When Hollywood producer Harvey Weinstein was convicted of rape, one group of wealthy insiders walked away without a scratch: the Weinstein Company’s board of directors.
Some women alleged that the board knew for years that the producer had paid off some of his accusers, buying their silence through nondisclosure agreements.
But the studio’s Chapter 11 filing ended up legally shielding the directors.
As part of the settlement, a bankruptcy judge granted the wealthy board members lifetime immunity from lawsuits related to the movie mogul’s alleged abuse.
Most of Weinstein’s victims approved the settlement, but eight voted against it and four filed a joint formal objection against the liability releases. They wanted the board members to answer for their actions in court.
Such immunity grants have become a pervasive but little-understood feature of the U.S. bankruptcy system. The releases are now granted by judges in 9 of 10 major Chapter 11 cases, a new examination found.
Corporate scandals regularly bring down U.S. companies. But their wealthy executives and directors often get to completely escape accountability for wrongdoing by demanding these liability releases as a condition of any company settlement with creditors, including lawsuit plaintiffs.
The liability releases shield executives and board members from any legal claims from creditors, including plaintiffs in lawsuits, outside of a bankruptcy-court settlement.
The new study examined 29 U.S. bankruptcies that were preceded by mass tort litigation against companies or other entities, many of which included allegations involving dangerous products or sexual abuse.
The review found that about 1.2 million claimants in these cases have signed away their rights to sue related parties or face pressure to approve such releases in ongoing bankruptcy-court negotiations.
Plaintiff-creditors typically have little choice but to sign away their rights to sue, according to legal experts. That’s because judges suspend trial-court lawsuits during bankruptcy negotiations, leaving plaintiffs who resist settlement terms unable to seek compensation elsewhere.