Members of Congress have reintroduced bipartisan legislation aimed at stopping the controversial “Texas Two-Step,” a bankruptcy maneuver that’s been used to interfere with mesothelioma and other asbestos disease claims. The strategy has allowed highly profitable companies to dodge accountability while forcing victims into extensive legal delays.
Bankruptcy Loopholes Cause Mesothelioma Victims to Face Years of Delays
Ever since asbestos has been publicly linked to mesothelioma and other asbestos-related diseases, the companies responsible for exposing people to the toxic mineral have faced legal action and have been ordered to pay enormous sums of money to compensate those they’ve harmed. In recent years, companies including Johnson & Johnson and Georgia-Pacific have employed what’s being called a “Texas Two-Step,” a maneuver in which they split their assets and liabilities through a divisional merger, then place a newly formed entity holding only the liabilities—like mesothelioma lawsuits—into Chapter 11 bankruptcy. The strategy keeps the parent company’s assets safe from victims’ claims.
Mesothelioma victims, as well as those diagnosed with ovarian cancer and other illnesses linked to these companies’ products, have fought these actions, accusing them of being bad-faith efforts. Now, the Senate is considering legislation that would make it easier for courts to dismiss bankruptcy cases filed by spinoff companies created specifically to hide behind bankruptcy protections while parent companies remain profitable. Bills have been reintroduced that would label a Chapter 11 case as a bad-faith filing if a bankruptcy judge finds the petition was filed to gain advantage in litigation, delay or cap payments to mesothelioma victims and other creditors, and was filed less than four years after the debtor company was created through a divisional merger—the first step in a Texas Two-Step bankruptcy.
Senators Condemn Use of Bankruptcy Protection to Evade Mesothelioma Liability
The mesothelioma legislation is co-sponsored by Senators Sheldon Whitehouse, Josh Hawley, and Dick Durbin, with Representatives Emilia Sykes, Lance Gooden, and Jerry Nadler introducing the House version. In a public statement, Senator Whitehouse highlighted how mesothelioma victims suffer while companies manipulate the system, saying, “Bankruptcy is supposed to grant an honest, distressed debtor a fresh start. Wealthy corporations should not be allowed to take advantage of bankruptcy to dodge accountability and mire the people they’ve hurt in endless delays.”
Bestwall LLC is a Georgia-Pacific spinoff that filed for Chapter 11 protection in 2017 to resolve thousands of asbestos claims from mesothelioma victims, and pharmaceutical giant Johnson & Johnson also attempted to use the Texas Two-Step strategy several times. As the cases have proceeded through the courts, claimants have been blocked from receiving compensation. The victims argue that these newly formed companies should not be allowed to use Chapter 11 because they are not financially distressed and their parent companies remain highly profitable.
If you or someone you love has been diagnosed with mesothelioma, the Patient Advocates at Mesothelioma.net are here to help. Contact us today at 1-800-692-8608 to learn more.
