US lawmakers plan bill to ban Texas two-step bankruptcy scheme

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U.S. lawmakers are considering legislation to block the controversial bankruptcy strategy

U.S. lawmakers are considering legislation to prohibit the controversial bankruptcy process known as “Texas Two-Step” to stop large companies from using Chapter 11 to avoid the Chapter 11 process, the chairman of the Senate Judiciary Committee has said.

Dick Durbin, who is also a Democratic Senate whip, stated that talks were in progress within the committee over the possibility of removing what he called an “free Jail card” that is being used in some of the most affluent firms.

His comments come after the failure of lawyers representing more than 4000 people suffering from cancer to block Johnson & Johnson from rolling out this Connecticut notes bankruptcy plan in order to assist in the settlement of billions dollars of claims that baby talc contained asbestos, which contributed to their illness.

“When you’ve got hugely profitable businesses that employ this bankruptcy strategy to keep away from accountability for cancer patients who die and their families, it’s obvious that action must be taken to correct the situation,” Durbin told the Financial Times.

“Our objective is to seek bipartisan legislation to stop corporate bankruptcy fraud similar to Texas in two steps.”

U.S. bankruptcy judge denied the motion filed by plaintiffs of talc to discharge the bankruptcy of J&J LTL Management, a subsidiary of J&J. LTL Management

On Friday the 13th of July, an U.S. bankruptcy judge denied the request of plaintiffs in talc to discharge the bankruptcy of J&J LTL Management, J&J’s subsidiary. LTL Management in a ruling which critics believe may open up the floodgates to other businesses to use banks to settle tort and personal injury claims.

“Texas Two-Step” program “Texas Two-Step” program is based on the laws that favor business in Texas which allowed J&J to break up into two separate entities , and to funnel all its talc obligations into its LTL subsidiary. LTL later filed to seek Chapter 11 bankruptcy protection, which was able to stop the talc claims.

J&J adhered to the guidelines set by Georgia-Pacific of Koch Industries, the first to use Texas in two phases in 2017 Trane Technologies, and a US subsidiary of Saint-Gobain with its headquarters in France. The scheme was used to safeguard their core business from asbestos-related lawsuits. claims.

The four businesses are represented by the Cleveland-based legal company Jones Day, which designed the intricate bankruptcy plan. The firm’s implementation its “Texas Two-Step” resulted in a public protest and forced lawmakers to look into the possibility of introducing legislation and holding public hearings on the matter. Durbin stated that J&J’s use by using the loophole in bankruptcy was “shameful” in addition to “indefensible” since it stripped cancer patients of their right to bring their cases against the firm in the court.

“If J&J is successful, hundreds of thousands of mesothelioma patients and ovarian cancer sufferers will have to wait for years for reimbursement,” he said. J&J did not comment.

The talc plaintiffs hoped to convince Bankruptcy Judge Michael Kaplan to dismiss LTL’s Chapter 11 filing on the claim the filing was made in “bad good faith” since the company had never faced financial difficulties. The plaintiffs warned J&J’s adoption of the program could make it easier for other businesses to implement”two-step Texas. “two-step Texas.”

However, Kaplan rejected the motion of the talc plaintiffs to discharge bankruptcy, stating they failed to show J&J had acted in “bad bad faith”. He also said that resolving the claimants’ talc issues through bankruptcy was in the public’s good, and he noted that the proposed settlement trust of $2 billion suggested by J&J could benefit those who claim talc who may have a limited time because of illnesses.

“If I were an attorney for torts I’d be frightened in the wake of today’s events. Because I’m guessing that businesses are going to look into the possibility of doing this, and they’ll suggest that they will do that double-step Texas,” said Jared Ellias who is a professor in the Hastings College of the Law, University of California.

Ellias who is a twice-repeated Texas critic she said the decision strengthened the demand for Congress to pass legislation to address the issue.

But, J&J declared that Kaplan’s ruling was a good thing and the case confirmed the significance of LTL’s creation and bankruptcy filing.

Samir Parikh who is an instructor in bankruptcy law and practice at Lewis & Clark Law School in Oregon He said that many of those who claim that mass lawsuits should not be settled in bankruptcy aren’t aware of the options.

“Bankruptcy is a way to avoid the lottery effects that we experience the moment mass tort claims are settled through jury trials. Certain applicants are rewarded with a cash prize, while others are not rewarded. LTL plaintiffs should be content to see their cases resolved by bankruptcy. With the exception of a few plaintiffs’ lawyers and creditors, everyone will benefit,” he said.

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