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The 'Texas two-step': A controversial legal strategy to avoid corporate liability

In this photo illustration a bottle of Johnson & Johnson baby powder is displayed on a table on November 12, 2021 in San Anselmo, California.(Justin Sullivan/Getty Images)
In this photo illustration a bottle of Johnson & Johnson baby powder is displayed on a table on November 12, 2021 in San Anselmo, California.(Justin Sullivan/Getty Images)

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Corporations facing massive litigation are using a new legal strategy to avoid liability.

It’s known as the Texas two-step.

Step one: create a subsidiary and transfer a few assets and all the lawsuits. Step two: The subsidiary files for bankruptcy.

“Given the way the law is being applied, I don’t know why everyone isn’t doing it. You get to stick all your liabilities into bankruptcy, and keep all your operating companies out, and not even the inconvenience associated with the bankruptcy,” Kevin C. Maclay testified at a senate judiciary subcommittee hearing in February.

It might be legal, but is it right?

“When the richest and most powerful corporations in the country are using the federal bankruptcy system to not pay the most vulnerable — something is wrong,” Maclay said.

Today, On Point: The Texas two-step faces a court challenge.

Guests

Rob Rasmussen, J. Thomas McCarthy Trustee chair in law and political science at the University of Southern California Gould School of Law.

Mike Spector, U.S. corporate crisis correspondent for Reuters. Author of the article How a bankruptcy ‘innovation’ halted thousands of lawsuits from sick plaintiffs. (@mike_d_spector)

Leigh O’Dell, co-lead counsel for the Plaintiffs’ Steering Committee in the consolidated multidistrict talc litigation, involving approximately 38,000 women and families who claimed to be harmed by Johnson & Johnson’s baby powder.

Also Featured

Curtis Huff, one of the drafters of the Texas two-step statute.

Barbara Jackson, who is suing Johnson & Johnson for allegedly giving her ovarian cancer due to the talc in their baby powder.

Transcript

KIMBERLY ATKINS STOHR: Today, we’re talking about a controversial legal strategy known as the Texas two-step or a Texas divisive merger. It’s a tool that corporations facing massive litigation have used recently to avoid liability corporations such as Koch Industries, Georgia-Pacific and Johnson & Johnson. Last February, the Senate Judiciary Committee held a hearing to examine this process. Democratic Senator Sheldon Whitehouse of Rhode Island led the hearing.

WHITEHOUSE: So far, this trick has hit asbestos victims. But once the two-step strategy catches on, it could deprive all sorts of victims of the compensation they’re due. And undermine the integrity of other creditor debtor relationships. Hiding assets in a bankruptcy is a serious wrong. The Texas two-step uses a trick of corporate law to hide assets in plain view with courts connivance.

ATKINS STOHR: And right now, the Third Circuit of Appeals is considering the legitimacy of this bankruptcy strategy. A decision is imminent. Before we get into all the details, I want to just start by unpacking the basics. How does this process differ from typical bankruptcy filings? To help us do that, we’re joined by Bob Rasmussen.

He’s the J. Thomas McCarthy trustee chair in law and political science at the University of Southern Care of California Gould School of Law. He’s also a leading expert on bankruptcy law and corporate reorganizations. He joins us from Los Angeles. Welcome, Professor Rasmussen.

BOB RASMUSSEN: Really great to be here.

ATKINS STOHR: And we’re also joined by Mike Spector. He’s the U.S. corporate crisis correspondent for Reuters. He’s joining us from New York City. Welcome to On Point, Mike.

MIKE SPECTOR: Thanks for having me.

ATKINS STOHR: And so I want to start first with the professor. What does a typical bankruptcy filing look like, and what makes applying the Texas two-step process different from what typically happens?

RASMUSSEN: In a typical filing, the entire company files for bankruptcy. So the talc at issue in the Johnson & Johnson case, a typical filing, the unit of Johnson & Johnson is called Johnson & Johnson Consumer. That unit would have filed for bankruptcy. Here, what happened two days before the bankruptcy filing, Johnson & Johnson consumer use Texas law to divide itself into two separate companies. While many had all the assets and operations of Johnson & Johnson consumers.

