases where the US Trustee objected to liability releases, most judges declined to make any significant changes in response. 

A few judges, however, are pushing back on the immunity grants. US District Judge Colleen McMahon last year overturned a reorganization plan for opioid maker Purdue Pharma because of the liability releases it contained for the company’s owners, wealthy members of the Sackler family. 

Plaintiffs objecting to the releases appealed the bankruptcy court’s settlement approval, which landed the matter in Ms. McMahon’s court. Ms. McMahon ruled that Congress never intended to allow bankruptcy courts to force plaintiff-creditors to accept nondebtor releases in cases that didn’t involve asbestos. She called the releases an “extraordinary form of relief.” 

Controversy over such releases “has hovered over bankruptcy law for thirty-five years,” Ms. McMahon said in her ruling, which Purdue has appealed. “It must be put to rest sometime.” 

Plaintiffs alleged that Sackler family members were culpable for the harm their company’s addictive product caused. Family members have expressed regret over the opioid crisis but denied they bear responsibility, saying they always acted ethically and lawfully. 

Sackler representatives did not comment for this story. 

Fewer than 20% of the more than 600,000 eligible claimants had voted on the reorganization plan that included the releases; more than 95% of those voting approved it. In a statement, Purdue said the result signaled “extraordinarily broad support” by creditors for the proposed settlement as “the fairest and best way to deliver billions of dollars of value” to opioid victims. 

Sackler family members had offered to contribute about $4.5 billion to the settlement in exchange for the releases. After the judge rejected that settlement plan, they upped their offer to up to $6 billion — without dropping the demand for lawsuit immunity. The new settlement proposal hinges on whether an appeals court upholds or reverses Ms. McMahon’s ruling invalidating the liability releases. 

Congress is also wading into the controversies over the releases, with a bill that would severely restrict the legal shields, authored by US Senator Elizabeth Warren, of Massachusetts, and other Democratic lawmakers. Republicans have opposed a similar bill in the House of Representatives. 

Ms. Warren said in a statement that the Reuters review of major Chapter 11 filings “confirms the troubling frequency with which giant corporations are using nondebtor releases and coercive tactics… to game the bankruptcy system and escape accountability.”  

WAVE OF DEATHS, LAWSUITSThe release granted to Mallinckrodt’s Mr. Trudeau illustrates how corporate leaders use the bankruptcy process to escape potential legal liability for harms their companies are accused of inflicting. Over the years, Mr. Trudeau collected more than $100 million in compensation before the company filed for Chapter 11 protection. 

When the firm settled with plaintiff-creditors in February, Mr. Trudeau received a liability release, paying nothing in exchange for it. 

Mr. Trudeau, a veteran Big Pharma executive, became president of Covidien’s pharmaceutical division in 2012. The business was spun off to create Mallinckrodt as a separate company the following year, with Mr. Trudeau as chief executive. The new firm, among the largest US opioid suppliers, relied on sales of the painkillers for most of its growth. 

As sales surged, so did fatal opioid overdoses, growing from 23,166 in 2012 to 68,630 in 2020, according to the US Centers for Disease Control and Prevention. 

Mallinckrodt faced a swelling tide of opioid-related litigation from consumers and governments. The company filed for bankruptcy in 2020, just days after the state of Rhode Island sued Mr. Trudeau personally, alleging he pushed higher opioid sales on doctors and patients while trivializing risks. 

The liability releases in the bankruptcy-court settlement terminated the state’s lawsuit against Mr. Trudeau. Also canceled were more than 3,000 other lawsuits against Mallinckrodt, along with any future opioid-related claims against the company. 

Mallinckrodt declined to comment on the settlement or the releases. Mr. Trudeau did not respond to repeated inquiries. Details about the executive’s business moves are laid out in court documents reviewed by Reuters, including internal emails, marketing presentations and a deposition of Mr. Trudeau. 

Mr. Trudeau had taken over his new job with a strategy to increase opioid sales to boost profits. Many of the opioids Mallinckrodt sold were generic versions of oxycodone and hydrocodone. But the company’s hopes for major growth in 2012 involved Exalgo 32, a brand name drug. Exalgo 32 was the opioid hydromorphone, formulated as a slow-release capsule delivering a larger, 32-milligram dose. 

Mr. Trudeau personally requested an analysis of “patient persistency” for a meeting to discuss the launch of Exalgo 32, according to a June 2012 email to Mr. Trudeau from Mallinckrodt’s marketing vice president. That term means keeping people on the drug for longer periods of time, according to presentation slides from the meeting. “Patient persistency will be key to success,” one slide read. Some plaintiffs in lawsuits against Mallinckrodt alleged internal company documents showed the company’s intent to addict its customers. 

