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Alex Jones's Bankruptcy

posted by Adam Levitin

Alex Jones filed for Chapter 11 bankruptcy himself today. So what is Mr. Jones hoping to accomplish with the bankruptcy filing? I see three possible goals, but I'm skeptical that he'll achieve more than one of them.

First, by filing for bankruptcy, Jones buys himself a bit of time and breathing space. The automatic stay stops all litigation and collection activity against him. It's not indefinite, but it takes the heat off for a bit. That might help him avoid any collection activities by the Sandy Hook victims' families while his motions for a new trial and remittur are pending.  (As far as I can tell, the Connecticut 20-day post-judgment window for appeal has run, but I guess these are not "appeals" since they are motions to the same court?)

Second, the bankruptcy filing moves the action from Connecticut to a Texas bankruptcy court. Jones might be hoping he finds the bankruptcy court more favorably inclined. I'm skeptical. If his behavior in the bankruptcy court matches how he's behaved in other courtrooms, he's not going to find the judge very sympathetic.

Third, Jones will be looking to get a discharge of his debts—including the Sandy Hook defamation judgment. If a debt is discharged, it cannot be collected after the bankruptcy; the creditor gets only what it is able to collect as part of the bankruptcy process. That would mean that Jones's future income would be free from the creditor's claim; only his present, non-exempt assets would be available for repaying creditors. While those present assets include (I presume) all of the IP of the Jones empire (by virtue of his ownership of the companies that hold them), Jones might have concluded that salvaging his current assets are a lost cause and that he'd do best to focus on freeing up his future income. 

The hitch here is that there is an exception to the bankruptcy discharge for "willful and malicious injury by the debtor to another or the property of another." If the behavior that produced the Sandy Hook judgment was "willful and malicious," then Jones will not be able to protect his future income through bankruptcy.  While the Sandy Hook judgment was for defamation, intentional infliction of emotional distress, and unfair trade practices—things that sound willful and malicious—it was a default judgment, meaning that there was never any actual hearing of the merits of the case; Jones just didn't respond to the suit. If there is a discharge objection raised (as there surely will be), then Jones will have a chance to litigate not the actual judgment, but the "willful and malicious" issue, but that effectively means he has an opportunity to litigate the case he previously forfeited. I'm skeptical that he'll prevail (he certainly loses on willful, but maybe he's got a shot at malicious?), but he at least gets another roll of the dice.

Now this extra dice roll isn't risk free. By filing for bankruptcy, Jones will have to come clean about all of his current assets. If he fails to do so, he risks federal prosecution for bankruptcy crimes.  Additionally, while Jones has filed for Chapter 11, where the default setting is that the debtor retains control of his assets as a debtor in possession, there is the possibility of the appointment of a trustee to take over his assets. There will surely be a motion made for the appointment of a trustee given allegations of Jones hiding assets. Jones will get to fight the motion, but I think a trustee being appointed is a real likelihood. If a trustee is appointed, the trustee will act to avoid various pre-bankruptcy transfers made by Jones in an attempt to shield his assets (and if there is no trustee appointed, then a creditors' committee will seek authorization to do so). Either way, I cannot imagine that Jones will be able to retain effective control of the case for very long. 

Bankruptcy offers Jones a glimmer of hope--maybe he can get a discharge for the Sandy Hook verdict, if the court finds his behavior wasn't willful and malicious--but if I were a betting man, I wouldn't put my money on Jones. Yet as long as he comes clean to the bankruptcy court about his assets, etc., there's little downside to him for trying this last Hail Mary move to stave off the Sandy Hook creditors.

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