The other company had all the liabilities, plus a so-called funding agreement whereby the new Johnson & Johnson consumer promised to pay for any liabilities that other company had. Remember all that other company has, the company actually filed for bankruptcy, is really just the talc claims.

ATKINS STOHR: And Mike, why would the strategy be appealing for corporations like Johnson & Johnson?

SPECTOR: This is a strategy that allows a giant corporation like Johnson & Johnson to get all the benefits of the United States bankruptcy code without any of the usual reputational or financial damage that would come by filing for bankruptcy for itself. And in fact, as we found when we investigated this, months before this plan was executed, a senior J&J official was emailing a Moody’s analyst saying, Hey, if we did this, what would happen to our credit rating? How would you view this? And the Moody’s analysts responded essentially, I’m paraphrasing, but don’t worry. Go right ahead. We’ll only analyze what happens to the subsidiary that filed for bankruptcy.

Johnson & Johnson has nothing to worry about, which is important because Johnson & Johnson has a pristine credit rating. $450 billion market cap, operates all around the world, needs to borrow money all the time. So, a huge advantage for J&J to just create a subsidiary out of whole cloth, put it into bankruptcy with 38,000 baby powder and other talc lawsuits, and then continue on its way doing business as usual. Not affected at all by the bankruptcy filing.

ATKINS STOHR: So, Bob, so far this Texas two-step, as we’re calling it, is legal, or at least it has not been deemed illegal. But when you’re talking about bankruptcy law, which is very dry and complicated, even for someone like me with a law degree, much less to the general public, there is a concept within bankruptcy that involves good faith and bad faith. So talk about, in your view, how the good faith requirements in bankruptcy could apply to this this way of splitting up corporations.

RASMUSSEN: Right. So, the bankruptcy code requires that a bankruptcy petition be filed in good faith, and at least under a third circuit law where this case is now pending. You cannot file for bankruptcy solely to gain a litigation advantage, that what you really need is a company that’s in financial distress.

And I think the claimants say, look, prior to this two-step, we had a company that may have some liabilities, but it really wasn’t in financial distress. Manufactured financial loss by taking all these liabilities and throwing them into a subsidiary. And that’s what the claimants say lacks good faith that you just try to get the advantage. It’s a filing for bankruptcy. That’s all you’re trying to do here. At least that’s what the claimants allege.

ATKINS STOHR: And Bob, do you think that it passes that good faith bar?

RASMUSSEN: I think this is a very close case. When you listen to the arguments in the Third Circuit, I think the court thought it was a close case, as well. It’s clear that Johnson & Johnson did this two-step to file for bankruptcy. They want to get a lot of the advantages of bankruptcy. And let’s just think of what they are. A court, a bankruptcy judge would value the claims of the claimants. We wouldn’t have all these trials that are going on.

The court claimants lose the right to go to state court and try. Moreover, Johnson & Johnson’s indicated what they want is an order saying that all the future litigation is going to be against a trust created out of the assets of this newly created subsidiary, thereby bringing Johnson & Johnson from future claims. Those are two big advantages for Johnson & Johnson, so it’s clear they are getting a litigation advantage from filing for bankruptcy. The question is, are they doing more?

ATKINS STOHR: Greg Gordon is known as the architect of the Texas two-step process in bankruptcy. He’s a partner at the corporate law firm Jones-Day and has been the lead attorney on every single case this process has been used as a bankruptcy tactic. The first time was in 2017, with Koch Industries, and the latest was with Johnson & Johnson, which is currently being litigated in the Third Circuit. Gordon wouldn’t talk to us on the record, but in a bankruptcy conference in April, he said that this process is not only good for the companies, but also the plaintiffs because of one major factor. It’s more efficient.

