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Johnson & Johnson Seeking To Avoid Thousands Of Lawsuits

Johnson & Johnson is seeking to execute a corporate bankruptcy shell game known as the ‘Texas Two-Step’ to avoid facing claims from cancer-stricken customers. 

The ‘Texas Two-Step’ is the name given to a highly controversial legal strategy that some of the biggest companies are now using to shield their assets from accountability.

It allows massively wealthy corporations whose products caused harm to avoid paying damages to the victims of that harm and it denies the victims their right to make their case in court and be judged by a jury of their peers.

Earlier this year, Senator Dick Durbin (D-Illinois), chair of the Senate Judiciary Committee highlighted the story of Kimberly Naranjo, a mesothelioma victim who testified about Johnson & Johnson’s actions.

Naranjo has been denied her right to hold Johnson & Johnson accountable in court.

“There’s a justice system for rich people and powerful corporations – and there’s the system for everyone else,” said Durbin. “And many days, it seems that the gulf between those two systems of justice is getting wider and deeper. There’s something called the ‘Texas Two-Step’. It used to be a dance.  But in recent years, it has taken on a new meaning and it relates directly to Johnson & Johnson. It is a form of legal strategy that corporations are using to shield their assets from accountability. It allows wealthy corporations whose products caused harm to avoid paying damages to the victims. Not just that, the ‘Texas Two-Step’ denies the victims their right to make their case in court. And, it can stretch the process of seeking justice out for years while the victims get sicker and die. Does that sound like justice?”

“For years, Johnson & Johnson denied claims that its products contained asbestos,” Durbin said. “But internal company documents obtained through the discovery process told a different story.  They showed that Johnson & Johnson knew about the asbestos in their products while they were actively advertising the use of this product by adults and to use it on our babies.”

Johnson & Johnson faces around 38,000 claims from people with ovarian cancer or mesothelioma who allege that the company’s talc products caused their illness. But Johnson & Johnson’s use of the ‘Texas Two-Step’ means that those 38,000 cancer victims no longer are able to bring their claim against the company.

“I hope the courts reject Johnson & Johnson’s abuse of federal bankruptcy laws,” Durbin said. “But I also believe that Congress must act to close this loophole for good. I hope Democrats and Republicans can work together on a bipartisan basis to stop this bankruptcy abuse. Bankruptcy is supposed to be a good faith way to accept responsibility, pay one’s debts, and receive a second chance – not a ‘Texas Two-Step’, get-out-of-jail-free card for some of the wealthiest corporations on Earth.”

Christopher Placitella, a partner at Cohen Placitella & Roth in Red Bank, New Jersey, is handling some of those thousands of lawsuits against Johnson & Johnson.

“I have been involved with other cases where the companies have also used the same strategy. Johnson & Johnson happens to be the latest,” Placitella told Corporate Crime Reporter in an interview last month.

“They have taken it one step further. Johnson & Johnson said – we had this consumer products company which we are going to split. But after they split it, they then went to the bankruptcy court and said – not only does the company that was responsible for making the baby powder get the benefit of the bankruptcy, but the parent company should also get the benefit because they are so integrally related to the bankrupt company that they need protection too. That’s really the fight that’s going on now in the New Jersey bankruptcy court.”

If it’s a Texas law, why is it in the New Jersey bankruptcy court?

“The company was split in Texas. They had a company called JJCI. They made baby powder and other products. The company was split in Texas. The new company that held the baby powder liabilities was then transferred to North Carolina. In North Carolina, the company went bankrupt. Then there was a hearing in North Carolina. The North Carolina bankruptcy court transferred the bankruptcy proceedings to Johnson & Johnson’s home state of New Jersey. That is now where the fight is being held.”

Are you involved with the litigation against Johnson & Johnson?

“I am. I represent a number of claimants who have baby powder cases pending against Johnson & Johnson.”

You have some of the 38,000 claims that have been filed in the baby powder cancer cases.

“That’s correct.”

