Editorial: The Federal Bankruptcy System Must Declare Moral Bankruptcy | Editorial


The federal bankruptcy system is morally bankrupt. The system has been abused by corporations and the wealthy to the point that it no longer serves the purpose for which it was designed: to provide limited shelter from creditors so that individuals and businesses in financial difficulty can either liquidate or reorganize and put their affairs in order.

The mission morphed into helping the wealthy retain their vast financial assets while ensuring that those they wronged get nothing, or as little as possible. Two recent examples show how the system serves the rich rather than keeping them in check.

Years before it rose to fame for its coronavirus vaccine, drugmaker Johnson & Johnson was facing a public relations disaster after losing a high-profile Missouri civil lawsuit tied to carcinogenic asbestos in Johnson’s Baby Powder. $2 billion verdict in favor of women who sued after contracting ovarian cancer went all the way to United States Supreme Court, where it was confirmed. A Missouri jury originally set the damages at $4.7 billion, but the figure was later reduced in court.

Instead of paying and accepting liability, Johnson & Johnson formed a front company in Texas, LTL, and then gave the new company all financial and legal responsibility for the baby powder cases. Two weeks ago, LTL filed for Missouri bankruptcy. Now all financial rewards are in limbo. Johnson & Johnson, which reportedly has more than $25 billion in cash reserves, will likely be immune from future liability on these court-validated claims.

Then, of course, there’s the billionaire Sackler family of Purdue Pharma infamy. They are the subject of a new Hulu series, “Dopesick,” about how the family devised a strategy to market the opioid drug Oxycontin as a miracle painkiller. It was specifically advertised to doctors as non-addictive. In fact, it was highly addictive and played a major role in creating the national opioid addiction epidemic of the past two decades.

In a deft legal maneuver, the Sacklers have found a way to tie themselves to Purdue Pharma’s bankruptcy filing to protect their fortune from future liability. Purdue Pharma has reached a settlement with various states to pay $4.5 billion for its role in creating the addiction epidemic. Part of his bankruptcy deal is that he will dissolve. The Sacklers, who are nowhere near bankruptcy, can go on to generate billions of dollars in family wealth, much of it from profits from sales to addicts of Oxycontin.

The bankruptcy judge acknowledged that the settlement protecting the Sacklers was a “bitter outcome.” But because the family had manipulated the system so expertly in their favor, it was powerless to stop them.

These maneuvers are dripping with cynicism about how easily the rich and powerful can manipulate the justice system in their favor, without ever fully accounting for the lives they have ruined.

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