GORDON: It’s kind of undisputed by everyone, I think, that the tort system doesn’t work for mass talk claims. It just doesn’t work. And the J&J case, again, is a great example. J&J has been able to litigate only ten cases per year. So think about that. You have 40,000 pending cases. You can do the math, that’s 4,000 years. I mean, it’s just not the answer. And unless you’re just willing to put yourself in a position where you have a completely untenable situation, unmanageable litigation, bankruptcy’s really the only option.

ATKINS STOHR: Mike, I want to ask you, so far as you’ve been following this litigation, how do you think the courts are receiving this argument that it’s good, it’s even good for the plaintiffs to do it this way?

SPECTOR: Well, Greg Gordon got a huge victory in the J&J case when Judge Kaplan, the bankruptcy court in New Jersey, overseeing that case, enthusiastically endorsed the tactic. He said it was a totally appropriate use of the bankruptcy system. And he went on to say and frankly dismiss some of the objections to it and concerns about it from the claimants. He said there’s nothing to fear from placing the tort system with bankruptcy, in effect, moving all of these lawsuits under the bankruptcy system as an efficient way to try and reach a global settlement.

And he also dismissed the criticism that this creates a blueprint for other giant corporations. And his ruling, he said people have expressed concern that the gates will be open and that other companies will do this. And, you know, frankly, his dismissal of that proved to not age well. Because 3M executed a similar maneuver, not exactly a Texas two-step, but they had an existing subsidiary and they put it into bankruptcy to deal with the largest mass tort case in American history.

Hundreds of thousands of lawsuits about defective military earplugs, which 3M says were totally safe when used properly. Plaintiffs there, alleged veterans of the U.S. military alleged hearing loss.

But that was a case that showed that corporate America is really taking a hard look at this and thinking about how they might potentially be able to copy it. And we’ll see what the Third Circuit does. And J&J, as stated earlier, they seem to be viewing it as a closed case. But there are also some sharp questions and some concessions even from J&J’s lawyer, that, hey, it wasn’t the purpose, he argued, but he said he acknowledged it was a byproduct that this bankruptcy filing produced some litigation advantage for Johnson & Johnson.

ATKINS STOHR: And Bob, is there any advantage to the plaintiffs here?

RASMUSSEN: In theory, there could be some. I think there will be the fairness fees. They could get a global settlement. That said, that settlement would probably be, at least in my opinion, less than they would get outside of bankruptcy.

ATKINS STOHR: Today, we’re talking about a controversial bankruptcy strategy known as the Texas two-step or divisive merger. It’s a legal tool that corporations facing massive litigation have been using recently to avoid liability. So many at this point might be wondering why is it called the Texas two-step?

Well, it’s because it’s a state statute in Texas. Texas is one of a handful of states that have similar divisive merger laws. And this one is particularly flexible, and that’s how it was designed. But it wasn’t intended to be used in bankruptcies. At least that’s according to Curtis Huff. Back in 1989, he was on the Texas State Bar and one of the primary drafters of the two-step provision.

CURTIS HUFF: It was not written to say, Here’s a way we can consolidate mass torts and put it in front of a bankruptcy court in a jurisdiction. … And it was intended to do something else.

ATKINS STOHR: And that something else was —

HUFF: To facilitate transactions that are often very complex when you do spin offs of companies or to buy companies and to really just utilize the merger statutes as a means to effect what could be done through a series of just basic assignment and transfer documents with respect to assets. So it was really just intended to be a simple way to effect divisions and spin offs.

ATKINS STOHR: So streamlining normal business transactions. But now that the law is being used in bankruptcies, Huff has a lot of questions.

HUFF: Are they utilizing it in good faith? And is this what is anticipated and appropriate under the bankruptcy laws, given the definitions and the overriding policies of the bankruptcy laws? When all these assets are moved, are they essentially trying to limit the availability of assets that are available to the estate? Are they essentially trying to delay the collection of rightful claims, or are they trying to do this in an efficient way to deal with the claims and pay all the claims? Those are questions that should be addressed.

