Washington, D.C. — A new bipartisan bill is gaining traction in Congress, aimed at addressing a controversial bankruptcy strategy that has been employed by major corporations like Johnson & Johnson. This legal maneuver, known as the “Texas Two-Step,” allows companies to create separate entities to absorb liabilities, particularly those stemming from mass tort litigation, essentially shielding the main corporation from significant financial consequences.
The legislative push seeks to overhaul aspects of the U.S. bankruptcy code that currently permit such divisions, a tactic that critics argue undermines the rights of litigants by limiting their ability to claim damages against parent companies. Proponents of the bill argue that it will restore transparency and fairness to the bankruptcy process, especially in cases involving large numbers of claimants with substantial claims, such as those related to public health and safety.
The so-called “Texas Two-Step” strategy has been utilized by Johnson & Johnson in the past to handle lawsuits related to their talc-based products, which claimants argue caused cancer. In these instances, Johnson & Johnson created a subsidiary to assume liability and subsequently file for bankruptcy, thus containing potentially vast legal claims to a separate, less financially robust entity.
Legal experts highlight that while this strategy is currently within legal boundaries, it raises ethical and moral questions about corporate responsibility and the protection of consumer rights. The use of this strategy, they note, effectively slows down litigations, complicating the process for victims seeking recompense.
Supporters of the new bill span both political parties, reflecting a growing consensus that the bankruptcy code needs reform to prevent abuse. These lawmakers underscore that without changes, more corporations could adopt similar strategies, potentially leading to a decrease in accountability and an erosion of public trust in corporate governance.
Consumer rights groups have come out strongly in favor of the bill, arguing that the current loophole disproportionately impacts individuals with legitimate claims by placing additional hurdles in their path to justice. They contend that this undermines the fundamental principles of the American legal system where companies must be held accountable for their actions.
On the other hand, some business advocates caution that the bill, while well-intentioned, might lead to unintended consequences such as discouraging corporate restructuring or negatively impacting economic growth. These concerns emphasize the need for a balanced approach in legislative reform that ensures both corporate accountability and economic vitality.
The proposed legislation is expected to move to committee discussions shortly, where it will undergo further scrutiny and debate. Observers anticipate a series of expert testimonies ranging from legal scholars and consumer advocates to business leaders, all aimed at refining the bill to achieve its intended goals without stifling business innovation.
As the bill progresses through the legislative process, its impact on both future corporate bankruptcy filings and the broader litigation landscape will be closely watched. The outcome could redefine the responsibilities corporations hold and potentially reshape aspects of corporate law in the United States.