The year 2024 promises to be a decisive one for bankruptcy cases dealing with mass torts. Recently, judges have shown a lack of enthusiasm for tactical maneuvers presented in such cases. Notable instances include the dismissals of bankruptcies in cases involving Johnson & Johnson’s talcum powder and 3M’s combat earplugs, where the desired level of financial distress was found to be lacking.
The bankruptcy process employed by Johnson & Johnson involved the creation of a new subsidiary to bear the parent company’s legal liabilities in a strategy known as the ‘Texas Two-Step’ merger. This strategy piqued the interest of federal lawmakers, leading to a Senate hearing that questioned the ethics of the approach in September.
David Molton, a partner at Brown Rudnick, noted that the courts are pushing back against the aggressive use of the bankruptcy code, a trend expected to continue. Judges suppressing this litigation method could potentially be good news for plaintiffs. However, other practitioners argue that the bankruptcy courts provide rigorous supervision of such cases.
Court hearings held in December 2024 will evaluate whether such techniques as third-party releases and the ‘Texas Two-Step’ should be considered more efficient channels for claimants’ payouts or viewed as novel abuses of the bankruptcy code. The New Jersey Law Journal Editorial Board suggests that this decision could unsettle numerous other related cases.
If the ‘Texas Two-Step’ and other third-party liability releases continue to be valid strategies, legal professionals are likely to adjust their approaches in response. The high costs related to such complex cases may also have broader implications for mass tort practices by preventing smaller or newer plaintiffs firms from nurturing mass tort practices.
Rapid changes in mass tort bankruptcies make it imperative for legal professionals to stay informed. Interested readers can dive deeper into these changes in the original article