“Obviously, we were concerned and upset as were our clients when this happened. But Johnson & Johnson took the issue directly to the New Jersey bankruptcy court. And the New Jersey bankruptcy court at this point is siding with Johnson & Johnson. They said that the company legitimately used the statute that was on the books. And although the plaintiffs may not agree with it, the law permits it.”

“The next step is that the plaintiffs committee that represents the claimants has filed an appeal to that decision that will be heard before the Third Circuit Court of Appeals.”

“The appeal was just filed within the last two weeks. The briefing has not yet taken place. After all the briefs are in, which I guess will be in the next thirty days, the court will get the briefs and schedule an argument. It will be some time before the case is actually heard by the Third Circuit.”

“At the same time, there is legislation being debated in the U.S. Senate to prevent this. There is a general sentiment against this. There is a lot going on not only in the courts but in Congress over this issue.”

Would the federal legislation apply to the Johnson & Johnson case retroactively?

“Because the case is not over yet, it depends on the wording of the legislation. The legislative process these days takes some time. So it is hard to predict.”

What is the constitutional argument against this law?

“You have a constitutional right to a jury trial. This effectively takes that right away from somebody when there is a solvent company that you have brought your case against to seek just compensation.”

Are other companies using the Texas Two-Step?

“There are a number of other cases where this is currently being debated. One of the actions taken by the injured plaintiffs in other cases is that they have filed lawsuits within the bankruptcies arguing that the transfer of assets is not permitted, is a fraudulent transfer. Some of those actions are going on in the North Carolina bankruptcy courts as we speak. So it’s not just being debated in New Jersey and in Congress, but also in North Carolina.”

Does corporate America see this as a way out of the tort system?

“I can’t speak for what they see. There is a real fear among consumer advocates that if the courts ultimately uphold this strategy, any company facing multiple lawsuits would try to avoid responding in the tort system by using this strategy. There is a clear fear that this will be the path forward for companies making products that injure a large number of people.”

What is the reality about recovery in bankruptcy versus recovery in the tort system?

“The reality is that the opportunity for compensation in bankruptcy is far less than it is in the tort system.”

“I don’t know if you watched Kimberly Naranjo’s testimony before Senator Dubrin’s committee. She has seven children. She is a single mom. Is her case worth the same as somebody else’s with very different circumstances? No. That doesn’t mean that that other person isn’t deserving of just compensation. But the law has always said that juries are to look at the individual circumstances of people to come up with what they believe is just compensation. That is not something that happens in a bankruptcy context.”

According to some press reports, there are four major companies deploying this Texas Two-Step strategy – Johnson & Johnson, Georgia Pacific, a U.S. unit of the France-based Saint-Gobain and Trane Technologies.

According to this report from the Financial Times, all four companies are represented by the law firm Jones Day “which designed the complex bankruptcy strategy.”

What have you heard about that?

“I know they are all represented by Jones Day, which is a powerful law firm with some very smart people.”

Do we know the name of the partner who designed it?

“We know who the principal litigator is. The lead litigator is Gregory Gordon. In his defense, the New Jersey court found that what they are doing is okay. But we don’t think it’s okay.”

What are the prospects in the Circuit Court?

“We believe that the law does not permit this. And I believe in the Circuit Court of Appeals. There are two circuits right now that will potentially look at this – the Fourth Circuit and the Third Circuit. And that is because this is being litigated right now in North Carolina and New Jersey – and maybe to some extent there will be a spillover into Delaware.”

“Will the decisions be consistent? Will they be in conflict? If they are in conflict, does that mean it will be an issue ultimately decided by the U.S. Supreme Court? There are a lot of ifs.”

“There are two routes for appeal. One is to go from the bankruptcy court to the district court. Another is to go from the bankruptcy court directly to this Court of Appeals. Judge Michael Kaplan, on application from the plaintiffs, has indicated that the case should go directly to the Court of Appeals.”

For the complete Interview with Christopher Placitella, see 36 Corporate Crime Reporter 18(13), Monday May 2, 2022, print edition only.

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