Mr. Trudeau, in his deposition for a separate lawsuit Rhode Island filed against Mallinckrodt and other opioid makers, testified that he did not know the meaning of “patient persistency” as it was used in the presentation, along with other language such as “increase average prescription dose.” Asked whether he bore any responsibility for the deadly opioid crisis, the executive answered: “I do not.” 

Overall, Mallinckrodt hoped to make up to $148 million a year in sales of Exalgo 32, the document showed, with about $30 million of that coming from maximized patient persistency. 

In its 2020 lawsuit against Mr. Trudeau, the Rhode Island attorney general cited scientific evidence showing that patients receiving higher doses of opioids are about nine times more likely to suffer overdoses than on low doses. That’s because their tolerance to the drug’s painkilling properties grow at a much faster rate than their ability to withstand its respiratory side effects, including dangerously slow breathing and lack of oxygen. The lawsuit alleged Mallinckrodt never disclosed those risks. 

The Rhode Island attorney general did not respond to requests for comment on its lawsuit and the liability releases granted to Mr. Trudeau in bankruptcy. 

Exalgo 32, after it went on sale, ultimately did not produce the explosive sales Mallinckrodt wanted. But the company continued selling large quantities of generic opioids. In 2017, Mallinckrodt agreed to pay $35 million, without admitting wrongdoing, to settle Justice Department allegations that it failed to report suspicious opioid orders. 

The generics served a critical business purpose: funding Mallinckrodt’s strategy to bolster its stable of drugs through acquisitions. “That’s our money generator,” Mr. Trudeau said of the generics in an interview with the St. Louis Business Journal in 2015. Rhode Island cited the article in its lawsuit. 

By 2021, Mallinckrodt had agreed to pay states, hospitals, families and other plaintiffs about $1.7 billion to resolve their opioid-related claims against the company. Then, in September 2021, the company presented a reorganization plan to US Bankruptcy Judge John Dorsey that it had negotiated with key creditors. 

Buried in that document was language conferring legal shields to a list of “Protected Parties” — including current and former officers and directors — from liability they faced in cases brought as a result of opioid claims. 

Rhode Island’s attorney general objected to the releases, arguing in a court filing that Mr. Trudeau “personally made no financial contribution whatsoever” to the fund set aside for opioid claims. An attorney representing Mallinckrodt countered at a court hearing earlier this year that Mr. Trudeau should get the release because Rhode Island had not provided evidence that the state was likely to prevail in its lawsuit. 

In a February opinion, Judge Dorsey rejected the Rhode Island objection, reasoning that allowing the state’s case to proceed could hold up the settlement for the overwhelming majority of plaintiffs that accepted its terms, a prospect he called “absurd.”  

‘NO ONE WAS HELD ACCOUNTABLE’Another creditor whose lawsuit was halted by liability releases was Dominique Huett. 

Ms. Huett alleges that Weinstein sexually assaulted her in a Beverly Hills hotel room in 2010, when she was an aspiring actor. She sued the studio in 2017. She later added Harvey Weinstein as a defendant, and she planned to sue former members of its board of directors. 

Weinstein was fired after a spate of similar allegations that year, and most board members resigned. The company declared bankruptcy in March 2018. 

Huett is among four women who jointly filed an objection to the liability releases granted to former board members and other company officials in its 2021 bankruptcy-court settlement. Three of them alleged Weinstein sexually assaulted them; the fourth alleged a hostile work environment. All told Reuters or said in court filings that they wanted to hold board members accountable for failing to control Weinstein’s serial misconduct. All were prevented from doing so by the liability releases. 

The wealthy businessmen on the board included publishing heir Dirk Ziff and James Dolan, owner of the New York Knicks and New York Rangers. Another member was Weinstein’s brother, Bob Weinstein, who co-founded the studio. 

Ms. Huett alleged the studio’s board knew of sexual misconduct allegations against Weinstein going back to the 1990s and was aware he had settled with multiple accusers. When the board renewed Weinstein’s employment contract in 2015, it added a clause requiring the producer to reimburse the company for any future legal settlements over personal misconduct, according to a copy of the contract reviewed by Reuters. 

Ms. Huett said she wanted to force the directors to take the witness stand. “I wanted it to go to trial. I wanted it to be public record,” she told Reuters. “No one was held accountable.” 

Reuters sought comment from 10 former studio board members who faced lawsuits from Weinstein’s accusers and received liability releases in the bankruptcy. All declined to comment or did not respond to inquiries. Most have previously denied knowing of the allegations against Weinstein before they were publicly reported. 

