Infowars and Alex Jones waive using bankruptcy as shield against lawsuits

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Alex Jones’ bet to use bankruptcy court to shield himself from litigation damages ended after less than two months.

Driving the news: The embattled right-wing talk show host and peddler of wellness supplements has withdrawn bankruptcy petitions from three companies tied to his Infowars empire.

Why is this important: Jones tried to use a new subchapter of the American code to his advantage, but somehow it was not intended. It did not work.

What they say : “From the start, it was clear that Alex Jones had concocted this bankruptcy scheme to avoid facing the Sandy Hook families in front of a jury. The dismissal of this bankruptcy at this point only confirms that,” said Avi Moshenberg, attorney for the Sandy Hook families, at Axios.

The backstory: Jones was set to face a lawsuit for damages after being found guilty of defamation, in lawsuits brought by families whose children were murdered in the 2012 Sandy Hook school shootings .

  • At issue: Jones has repeatedly insisted the shooting was a planned hoax by gun control advocates. His supporters began harassing the families.

Between the lines: Companies often file for bankruptcy to use the “automatic stay” (or freeze) of bankruptcy litigation, and consolidate and settle costly damages (think Purdue Pharma’s opioid-related liabilities and 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 use the bankruptcy code against legal adversaries.

Instead of depositing for personal bankruptcy, or placing his main operating company that owns his Infowars business in Chapter 11, Jones bankrupted three small entities that had little or no business activity.

  • This allowed him to use a new sub-chapter of the code which is exclusively intended to help struggling small businesses reorganize.

The so-called subchapter V offers a simplified process. There are no creditors’ committees with tons of expensive advisers, and most importantly, creditors don’t vote to accept or reject the bankruptcy deal (more on that here).

  • The use of subchapter V could have allowed for a process in which the bankruptcy court decided the amount of damages, leaving creditors (i.e. the Sandy Hook plaintiffs) no choice but to accept the deal.
  • In contrast, companies like Purdue and PG&E that have used the bankruptcy process to deal with sprawling litigation have not used Subchapter V – so they eventually had to come to an agreement that the claimants would vote to accept.

The Ministry of Justice The bankruptcy watchdog quickly sought to dismiss Infowars-related bankruptcy cases, saying they “undermine[d] integrity of the bankruptcy system.”

  • The Sandy Hook families have also taken action: they have decided to remove the bankrupt entities from their litigation – and therefore could continue to seek damages from Jones himself.

They move efficiently made the bankruptcy cases a bit moot, since Jones could no longer use the cases to force a stay of lawsuits — and settlement agreement — with those creditors. So this week, Jones completely withdrew the bankruptcy filings.

And after: A lawsuit for damages will continue in Connecticut state court in September, as reported by the WSJ. Jones could face penalties much higher than the $10 million he offered as part of the bankruptcy settlement.

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