The Senate Judiciary Subcommittee on Federal Courts, Oversight, Agency Action and Federal Rights held a hearing yesterday titled "Abusing Chapter 11: Corporate Efforts to Side-Step Accountability Through Bankruptcy." Witnesses testifying at the hearing yesterday included Hon. Judith K. Fitzgerald of Tucker Arensberg, P.C. (Pittsburgh), Prof. David Skeel of the University of Pennsylvania Law School, Kimberly Ann Naranjo of Sandy, Utah, Paul H. Zumbro of Cravath, Swaine & Moore LLP (New York) and Kevin C. Maclay of Caplin & Drysdale (Washington, D.C.). For prepared testimony and to watch a replay of the hearing, please click here.
In related news, an article yesterday by WSJ Pro Bankruptcy was entered into the hearing record highlighting how a handful of large, profitable corporations are using the “Texas Two-Step” strategy to access U.S. bankruptcy courts, unlocking powerful legal tools for settling thousands of asbestos lawsuits for a fraction of what juries might force these companies to pay. The new legal tactic is shifting the balance of power toward corporate defendants Johnson & Johnson, Georgia-Pacific LLC as well as U.S. units of Ireland’s Trane Technologies PLC and France’s Compagnie de Saint-Gobain SA, which have corporate affiliates accused of previously selling products that contain asbestos, a cancer-causing mineral. J&J, Georgia-Pacific, Trane and Saint-Gobain haven’t filed for bankruptcy. But they have used a Texas law to shift at least 250,000 personal-injury cases to bankruptcy court through newly created subsidiaries with limited business operations, a strategy developed by law firm Jones Day, court records show. The legal strategy will be put on trial in a New Jersey bankruptcy court later this month as personal-injury lawyers seek to dismiss the bankruptcy case filed in October by a J&J subsidiary, LTL Management LLC, to drive a settlement of roughly 38,000 cancer lawsuits over its talc-based products. Read more.
Click here to read a letter submitted to the subcommittee by law professors concerned by the “Texas 2-Step” strategy, which was recently used by Johnson & Johnson to spin off its Talc-related liabilities from the rights of its assets and to file a new shell corporation, LTL Management LLC, for chapter 11 bankruptcy.