Another of the four women, Alexandra Canosa, said the releases stopped her from appealing a dismissal of her 2018 lawsuit against former board members. Ms. Canosa alleged Weinstein raped and sexually assaulted her over multiple years starting in 2010 during a relationship she characterized as abusive. A judge ruled in 2019 that the board members could not be held liable, in part because the alleged assaults did not happen on company property. 

Ms. Canosa is still furious about being forced by a bankruptcy judge to give up her right to appeal the case. “When you lodge a case that is all about bullying and coercion, and your case ends with bullying and coercion, there is something really wrong,” she said. “It felt really humiliating. It still makes me very angry. It’s, to me, very unresolved.” 

US Bankruptcy Judge Mary Walrath approved the settlement over the objections of the four women. The directors contributed nothing out-of-pocket to the settlement, but agreed as a group, along with company officers, to stop pursuing reimbursement for about $10 million in attorney’s fees from insurance companies that covered their legal risk. That represented about half of the group’s total fees. The concession paved the way for insurers to contribute more money to a settlement with Weinstein’s accusers. 

Ms. Grassgreen, the attorney who represented all unsecured creditors in the bankruptcy, told the court most of the women supporting the settlement had a strong desire to “stop the suffering.” 

The settlement gave the approximately 50 Weinstein claimants no choice but to accept almost all of the releases. The one exception: They could opt out of giving lawsuit immunity to Harvey Weinstein himself — but only if they agreed to reduce their portion of the settlement payout by 75%. 

Ms. Grassgreen said the provision offered the women objecting to the releases their “day in court against the real bad guy.” 

The four women disagreed, calling the opt-out “re-victimization at its worst” in their filing. “It is particularly disturbing both on emotional and financial levels,” the filing said. “To preserve her right to pursue Harvey Weinstein, a rape victim must agree to release her alleged rapist” from paying most of her portion of the settlement. 

Ms. Canosa said she had to choose whether to release Weinstein before she knew the amount of her settlement offer. She reluctantly agreed, she said, rather than accepting what she called the “punishment” of being forced to take “a massive reduction in a number you don’t know.” She was ultimately paid $475,000. 

Ms. Huett, who also ultimately agreed to give Weinstein a liability release, called the forced settlement reduction a “disgrace” in an interview. 

Paul Zumbro, the Cravath, Swaine & Moore LLP lawyer who represented the studio in bankruptcy court, said neither the Weinstein directors nor the insurance carriers would have approved the settlement unless they received liability shields. The insurers, he said, also refused to allow an opt-out provision for claimants wanting to preserve their right to sue Harvey Weinstein without forcing them to accept a reduced settlement. “It was a fight (and a victory, frankly) to get any compensation for anybody who elected to opt out,” Mr. Zumbro told Reuters in a written comment. 

Judge Walrath declined to comment about her decision to impose the releases on the objecting claimants. In her ruling approving the bankruptcy settlement, she said the “exceptional” case “cries out” for imposing the releases over the objections of the four women. 

Ms. Walrath argued that the majority of women who supported the deal might receive nothing in a settlement if she denied the legal shields because insurers refused to pay without them and the studio had only $3 million to dispense to all creditors. The settlement’s collapse would leave Weinstein’s accusers with only the dicey prospect of pursuing further litigation. “The victims do not need to be put to that burden,” she said. “They have suffered enough.” 

The settlement required the about 50 claimants to compete for portions of a $17 million insurance payout, according to court records. 

Juda Engelmayer, a spokesperson for Weinstein, said he denies assaulting anyone and that the producer and Huett had a “fully consensual relationship.” Mr. Engelmayer pointed to previous public statements by Weinstein representatives saying Canosa’s allegations were untrue and “mystifying” to Weinstein, who had considered her a “good friend.” 

Mr. Engelmayer said the bankruptcy settlement was “fair and equitable” and declined further comment on the liability releases. 

New York state’s highest court has agreed to hear Weinstein’s appeal of the rape conviction that landed him in prison. He is currently standing trial in Los Angeles on a different set of rape and sexual assault charges, to which he pleaded not guilty. 

Ms. Huett said she believes her ordeal has damaged her career. Her last notable acting role was a small part on a TV show in 2015, though she hopes to find new opportunities in the entertainment industry. She spends much of her time advocating for sexual abuse victims. She declined to say exactly how much she received in the Weinstein Company bankruptcy settlement. 

When Ms. Huett first received word that the bankruptcy judge had approved the liability releases, it felt like a “gut punch,” she said. 

“They all just ended up getting off the hook,” Ms. Huett said. 

“They, essentially, got away with it.” — Reuters