Whitehouse Slams Big Corporations for Abusing Bankruptcy Trick to Dodge Responsibility for Harms Caused to Consumers
Whitehouse seeks bipartisan fix to Texas Two-Step maneuver to allow victims their day in court
Washington, DC – This morning, Senator Sheldon Whitehouse (D-RI), Chairman of the Senate Judiciary Subcommittee on Federal Courts, Oversight, Agency Action, and Federal Rights, delivered opening remarks in a hearing of the full Judiciary Committee entitled, “Evading Accountability: Corporate Manipulation of Chapter 11 Bankruptcy.” The hearing examined the growing trend of corporations on firm financial footing using a maneuver known as the “Texas Two-Step” to bog down consumers in bankruptcy proceedings and delay justice.
The Texas Two-Step “allows large corporations on solid financial footing, like Johnson & Johnson and Georgia-Pacific, well-known names, to shirk responsibility for damage their products have caused and delay paying due compensation for Americans they have hurt,” said Whitehouse in his opening remarks.
“People are dying while corporations try out this bankruptcy trick to see if they can make it stick,” added Whitehouse. “I continue to hope that we can work in a bipartisan fashion to address this abuse of our bankruptcy process and to make sure that injured victims get the day in court that our constitution entitles them to.”
Whitehouse’s Federal Courts Subcommittee first held a hearing on the Texas Two-Step in February of 2022. In that hearing, Whitehouse heard wrenching testimony from Ms. Kimberley Naranjo, a witness battling terminal mesothelioma after using Johnson & Johnson baby powder, whose suit against J&J for damages was halted by the company’s Texas Two-Step maneuver. Ms. Naranjo passed away from mesothelioma in January of this year.
Text of Whitehouse’s as-delivered opening remarks is below and video of the hearing can be found here.
Thank you, Chair Durbin and Ranking Member Graham, for holding this hearing on this important topic.
Last February, Senator Kennedy and I held a hearing with the Chairman’s support in my Federal Courts Subcommittee to highlight a way that corporations have been abusing the bankruptcy system that was the then-emerging maneuver known as the Texas Two-Step. This ploy allows large corporations on solid financial footing, like Johnson & Johnson and Georgia-Pacific, well-known names, to shirk responsibility for damage their products have caused and delay paying due compensation for Americans they have hurt.
During that hearing, I outlined four main reasons the Texas Two-Step is a problem:
- First, it violates the fundamental bankruptcy principle that a company must open up all of its assets and liabilities to creditors in exchange for being forgiven its debts and allowed to start anew.
- Second, it denies individuals their day in court, and denies victims a jury of their peers.
- Third, it encourages forum-shopping by corporations to take advantage of more favorable locations.
- Fourth, the Texas Two-Step enmires victims in protracted bankruptcy proceedings, robbing them of precious time.
Proponents of the Texas Two-Step argue that this maneuver is better for victims than resolving claims through the tort system because it supposedly delivers compensation faster and more equitably than litigation.
But look at the facts—the earliest Texas Two-Step bankruptcy, which started in 2017 with Georgia-Pacific, is still unresolved after six years. As for equity and fairness, take the fact that when Johnson & Johnson’s attempted to use the Texas Two-Step to resolve tens of thousands of claims against it for cancer caused by its talc products, the company’s initial proposal of a $2 billion settlement fund, and its subsequent $8.9 billion dollar settlement offer, were both dismissed by courts after they determined that there was no justification for Johnson & Johnson’s subsidiary to declare bankruptcy in the first place given Johnson & Johnson’s financial strength.
Put all this together and it sure looks like a dirty trick, where a company flush with cash tries to put all its assets out of reach, and then bogs down tort claimants in bankruptcy proceedings that drag out for years, with only a thin “funding agreement” as a promise to pay out compensation.
In that hearing last February, we heard from Kimberley Naranjo, whose testimony just appeared in the Chairman’s video. She was diagnosed with terminal mesothelioma after using Johnson & Johnson baby powder. She sued Johnson & Johnson, and her claim was halted along with 38,000 others once Johnson & Johnson undertook the Texas Two-Step and put its talc liabilities into bankruptcy proceedings.
During Kimberley’s brave and moving testimony, she told us how when she learned that she could file a lawsuit and have it decided by a jury, she saw a path forward for her family. She believed that justice would be done and that her loved ones would be taken care of even after she was gone. She was filled with hope. That hope was taken from her when Johnson & Johnson used the Texas Two-Step to avoid giving Ms. Naranjo and others their day in court.
In her concluding remarks that day, she spoke powerfully about how time is something we too often take for granted. She was scared for her family and the prospect that, after she passed, nothing would come to resolution for years. Ms. Naranjo died in January of this year.
People are dying while corporations try out this bankruptcy trick to see if they can make it stick. I continue to hope that we can work in a bipartisan fashion to address this abuse of our bankruptcy process and to make sure that injured victims get the day in court our that our constitution entitles them to.
Meaghan McCabe, (202) 224-2921
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