A bipartisan group of lawmakers proposed legislation on Capitol Hill Tuesday to end the “Texas Two-Step,” a bankruptcy maneuver that Johnson & Johnson and Georgia Pacific have been using to shield themselves from asbestos liability.
The introduction of the Ending Corporate Bankruptcy Abuse Act (ECBA) comes just a few days before the July 26 deadline for a group of tens of thousands of claimants who say they got ovarian cancer from using Johnson & Johnson talcum powder to vote on whether to accept a proposed $6.48 billion settlement.
Johnson & Johnson used the Texas Two-Step to transfer its talc liability to a Lone Star State subsidiary called LLT Management. LLT then filed for bankruptcy in Texas to delay lawsuits filed against J&J.
After two failed attempts to use the Texas Two-Step, LLT submitted a new bankruptcy plan earlier this year to pay nearly all the remaining U.S.-based J&J talc claimants $6.48 billion over 25 years. Those claimants could potentially get a lot more than that if they vote against the settlement and hold out for their day in court.
How the EBCA Act Would Work
Senators Sheldon Whitehouse (D-RI) and Josh Hawley (R-MO) Representatives Emilia Sykes (D-OH) and Lance Gooden (R-TX) introduced the ECBA Act. Senate Majority Whip Dick Durbin (D-IL) and Rep. Jerrold Nadler (D-NY), co-sponsored the legislation.
“The Texas Two-Step has mired tens of thousands of injured Americans in protracted proceedings, while the mega-corporations that harmed them continue making money and avoiding penalties,” Whitehouse stated in a press release.
If passed and signed into law, the ECBA Act of 2024 would instruct courts to presume a corporation filed for bankruptcy in bad faith if it appears to be a Texas Two-Step.
The legislation also would ban stays of litigation against a debtor’s non-bankrupt affiliates if a debtor engaged in a Texas Two-Step bankruptcy within the previous four years.
Georgia-Pacific’s Role in Establishing the Texas Two-Step
Although the summary for the bill only mentions Johnson & Johnson by name, Georgia-Pacific was the first corporation to use the Texas Two-Step in 2017.
The Koch Industries subsidiary was facing tens of thousands of lawsuits from people who were exposed to asbestos in its drywall products during the 1960s and 1970s and later developed cancers such as mesothelioma. The Texas Two-Step allowed Georgia-Pacific to delay movement on those lawsuits.
Earlier this year, the Supreme Court declined to review the Georgia-Pacific case and allowed a lower-court ruling in the corporation’s favor to stand.
