Johnson’s baby talcum powder on a supermarket shelf. Credit: Muhamad Norairin Ngateni/Shutterstock
This past October, I published my concerns here about corporate defendants taking advantage of the nation’s bankruptcy laws to deprive innocent victims of their constitutionally-protected rights to have juries of their peers hear and decide their claims. Without taking on any of the obligations imposed on companies seeking to reorganize, some of the largest and most profitable companies in the United States have increasingly misused the bankruptcy system to halt the litigation of all personal injury claims without any demonstration of financial distress.
A recently developed and complex strategy used to deprive citizens of their Seventh Amendment rights is colloquially known as the Texas Two Step. Boiled down to its core, the maneuver divides a corporation into two separate but unequal entities. All of the corporate liabilities arising from lawsuits alleging mass injuries and death are placed in a new subsidiary, the BadCo. At the same time, the original corporation transfers all of its productive, profitable products and assets to another new subsidiary, the GoodCo. BadCo then declares it is “insolvent” (or at imminent risk for insolvency) and files a bankruptcy petition; all aimed to obtain the protection from litigation under the federal Bankruptcy Code, which but for the restructuring maneuver the original solvent entity would not qualify for.
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