The third time is a charm for New Jersey’s Johnson & Johnson, as the pharmaceutical and biotech giant attempts to get a court-issued seal of approval on its long-awaitedsettlement offer and subsidiary bankruptcy plan, which is sitting before a Houston federal courtroom this week.
Red River Talc LLC, the subsidiary tasked with handling the thousands of lawsuits related to J&J’s talc-based baby powder product and alleged ovarian cancers in female consumers, has so far been stymied by two bankruptcy courts in other jurisdictions, as well as by plaintiff lawyers angling for a larger settlement package.
What’s at stake in this trial is not just the legacy of a household name like J&J, or the women who have been injured, but also the future of injury and liability law in the US. A lot could change about how courts deal with convoluted corporate structure, victim compensation an defense against frivolous claims.
Though the company’s settlement offer of $10 billion garnered overwhelming support from 83% of the plaintiffs in the combined case, far beyond the 75% required in bankruptcy law, lawyers representing the holdouts aim to question the legitimacy of the bankruptcy altogether. One such group, the Coalition of Counsel for Justice for Talc Claimants, has reportedly questioned whether the vote was held in good faith, and factions of legal firms representing plaintiffs have been suing each other in court for a larger share of the settlement payouts.
The validity of that vote, as well as the legitimacy of the Red River Talc LLC’s bankruptcy, will soon be decided on by US Bankruptcy Judge Christopher Lopez.
The process of a subsidiary bankruptcy to settle claims against a firm is nicknamed the “Texas Two Step,” a process of splitting the assets and liabilities of a single entity as laid out in the Texas Business Organizations Code. Under Texas law, and increasingly in other states, this legal process, officially known as a “divisive merger”, is meant to protect company assets if a specific business unit comes into debt or faces a civil lawsuit that threatens other parts of the company.
Many opponents of the Texas Two Step believe it relieves larger firms of responsibility when they face lawsuits, but it has the advantage of being able to process settlements more swiftly and disperse payments through a bankruptcy proceeding than in a typical court trial. The latter approach can last years or decades.
This maneuver also avoids the well-known phenomenon of a “race to the courthouse,” where successive injury lawyers begin advertising and recruiting for similar cases once a settlement has been paid out, hoping to net more business for their firms by attracting a larger class of plaintiffs. Allegations that some firms have outstanding payments to litigation funders who’ve backed the baby powder case only add to the complication with J&J’s case.
Because the trial is now in bankruptcy court, relying on accountants and number crunchers instead of scientists and expert witnesses, it would be most prudent to finally settle the case and have the bankruptcy proceed to pay the victims what they’re due.
Allowing the trial to linger without a satisfactory ruling only further complicates how courts can settle mass tort claims in the future. The outcome is likely to embolden law firms in targeting certain companies for their size and prestige rather than the legitimacy of any injury claims.
This has been evident from the ongoing backlog of asbestos exposure cases from decades ago, where most firms and executives involved, as well as any victims, have already passed away.
If consumers are legitimately injured due to a company’s product or its services, no matter how large, there should be every tool available to compensate them in the timeliest way possible.
The Texas Two Step offers a solution for compensating those who can claim injury while avoiding the worst of our highly litigious legal system and its perverse incentives for injury lawyers to always claw for more instead of taking care of their clients promptly. This case could determine whether justice moves at corporate speed or that of human lifespans.
Allowing a controlled process of bankruptcy to address pressing claims and dispense justice to plaintiffs who want closure is the only reasonable path forward. It’s reasonable, and fair, not just for victims of today, but for the future of America’s legal system going forward.
Originally published here