ATKINS STOHR: And those questions, Huff said, fall on bankruptcy judges now. That was Curtis Huff. He’s one of the original drafters of the so-called Texas two-step statute.

And Mike, I want to talk specifically about the J & J case. That is the focus of this show. It’s one of the cases that has gotten a lot of attention for using the Texas two-step. Can you explain, Mike, what the arguments on each side here are?

SPECTOR: So Johnson & Johnson, for some time, has been facing a tidal wave of lawsuits, more than 38,000 lawsuits at this point, alleging that their baby powder and other cosmetic talc products contained asbestos and caused cancer, both ovarian cancer in women and mesothelioma, asbestos linked disease that is deadly.

And eventually, despite efforts to contend and show evidence that their talc products did not contain asbestos and were entirely safe, they just kept facing lawsuit after lawsuit after lawsuit, and eventually they got hit with a monster judgment in Saint Louis, $4.7 billion, which was reduced to more than $2.1 billion.

But at the end of the day, they paid about $2.5 billion for that judgment with interest, and they had some other adverse verdicts. They also won some cases, we should add, but there were too many lawsuits. They thought they were going to go on forever. You know, as you played from that clip of Greg Gordon, the Jones Day lawyer representing Johnson & Johnson earlier in the show, he’s extrapolating out that this just goes on forever and ever and ever. And you can only litigate ten cases a year, and there’s no end in sight.

So what Johnson & Johnson was worried about after the Supreme Court refused to hear their appeal of that large verdict I mentioned, is they said, look, we want to cap this thing. We want it to go away. So they decided to use the Texas statute, divide their talc business, their consumer business, and to create a new subsidiary, put all the lawsuits with that subsidiary, and then put it in bankruptcy.

And the main reason they want that thing in bankruptcy is because bankruptcy can shield not only the company that’s in bankruptcy, but related third parties who are outside of bankruptcy, like Johnson & Johnson. And they want that legal shield, which we should add, specifically caps liability for current and future claims. And the future claims is the key aspect here. Johnson & Johnson wants a global settlement, and right now they’ve offered $2 billion less than they paid on that one monster verdict.

It’s probable that that number will go up after they negotiate with talc plaintiffs, but they want to put a cap on this thing. It’s clear for what they view as a reasonable amount of money, so they never have to deal with it again.

So now that case was appealed and it’s now before the Third Circuit Court of Appeals and during oral arguments before the Third Circuit last month, one of the attorneys in the case representing J&J, Neal Katyal, argued that one of the main reasons for using the Texas two-step was for the plaintiff’s sake.

KATYAL: Our argument is that each of their tort lawsuits has tunnel vision. It examines only their individual case and delays future ones. It’s a homerun or a strikeout, and precious few get up to bat. The only way to get a system wide resolution that is comprehensive, that protects future claimants, is through bankruptcy.

ATKINS STOHR: Attorney Jeffrey Lamken, who represents the plaintiffs in the case, disagreed.

LAMKEN: So, your Honor, to the extent that sometimes people prevail before juries and sometimes they don’t. That’s a function of the system that the framers established 200 years ago. And we entrust the common man, 12 of them, to make these determinations and to find facts, make determinations. The notion that, well, bankruptcy might actually sort of even out the balance isn’t a way of indicting the tort system that 50 states have operated to compensate victims for 200 years.

ATKINS STOHR: So, Bob, as I’m listening to these arguments on both sides, they sound a bit familiar. Because I was a civil litigation attorney back in the ’90s when there was this big push for tort reform, making it more difficult to bring lawsuits, encouraging things like mediation or mandatory arbitration. And the same arguments were made by the companies who sought to reduce these lawsuits. Right. Saying, oh, this is an easier way. It’s more streamlined. So is this Texas two-step really an effort at tort reform in disguise?

RASMUSSEN: I think that is actually what they’re trying to do. J&J is not happy with the state law tort system. They’d much rather have it done in bankruptcy. And as a bankruptcy scholar, it kind of upsets me a little bit, in that bankruptcy is not a Swiss knife. It’s not something you can use. … It’s only something you can use when you think the companies are financial distress.

