Parikh on Mass-Tort Voting

Samir Parikh has posted to SSRN Mass-Tort Voting Takes Center Stage. The abstract provides:

Resolution of mass torts is an arduous process that invariably commoditizes claimants, turning them into inventory. After years of being ignored, however, claimants presumably regain prominence at the end of the dispute. Once a viable settlement emerges, these individuals enjoy the right to vote on it. The settlement cannot go forward without their approval, invariably by some supermajority vote. Voting is the last vestige of claimant agency, but a process intended to inject integrity into mass-tort resolution itself is systemically broken.   

The plan of reorganization is the vehicle by which mass-tort disputes are resolved in bankruptcy. The resolution process is unique because each party with a valid claim who will not receive full payment through the plan is entitled to vote. These claimants are organized into classes based on the nature of their claims. The debtor’s plan can generally be confirmed only if it is approved by (i) a majority vote of the claimants submitting votes in each class; and (ii) at least two-thirds of the aggregate value represented by the claimants submitting votes in that class (the “Voting Requirements”). The Voting Requirements were designed, in part, to prevent a large number of low-value and nonmeritorious claims binding the most seriously injured to an exploitive outcome.

The problem is that the scale of modern mass-tort bankruptcies has precluded claim assessment prior to voting. Rather than filter claims, bankruptcy courts assign every personal injury claim a nominal $1 valuation for voting purposes (the “$1 Valuation Approach”) and abandon the “two-thirds in value” requirement entirely. The result is that all claimants – regardless of harm or merit – have identical voting power. The $1 Valuation Approach” nullifies a key safeguard. This feature, when combined with statutory or de facto supermajority thresholds for plan confirmation, allows nonmeritorious claimants to overwhelm voting and potentially dictate settlement terms that undercompensate the most seriously injured individuals. 

Power-of-attorney provisions further muddy the waters. The Red River bankruptcy case demonstrates how attorneys routinely rely on ambiguous power-of-attorney provisions and master ballots to seize voting power from clients. In that case, with limited exceptions, the leading plaintiffs’ firms lacked any authority to cast votes on their clients’ behalf but were completely ignorant of this deficiency. Third-party litigation finance is the final distortive force. Certain aggressive financiers, who I have labeled opaque capital, incentivize the marshaling of nonmeritorious claims into the system, flooding the voting booth with individuals whose interests diverge sharply from those the process intends to compensate. 

To remedy these failures, this Article advances a series of normative proposals. Bankruptcy courts should strategically lift the automatic stay and coordinate with federal district courts to conduct bellwether trials, generating claim-value data that would enable tiered voting valuations and restore the Voting Requirements that govern all other corporate bankruptcies. This Article further proposes filtering nonmeritorious claims through escalating use of personal injury questionnaires, Lone Pine orders, common benefit fund adjustments, and the novel deployment of AI platforms capable of reviewing claims at scale. This will prevent false claimants from dictating settlement terms. Finally, this Article urges courts to require specific and unequivocal power-of-attorney provisions before permitting attorneys to vote on behalf of clients.