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NECC, responsible for the manufacture of contaminated steroids that have caused an epidemic of fungal meningitis and other infections, filed for Chapter 11 bankruptcy in December 2012. The CDC has linked over 750 cases of fungal meningitis, spinal infection (epidural abscess), stroke, or joint infection and 64 deaths to the contaminated products.  NECC has limited insurance and assets, and some commentators expected the worst—victims receiving sparse compensation from the limited funds available.

It is certainly true that bankruptcy can spell disaster for some classes of tort victims. And although the bankruptcy petition by the principal defendant fundamentally changes the litigation, it also creates a unique opportunity. First, it permits centralization of tort claims wherever filed. Second, it provides a way for defendants to settle with closure of current and future claims. It is therefore possible for plaintiffs’ attorneys to work within the bankruptcy to build a global settlement structure that provides victims the fullest and fairest compensation.

When a defendant like NECC files for bankruptcy, the challenge of each plaintiff’s attorney is to understand and embrace that the bankruptcy will govern the case and the speed of court process.

Plaintiffs’ attorneys may seek to sever the bankrupt defendant from the lawsuit and seek leave of court to proceed against other responsible parties in a separate lawsuit. Unfortunately, under a number of real-world scenarios, proceeding independently and outside the bankruptcy does not provide a realistic opportunity to obtain full compensation for a client. Frequently, the bankrupt defendant is the main defendant and often does not have adequate insurance to fairly compensate victims. In multi-district litigations, the limitations of this approach are magnified.

This NECC Steroid Bankruptcy blog series discusses the challenges and strategies in representing victims in the context of bankruptcy. For more information on the fungal meningitis outbreak from contaminated NECC steroids, check out the Andrews and Thornton blog.