Infowars ends bid to use bankruptcy as shield
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Alex Jones’ gambit to use the bankruptcy court to shield himself from litigation damages has come to an end after less than two months.
Driving the news: The embattled right-wing talk show host and hawker of wellness supplements has withdrawn the bankruptcy petitions of three companies linked to his Infowars empire.
Why it matters: Jones tried to use a new subchapter of the U.S. code to his advantage, but in a way that it wasn't intended. It didn't work.
What they're saying: "From the beginning, it was clear that Alex Jones concocted this bankruptcy scheme to avoid facing the Sandy Hook families before a jury. The dismissal of this bankruptcy at this juncture only confirms it," Avi Moshenberg, a lawyer for the Sandy Hook families, tells Axios.
The backstory: Jones was about to face a damages trial after being found liable for defamation in suits brought by families whose children were murdered in the 2012 Sandy Hook school shooting.
- At issue: Jones repeatedly insisted the shooting was a hoax planned by gun-control advocates. His followers took to harassing the families.
Between the lines: Companies often file for bankruptcy to utilize bankruptcy's "automatic stay" (or freeze) of litigation and consolidate and settle pricey damages (think Purdue Pharma’s opioid liabilities and the wildfire-related claims against PG&E).
- But Jones' legal strategy was different. If successful, it would have set a new precedent for how companies could wield the bankruptcy code against litigation foes.
Instead of filing for personal bankruptcy, or putting the main operating company that holds his Infowars business into Chapter 11, Jones put three small entities that engaged in little to no business activity into bankruptcy.
- That enabled him to use a new subchapter of the code that's exclusively meant to help struggling small businesses reorganize.
The so-called subchapter V offers a streamlined process. There are no creditors' committees with reams of costly advisers, and — crucially — creditors don’t get to vote to accept or reject the bankruptcy deal (more on that here).
- Using subchapter V could have allowed for a process in which the bankruptcy court decided on the damages amount, leaving creditors (i.e., Sandy Hook claimants) no choice but to accept the deal.
- In contrast, companies like Purdue and PG&E that have utilized the bankruptcy process to deal with sprawling litigation claims have not used subchapter V — so they ultimately had to come to a deal that claimants would vote to accept.
The Justice Department's bankruptcy watchdog quickly sought to dismiss the Infowars-linked bankruptcy cases, saying that they "undermine[d] the integrity of the bankruptcy system."
- The Sandy Hook families also took action: They decided to drop the bankrupt entities from their litigation — and as a result, they could continue to seek damages from Jones himself.
The latter move effectively made the bankruptcy cases moot, since Jones could no longer use the cases to force a stay of litigation — and a settlement deal — with those creditors. So this week, Jones withdrew the bankruptcy cases altogether.
What's next: A damages trial will go forward in Connecticut state court in September, as the WSJ reports. Jones may face much higher penalties than the $10 million he offered in the bankruptcy deal.