If Johnson & Johnson had filed for bankruptcy, if there had not been a divisive merger and we just had the consumer unit filed for bankruptcy, I think that would have been appropriate. I think what the problem is. The Consumer Union is saying, look, we’re not really a financial stress. We just want to use bankruptcy, not to resolve financial distress, but as an alternative to the state court tort system. And that’s not what bankruptcy was designed for. The predicate is a company that has financial distress.

ATKINS STOHR: And Mike, one of the main arguments we heard in favor of using this process to resolve lawsuits is efficiency. But a lot of these cases started years ago and they’re still ongoing. Is that really, as you see it, playing out? A justification that is actually being realized?

SPECTOR: Yeah, I think the efficiency argument only goes so far. These plaintiffs had rights. They have constitutional rights. Jury trial rights. And I think the important thing to understand is whether you love or hate the mass tort system in America. What happened here, and what happened in other cases, Johnson & Johnson and other Texas two0steps as plaintiffs were dragged into a bankruptcy court against their will that they didn’t choose to be in bankruptcy.

They’re in bankruptcy by virtue of the fact that Johnson & Johnson created a subsidiary shouldering all of these talc lawsuits that then filed for bankruptcy and brought the plaintiffs along with them. The plaintiffs have some leverage in bankruptcy. It’ll probably be a 75% vote of creditor creditors necessary to approve a plan, a global settlement. But to your point, you know, many of these Texas two-step cases you talked about, the first one filed in 2017, that’s still going on. There’s no end in sight to that case. You know, the mass tort system is not efficient either necessarily, and can take a long time.

But really what this boils down to, and this is I think what the professor is getting at, is what’s the proper use of the bankruptcy system and how is the American legal system supposed to work? And what’s happening here is a giant company like Johnson & Johnson is really trying to replace the tort system with bankruptcy and use bankruptcy to settle mass tort cases.

And that’s a new thing. That’s establishing a precedent. And we’ll see what the Third Circuit says. We’ll see if the Supreme Court at some point decides to weigh in on this. This is a major shift in the American legal landscape. It’s unprecedented in many ways.

ATKINS STOHR: And Bob, talk about how bankruptcy law stands. It’s this sort of hybrid between state laws that allows Texas to pass statutes like this and also federal law. Might federal laws somehow step in to prevent or at least change the way Texas is operating?

RASMUSSEN: Well, I think the bankruptcy court has the power currently to police its own jurisdiction. It really can’t change Texas law, but it can say, hey. You can’t use this maneuver under Texas law, which is designed for something else, a different situation, and use that to manufacture financial distress and income into bankruptcy.

So I think the court already has the tools not to prevent a divorce, a merger, but to say when you combine into this a merger, the only goal of which is to create financial distress, that’s out of balance. We’re not going to do that. It has the power to do that. Now, as Mike said, Judge Kaplan looked at it, said, no, we’re going to allow it. But you could imagine the Third Circuit coming out the other way. So the power is there to prevent this. The question is whether or not the court is going to actually say, hey, this just reeks too much.

ATKINS STOHR: And Bob, does this violate other legal principles? I am reaching back into my bankruptcy class. But can this be seen as something as a fraudulent conveyance, for example, or an improper way to try to forum shop, to go to Texas to start these companies so that they are judged under more amiable laws?

RASMUSSEN: Great questions. As the fraudulent conveyance aspect, that is an ongoing complaint in the case. If the case does go forward, we expect the claimants to make that argument.

ATKINS STOHR: Explain to us what that argument is.

RASMUSSEN: Before this divisive merger, we had claims against J&J, the consumer unit, saying you’ve thrown us into a subsidiary that only has this so-called funding agreement and other talc claims, that this was a transfer designed to … delay, hinder or defraud creditors. This was the delay. That’s the argument. Johnson & Johnson’s going to argue to be a fraudulent transfer, you need a transfer. And there wasn’t a transfer here.

