If a company commits wrong-doing, the affected parties sue them and they have to pay up, right? Unfortunately, it seems like that is not always the case. People seeking justice over cancer-linked J&J baby powder are discovering that extremely wealthy companies have found a loophole; they are using a strange but legal bankruptcy tactic to essentially block lawsuits so that they don’t have to pay.
How J&J and Other Big Companies Use A Bankruptcy Tactic To Block Lawsuits
Hannah Wilt was 27-years-old when she died this past February of mesothelioma, an aggressive form of cancer. At 22-years-old, Wilt was a varsity athlete, CrossFit instructor, and horseback rider. She was strong, energetic, and had her whole life ahead of her. Then, one day, she began to not be able to walk right. She visited her doctor, where it was eventually confirmed that she had cancer. (1)
Wilt went through years of different treatments, but none of them worked. Finally, she had to face the facts: She had terminal cancer and she was going to die. She learned about tens of thousands of lawsuits against J&J that claimed the trace amounts of asbestos in their baby powder had caused people ovarian cancer and mesothelioma. She filed a lawsuit of her own but was disheartened to learn a few weeks later that her lawsuit had been blocked.
A Controversial Maneuver
J&J is a $400 billion company. Despite this, they were able to use a sneaky bankruptcy tactic to avoid having to deal with 38,000 lawsuits against them for their contaminated baby powder. The move, though controversial and appalling, is legal. The strategy they used is known in legal circles as “the Texas Two-Step”.
The Texas Two-Step
In October of last year, J&J created a subsidiary company in Texas called LTL. Using a loophole in Texas state law, they transferred all potential liability for the baby powder lawsuits into the shell of the new company. This way, they were able to keep valuable assets separate.
Soon after, LTL filed for bankruptcy in North Carolina. When a company files for bankruptcy, any and all lawsuits against them are immediately put on hold. The lawsuits, including Hannah Wilt’s, could be on hold for months or even years.
J&J CFO Joseph Wolk says that this allows companies to resolve claims in an efficient and equitable manner. He says that ultimately it is the bankruptcy courts that will decide the outcome. For families seeking damages, however, it is outrageous and unfair.
“It’s heartless; it’s ruthless,” said Hope Schiller Wilt, Hanna’s mother. “It’s disgusting that for monetary gain they will stop at nothing.”
Before she died, Hannah spoke about the expense of being sick. She talked about the medical costs, on top of the fact that her illness made her unable to work. What’s more, her mother was unable to work because she had to become Hannah’s full-time caregiver.
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J&J Aren’t The Only Ones
J&J isn’t the only large corporation using this strategy to essentially side-step lawsuits. Plenty of wealthy companies, organizations, and individuals are using a similar tactic to avoid paying. The goal is to delay or even permanently block the lawsuits altogether.
Normally filing for bankruptcy is a financial nightmare, not to mention causing bad exposure for the company. This move, however, allows them to do so without all the regular repercussions. Not only that, but it means an essentially hopeless situation for the people affected.
Lindsey Simon teaches bankruptcy law at the University of Georgia. She says that this strategy is highly concerning. That concern is growing. She was one of the first to sound the alarm over it in a paper on “Bankruptcy Grifters”. (2)