The Settlement Trap

Indiana Law Journal Volume 96 Issue 3 Article 1 Spring 2021 The Settlement Trap Lindsey Simon University of Georgia School of Law, Follow this and additional works at: https://www.repository.law.indiana.edu/ilj Part of the Bankruptcy Law Commons, State and Local Government Law Commons, and the Torts Commons Recommended Citation Simon, Lindsey (2021) "The Settlement Trap," Indiana Law Journal: Vol. 96 : Iss. 3 , Article 1. Available at: https://www.repository.law.indiana.edu/ilj/vol96/iss3/1 This Article is brought to you for free and open access by the Law School Journals at Digital Repository @ Maurer Law. It has been accepted for inclusion in Indiana Law Journal by an authorized editor of Digital Repository @ Maurer Law. For more information, please contact . The Settlement Trap LINDSEY D. SIMON* Mass tort victims often wait years for resolution of their personal injury claims, but many who successfully navigate this arduous process will not receive a single dollar of their settlement award. According to applicable bankruptcy and state law, settlement payments may be an asset of the estate that the trustee, exercising its significant authority, administers and distributes to creditors instead of a claimant who had filed for bankruptcy. This distribution power maximizes repayment, a critical counterbalance to the robust protections and benefits that debtors receive in bankruptcy. Setting aside the perceived unfairness of taking desperately needed money from tort victims, there is something fundamentally unsettling about the process by which bankruptcy law ensnares payment of mass tort settlements. This Article is the first to identify the problem, which it dubs the “settlement trap.” Claimants in the settlement trap must seek relief from the mass tort claims administrator, the trustee, and potentially the bankruptcy court, facing costs and legal challenges at each turn. This Article explores the developing law surrounding treatment of mass tort settlements in consumer bankruptcy and identifies structural and doctrinal pressure points that impose significant confusion and costs on claimants. It supplements legal analysis with original interviews of stakeholders in the ongoing NFL concussion and pelvic mesh cases, case studies that highlight the peculiar mix of incentives that impact whether claimants receive their settlements and illustrate the potential for abuse. Finally, the Article offers a blueprint for reform. * Assistant Professor, University of Georgia School of Law. I am thankful to Beth Burch, Mechele Dickerson, Pamela Foohey, Dalié Jiménez, and Bob Lawless for feedback at various stages of this project, and to the attendees at the Civil Procedure Workshop for their helpful comments. This Article benefitted from the excellent research assistance of Gretchen Edelman and Victoria Barbino. Any errors are my own. 662 INDIANA LAW JOURNAL [Vol. 96:661 INTRODUCTION ....................................................................................................... 662 I. TREATMENT OF SETTLEMENT PAYMENTS IN BANKRUPTCY ......................... 666 A. THE CONSUMER BANKRUPTCY PROCESS ................................................. 666 B. CONSUMER BANKRUPTCY’S CAST OF CHARACTERS ................................ 668 C. DOCTRINAL CONTOURS AND TENSION POINTS ........................................ 671 1. PROPERTY OF THE ESTATE .............................................................. 671 2. EXEMPTIONS.................................................................................... 673 3. ESTOPPEL ........................................................................................ 676 II. THE SETTLEMENT TRAP IN MASS TORT CASES ................................................. 678 A. BANKRUPTCY’S COLLISION COURSE WITH THE MASS TORT SYSTEM ..... 678 1. ADDITIONAL CHARACTERS ............................................................. 678 2. COMPLICATING FACTORS ................................................................ 680 3. TALES FROM THE LITIGATION TRENCHES........................................ 681 B. ELEMENTS OF THE SETTLEMENT TRAP ..................................................... 684 1. LEGAL COMPLEXITY ....................................................................... 685 2. LOSS OF CONTROL ........................................................................... 685 3. PROHIBITIVE COSTS ........................................................................ 685 C. WHO SETS THE TRAP? .............................................................................. 686 1. THE BLAME GAME .......................................................................... 686 2. DUTIES ............................................................................................ 688 3. DISCRETION ..................................................................................... 689 4. INCENTIVES ..................................................................................... 691 I. FINANCIAL INCENTIVES OF SETTLEMENT ADMINISTRATION ............ 691 II. COSTS OF BANKRUPTCY .................................................................. 692 III. THE RELEASE ................................................................................................... 694 A. DEMYSTIFYING THE DOCTRINE ................................................................ 694 1. JUDICIAL INTERPRETATION .............................................................. 694 2. LEGISLATIVE CHANGES ................................................................... 695 3. OTHER SOLUTIONS .......................................................................... 697 B. STRUCTURAL SAFEGUARDS ..................................................................... 697 C. PREVENTING DISREGARD FOR TIME AND MONEY .................................... 699 CONCLUSION .......................................................................................................... 700 INTRODUCTION Susan1 and her husband James, a former National Football League (NFL) player, had their world turned upside down when James was diagnosed with early onset Alzheimer’s disease and related conditions. James died from these illnesses, and soon thereafter Susan filed for bankruptcy. While her bankruptcy case was pending, Susan joined the NFL concussion multidistrict litigation (MDL).2 After the NFL 1. Susan’s real name is not disclosed here, as portions of her case are still pending. As described in more detail below, I collected the real-life stories in this paper through phone interviews and email correspondence. I learned the specifics of Susan’s case through emails from her personal injury attorney, who was outraged by the way her settlement award had been captured. 2. In re Nat’l Football League Players’ Concussion Injury Litig., 307 F.R.D. 351 (E.D. 2021] THE SETTLEMENT TRAP 663 reached a global settlement resolving claims relating to traumatic brain injuries suffered by i (...truncated)