We just cut things up. And indeed, Texas law says that a divisive merger is not a transfer. That’ll be a contested issue if the case goes forward. And there was clearly forum shopping here. Because remember, Johnson & Johnson Consumer, the subsidiary that was split in two, was not a Texas company. It just incorporated in Texas solely to do a divisive merger. It did the divisive merger.

Not in Texas, but in North Carolina, thinking that that would be a more hospitable form to it. Now, the North Carolina judge transferred it to New Jersey. But it’s clear that Johnson & Johnson was looking for a court that they thought was going to be amenable to.

ATKINS STOHR: A year ago, Johnson & Johnson created a subsidiary in Texas called LTL Management. Transferred all of their 38,000 lawsuits to it and then had LTL file for bankruptcy. So now all of those cases are frozen. Meanwhile, Johnson & Johnson can carry on business as usual.

BARBARA JACKSON: It’s like, you know, sweeping us up under a rug to make us go away for them to be able to start over new and go on with their lives. That’s that is pretty sad. In here we are mostly my adult life have had to deal with this and not be able to have the life that I really could have had.

ATKINS STOHR: That’s Barbara Jackson of Portland, Oregon. One of those 38,000 people who sued Johnson & Johnson. Her story begins 18 years ago when she began to feel unwell.

JACKSON: I know it had to be something because every month, you know, around my monthly, I would feel something. Is it just be a real bad pain. And I never really was one that have cramps that I would have my menstrual cycle. I never had cramps. But within the last year or so, between 2003, 2005, I was having real bad pain that would kept me from having to go to work. You know, I kept missing work and missing work.

ATKINS STOHR: At the time, she was working as a registered health information technician at a local hospital. A job she had for 21 years. And one she really loved. But after missing work so much – the hospital let her go.

At that point, she decided to figure out what was wrong so she went for some tests and took the results to her doctor.

JACKSON: Is this saying what I think it’s saying? And they ask, where did you get it from? I said, Well, I worked in the medical field, so I knew how to get my records and stuff. And they told me there, yes, you do have cancer. And yes, it is, you know, pretty far gone. And I was just shocked. I was shocked.

ATKINS STOHR: Barbara was diagnosed with ovarian cancer at the age of 42. She was at a loss. Barbara was one of 11 children, six girls, and the only one who had ever received such a diagnosis.

Shortly after, she had a double hysterectomy and underwent 8 months of chemo and lots and lots of doctor appointments. After two years Barbara was finally cancer free.

But she still didn’t know where her cancer came from until five years later in 2012.

JACKSON: I had a talk with my mom or something and she asked me, ‘You still use baby powder?’ I said, No, it’s been a while since I used it. ‘You know, I wonder if that had anything to do with it.’ And I said, ‘Why would you say that?’ And she said, ‘Well, I think the article or something that Johnson & Johnson was known to put out, talc powder that cause cancer. I said, Really? So that’s when I started looking into it since no one in my family. None of the females had any type maybe this is the connection.

ATKINS STOHR: As early as 1971, Johnson & Johnson scientists had become aware of reports about asbestos in talc that could be cancerous. Around the time of Barbara’s diagnosis, the WHO and FDA had been warning about talc possibly being cancerous. And in 2008 a year after Barbara was officially cancer free, according to court filings, Johnson and Johnson executive Todd True, sent an email to colleagues asking: “Have we looked at replacing talc with cornstarch for our base powder as other brands have? What’s the value in maintaining talc under baby aside from cost?”

The talc ingredient remained in Johnson & Johnson’s products until 2020.

Barbara even remembers all the ads Johnson and Johnson put out for their baby products, aimed at Black women like herself.

JACKSON: Shower to shower staying fresh, sneaky clean or something like that (laughs).

And she listened. She put that baby powder on almost daily for 20+ years and even more, often during her period.

JACKSON: I really believe I would’ve had a totally better life than I have right now had I not had the cancer, you know? What they caused and what they knowingly caused is just not fair. It is just not fair.

