Corporations May Be Forced By Shareholder To Enact The Texas Two-Step Bankruptcy Plan
Some legal experts think it would be malpractice for attorneys not to advise their clients to adopt the Texas Two-Step
Tuesday, April 12, 2022 - The Insurance Journal (IJ) is a trusted source of financial and legal information in the United States and elsewhere. The Journal has recently published a piece that describes the fears that experts have if the Johnson & Johnson partial bankruptcy plan is not overturned on appeal. They fear that allowing Johnson & Johnson to spin off their talcum powder legal liabilities into a separate company, and then file for bankruptcy will pave the way for other companies facing mass tort liabilities to do the same. 3M for example, faces about 300,000 lawsuits by military veterans that claim their standard-issue combat army earplugs were defective and that trusting them during battle, training, or during everyday duty caused them to experience hearing damage. Bellwether trials have not been going their way with one military veteran receiving a $50 million jury award. 3M is potentially looking at thousands of lawsuits for its manufacture of toxic firefighting foam that has polluted tap drinking water everywhere in the US. 3M is the most likely to spin off its earplug liabilities into a new company according to the IJ. "It makes total sense for companies like 3M to explore this opportunity to resolve cases especially given investors' concerns about" the earplug suits and environmental liabilities, said Julian Mitchell, an analyst with Barclays Plc, who added that a Chapter 11 bankruptcy may be almost inevitable for 3M." Another leading bankruptcy attorney said that if the Johnson & Johnson bankruptcy plan allowed to take place it would completely alter the landscape for mass tort lawsuits. "At this point, it would be malpractice for 3M's lawyers not to try to take advantage of the huge door that has been blown open to deal with their liabilities," said Tatelbaum, a Florida-based bankruptcy attorney and a former top official of the American Bankruptcy Institute," according to the IJ. Johnson & Johnson now face upwards of 40,000 talcum powder lawsuits.
Despite the objections of the plaintiff attorneys, US Congress, and legal scholars, U.S. Bankruptcy Judge Michael Kaplan defends his decision to allow the J&J bankruptcy as something that is in the best interests of the plaintiffs that are suing other companies also. According to the IJ article, Kaplan wrote, "Given the court's view that the establishment of a settlement trust within the bankruptcy system offers a preferred approach to best serve the interests of injured tort claimants and their families, maybe the gates indeed should be opened." The upshot of all of this is that the shareholders of large corporations that are under legal pressure like 3M, Bayer, Royal Phillips, Syngenta, Chevron, and Sanofi, will demand that attorneys look to the Texas Two-Step bankruptcy plan to limit the damage done to other segments of their business. Talcum powder cancer lawyers fear that the TTS denies plaintiffs who have been injured or killed by the company's negligence their day in court. Defense attorneys hope the bankruptcy scheme will put an end to lottery-like paydays that angry juries have been leveling on their clients.