Austin, Texas — A legal maneuver known as the “Texas Two-Step” has recently come under scrutiny for its role in helping major corporations like Johnson & Johnson and Georgia-Pacific manage their mass tort liabilities through strategic bankruptcy filings. Crafted by the law firm Jones Day, this technique splits a company into two separate entities under Texan law. One of these entities assumes all the mass tort liabilities and then files for bankruptcy, potentially streamlining numerous lawsuits while shielding the parent company’s main assets and operations from related legal claims.
This approach allows the financially healthier part of the company to continue its operations unfettered by ongoing litigation, which can often be both costly and time-consuming. The subsidiary that files for bankruptcy seeks to resolve these claims in a manner that limits financial losses, operating under the protection of bankruptcy court provisions that are designed to facilitate the fair settlement of debts.
However, the tactic has attracted considerable opposition from plaintiffs’ attorneys. They argue that it manipulates the legal system and undermines the rights of those seeking compensation for injuries allegedly caused by the companies. By diverting the liabilities to a separate entity, these corporations can significantly reduce the financial impact of lawsuits that might otherwise have led to substantial compensation payouts.
Companies, on the other hand, defend their use of the Texas Two-Step. They assert that this legal strategy is a valid form of financial restructuring, enabling them to manage liabilities in an organized manner that benefits all parties. According to them, this method ensures that litigants are compensated without jeopardizing the company’s overall health and the livelihoods of its employees.
Court rulings on this controversial tactic have thus far been mixed, with some judges upholding the strategy as a legitimate use of bankruptcy law, while others have critiqued it as an abuse of legal processes. The debate centers around whether the use of the Texas Two-Step genuinely serves the interests of all stakeholders, including those filing lawsuits, or primarily protects corporate interests at the expense of plaintiffs.
The effectiveness and ethical implications of the Texas Two-Step continue to be topics of heated discussions within legal and business circles, highlighting the ongoing tension between corporate restructuring practices and the pursuit of justice in mass tort cases.
This exposé draws on a variety of legal interpretations and analyses to explore the ramifications of the Texas Two-Step, offering insights into why it remains a contentious issue and how it influences the landscape of corporate liability and mass tort resolutions.
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