Durbin Highlights Johnson & Johnson’s Shameful ‘Texas Two-Step’ Maneuver on Senate Floor

WASHINGTON – In a speech on the Senate floor, U.S. Senate Majority Whip Dick Durbin (D-IL), Chair of the Senate Judiciary Committee, called out big corporations for their exploitation of bankruptcy to dodge accountability, and decried Johnson & Johnson’s attempt to use a corporate bankruptcy maneuver known as the “Texas Two-Step” to avoid facing claims from cancer-stricken customers.  Last month, the Third Circuit Court of Appeals rejected the bankruptcy filing by a shell company created by Johnson & Johnson for this purpose. Durbin began his speech by applauding this decision.

 

“In this case, the company tried to use a legal scheme known as the ‘Texas Two-Step.’ It’s an accurate name because it would have allowed J&J to dance around its obligations to consumers it harmed.  And this is not a few people we’re talking about: This case concerns nearly 40,000 Americans who used J&J products and have been diagnosed with ovarian cancer or mesothelioma,” said Durbin.

“Here’s the important part: when the shell company declared bankruptcy, J&J asked the courts to freeze all ongoing litigation. That maneuver effectively prevented the company’s victims from proceeding with their cases.  Instead, these victims would have to get in line in bankruptcy court, along with a slew of other creditors, and wait for a small payment way down the line.  That was J&J’s devious scheme and it was all going according to plan, until last month when the Third Circuit stepped in and stopped the music on J&J’s ‘Texas Two-Step.’  The Third Circuit ruled that J&J’s shell company had not acted in good faith when it declared bankruptcy.  And that is exactly right.  The Third Circuit’s ruling is an important victory,” Durbin continued. “But the tragic reality is: for some of J&J’s victims, it’s too little, too late.”

Durbin highlighted the story of Kimberly Naranjo, a mother of seven and a mesothelioma victim who sadly passed away last month.  Last year, Ms. Naranjo testified at a Senate Judiciary Committee that she was exposed to asbestos through Johnson & Johnson’s baby powder, which she used on her children.  Ms. Naranjo testified that because of Johnson & Johnson’s actions, she was denied the right to have her day in court and hold the company accountable.

 

“Last year, the Judiciary Committee held a hearing on corporate abuse of bankruptcy, including J&J’s use of the ‘Texas Two-Step.’  We were joined by Ms. Naranjo, who shared her story,” said Durbin.  “She said, ‘When I learned that I could file a lawsuit [against J&J] and have it decided by a jury, I saw a path forward for my family.’ She continued, ‘That hope was taken from me.  I learned that Johnson and Johnson filed for bankruptcy and that I would not receive a court date.’  Ms. Naranjo died from her illness last month.  Weeks before turning 50, and weeks before the Third Circuit’s ruling against J&J. She never received the justice she deserved.”

Durbin also cited another company’s attempt to game our legal system. 3M and its subsidiary Aearo Technologies are seeking to use a bankruptcy maneuver similar to the “Texas Two-Step” to dodge allegations from more than 230,000 military veterans that they manufactured defective earplugs.  Earlier this month, Durbin led a group of Senate and House Democratic colleagues in submitting an amicus brief to the Seventh Circuit Court of Appeals, in support of these veterans.

 

“Instead of facing the lawsuits these veterans are bringing forward, 3M is trying to use Chapter 11 to lock the doors to the courtroom,” Durbin continued. “Fortunately, in this case, a judge refused to let 3M get away with it.  Last August, a bankruptcy court ruled against the company’s cynical legal scheme.  But instead of changing course on this shady strategy, Aearo Technologies appealed the case to the Seventh Circuit… I hope the Seventh Circuit joins the Third Circuit in ruling against these complex schemes to deny Americans—and veterans—justice.”

Durbin concluded, “These companies are trying to game a system that we, in Congress, created.  As lawmakers, we write the laws and set the rules for declaring Chapter 11.  We must work together to keep the doors of our justice system open to every American seeking restitution when they’ve been wronged.  I believe this Senate is capable of doing things, hard things.  I believe we can bring America closer to our central aspiration of justice for all.  And, I believe we can instill more faith in this nation of laws by ending these corporate abuses of bankruptcy once and for all.”

As Chair of the Senate Judiciary Committee, Durbin has worked to close loopholes in the bankruptcy system that are exploited by wealthy and powerful corporations.  Last year, he spoke in a subcommittee hearing and on the Senate floor on this issue, and he previously led two bicameral letters to Johnson & Johnson, condemning the company’s attempts to evade accountability.  Durbin also has cosponsored the Nondebtor Release Prohibition Act of 2021, which would prevent the use of the “Texas Two-Step” and other cynical maneuvers to exploit bankruptcy law.