ATKINS STOHR: Barbara filed her lawsuit against Johnson and Johnson nine years ago. And with her and the 38,000 plus cases frozen in the bankruptcy courts – she and many, many others will have to keep waiting.

We reached out to Johnson & Johnson and they say the usage of the Texas two-step process is fair and equitable. And say quote “While we continue to stand behind the safety of our products, we believe efficiently reaching a global resolution of this matter is in the best interest of all stakeholders.”

Now I want to introduce another guest to the program – Leigh O’Dell. She’s one lead attorneys in the multidistrict talc litigation against Johnson and Johnson that involves Barbara’s case along with 38,000 plus others. She’s joining us from Montgomery, Alabama. Welcome Leigh, to On Point.

LEIGH O’DELL: Hello. Thank you for having me.

ATKINS STOHR: So you’ve been representing clients for nine years in this litigation, and you’ve heard this argument from Johnson & Johnson that this Texas two-step process is best for everyone, including them. What do you think about it?

O’DELL: Well, obviously, we disagree for many reasons and some of which have been shared earlier in the program. But this fundamentally undermines the right of people like Barbara to their right to a trial by jury and to be able to present their claim in a court. And that Seventh Amendment, we believe, is something that should be protected. And further, it’s not efficient in the sense that it does cause extreme delay.

And we’ve been in bankruptcy for a year. Barbara and others have been prevented from moving forward. In fact, the only thing that’s happening in terms of the underlying talc claimant’s litigation is if a victim of ovarian cancer, mesothelioma gets near to the point of death, they can have their deposition taken to preserve their testimony. That’s all that can happen. And it’s heartbreaking to have women who have suffered through ovarian cancer, many of whom don’t have risk factors for ovarian cancer other than the general use of talc.

And then for them to be in a place where their rights are really infringed upon and not be able to go forward. And in a setting like bankruptcy, where the whole atmosphere, the whole setting is created to advantage the debtor, because typically in a good faith filing, you would have an unfortunate debtor who has real financial distress.

And so the whole system is created to try to help that debtor reorganize in an exit from bankruptcy. But in this instance, where you have a what we believe is a bad faith filing and a sham company created solely for the purpose of capping or limiting the recovery of these deserving victims, it’s just very unfair.

ATKINS STOHR: And Bob, I want to talk a little bit about the process. You’re an expert in bankruptcy law. Very often, not only is bankruptcy law very complicated, very technical, but cases can, by their nature, last a long time. And I think a lot of people don’t pay attention to it because bankruptcy cases don’t often get a lot of attention.

But some have, for example, the litigation over opioids that involved the Sackler family that’s been going on for a long period of time. And it involves bankruptcy law. Or, years ago, at the Supreme Court, there was a case involving the estate of Anna Nicole Smith that went on so long that it outlived all of the actual claimants in that case. So talk about the fact that bankruptcy is not something that is by nature efficient.

RASMUSSEN: It certainly can be a long process. You know, as you know, Purdue is still going on. And as people have pointed out, this case was filed over ago and we’re still fighting over whether it is an appropriate case. If the Third Circuit affirms Judge Kaplan, we go back to bankruptcy court and we still don’t have a settlement.

And as Leigh said, Johnson & Johnson has said it will not pay any money. Until the bankruptcy case is over. So you can imagine the case going back to bankruptcy. More discussion about fraudulent conveyance. More discussion about what the Towle claims are worth. You can imagine these issues being appealed again. It is not hard to imagine this case going on for five years and during that period no money will be paid to the claimants.

Leigh, as somebody who’s deeply involved in these types of this type of litigation, what do you think about this solution? Do you think it’s unwarranted?

O’DELL: If this is allowed, it will engulf the entire civil justice system as it relates to victims. And we think that’s something that would be very unfortunate to victims because it would give them a very limited right to, you know, vindicate themselves when they’ve been injured by a product.

This article was originally published on WBUR.org.

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