Chairman Nadler Statement for the Markup of H.R. 4777, the Nondebtor Release Prohibition Act of 2021
Washington, November 3, 2021
Washington, D.C. - Today, House Judiciary Committee Chairman Jerrold Nadler (D-NY) delivered the following opening statement, as prepared, during the markup of H.R. 4777, the Nondebtor Release Prohibition Act of 2021:
"H.R. 4777, the 'Nondebtor Release Prohibition Act of 2021,' would address some of the most extreme abuses of the corporate bankruptcy system that have come to light in recent years.
"The bankruptcy system is supposed to work for everyone, but in many cases, it works only for the powerful. And too often, it works best for big corporations and the very wealthy, who have not even filed for bankruptcy but who have figured out how to twist the system to obtain blanket immunity for their wrongdoing. These entities, to borrow a term coined by Professor Lindsey Simon, are 'Bankruptcy grifters' that leech off another entity’s bankruptcy to hide their misdeeds, silence victims, and secure their ill-gotten payouts.
"H.R. 4777 targets three forms of this abusive conduct. The first, which gained renown during the recent Purdue Pharma bankruptcy proceeding, is the lifetime get-out-of-jail-free card known as a non-consensual non-debtor release. Under this tactic, the Sackler family, who had not filed for bankruptcy themselves or incurred any of the associated costs, were able to reap one of the biggest rewards of the Bankruptcy Code by receiving sweeping immunity for their role in precipitating the opioid crisis, over the objections of many of their victims.
"And it is not just the Sacklers and their accomplices who are abusing the bankruptcy system. These tactics are also being utilized by the people and institutions that enabled Larry Nassar to sexually abuse hundreds of girls and young women; by those who enabled the criminal acts of Harvey Weinstein; and the authority figures and surrogate parents who sexually abused uncounted scores of boy scouts and young parishioners, or enabled that abuse. That abusive practice would be prohibited under H.R. 4777.
"This legislation would also limit tactics known as non-debtor stays and injunctions, which also allow a non-debtor to avail itself of the benefits of the bankruptcy process without assuming the obligations and procedural safeguards associated with bankruptcy. Under the bill, nonconsensual preliminary stays and injunctions could only last up to 90 days.
"Finally, the legislation limits the use of so-called 'divisional mergers'—which allow a corporation to shield its assets from its victims and other creditors. Under this tactic, a corporation divides itself into two entities, one with the bulk of its liabilities, and the other with the bulk of its assets. The entity carrying the liabilities then files for chapter 11 bankruptcy protection.
"This scheme was used most recently by Johnson & Johnson, which faces substantial liability for the cancer-causing asbestos found to be present for decades in its talc-based products.
"Although the company is clearly solvent, last month it elected to spin off a new subsidiary carrying the company’s talc-related liabilities, which then declared bankruptcy in an attempt to shield the remaining company’s assets from being used to compensate injured victims.
"H.R. 4777 would therefore require the dismissal of any bankruptcy case brought by a company whose liabilities were the product of a divisional merger that was intended, or had the foreseeable effect of, separating a corporation’s assets from its liabilities.
"This legislation builds off the important work of Subcommittee Chairman Cicilline, and Oversight Committee Chairwoman Carolyn Maloney, who has conducted a thorough investigation of the role of the Sackler family and Purdue Pharma in the opioid crisis.
"This bill would also not exist if it were not for the brave victims, survivors, affected families, and advocates who have come forward to testify about the harm caused by these bankruptcy abuses
"We heard from two of these survivors at a subcommittee hearing earlier this year.
"Tara Schwikert Moser, a bronze-medal Olympic gymnast and one of scores of survivors of sexual abuse at the hands of the Olympic team doctor, Larry Nassar, explained how 'wealthy corporations … abuse the bankruptcy process by forcing victims to release their claims against them—sometimes without putting in a penny in the pot to compensate them.' She continued, 'Each athlete like me who endured this hell and sexual abuse by Olympic doctor Larry Nassar, deserves the ability to make the choice on how they will seek justice. This bankruptcy abuse must stop.'
"Alexis Pleus, the Founder and Director of Truth Pharm, who has become a tireless advocate for the victims and survivors of the opioid epidemic after she lost her son Jeff, whose addiction began with an oxycontin prescription testified: 'While Jeff can’t be returned to me, nor any of the other lives lost, what we can do is close the loophole that is allowing the Sacklers and others to profit from the death and destruction they have caused. And that is not only my request to you today, but the request of the thousands of individuals and families that I have met, consoled, and heard from over the past 7 years.'"I hope that the members of this committee will stand with these victims today and vote in favor of H.R. 4777."