Relevant Document:
Hearing Page
Today the Senate Judiciary Committee held a hearing titled “Evading Accountability: Corporate Manipulation of Chapter 11 Bankruptcy,” featuring witnesses on the Texas two-step and nondebtor releases. Johnson & Johnson Vice President of Litigation Erik Haas in particular faced tough questioning from both Democratic and Republican senators on the
LTL Management Texas two-step bankruptcies.
Over the past two years, Democratic senators and representatives (with limited Republican support) have proposed legislation to
limit nondebtor releases,
prevent Texas two-step filings and
amend bankruptcy venue statutes to prevent debtors from creating affiliates to anchor filings in friendly bankruptcy courts. Prospects for reform in the House ended when Republicans retook that chamber, though Rep. Zoe Lofgren, D-Calif.,
reintroduced bankruptcy venue reform legislation in February.
Haas told the committee that Johnson & Johnson’s goal in filing the
second LTL case was to put an $8.9 billion settlement proposal from what he characterized as a “
vast majority” of talc claimants to a vote. “The claimants’ vote should be what matters,” Haas said. According to Haas, the $8.9 billion bankruptcy deal was in the best interests of claimants because their claims are “utterly meritless,” and trying all of the talc claims could take “20,000 years.”
Sen. Josh Hawley, R-Mo., pointed out that in the
Ingham Missouri state court case, a jury awarded 22 talc plaintiffs
more than $4 billion in punitive damages (later reduced to $2.2 billion). Hawley hypothesized that after that verdict was affirmed on appeal, Johnson & Johnson “panicked” and created LTL to file bankruptcy and ensure other plaintiffs get “scraps.”
Hawley also attacked Haas for suggesting that bankruptcy was the best venue for claimants as well as for Johnson & Johnson. Haas pointed to the supporting claimants in the second bankruptcy, but Hawley called it “outrageous” to suggest that claimants might not want their “day in court.” Johnson & Johnson created LTL with the “sole purpose” of limiting its talc liability and avoiding the “hammer” of a $4 billion verdict, and this is a “distortion” of the bankruptcy system, Hawley concluded.
Sen. John Kennedy, R-La., asked Haas about Johnson & Johnson’s
participation in corporate pledges of up to $50 billion “to be a force for social change and fight injustice.” “Fifty billion dollars is a lot of money,” Kennedy remarked, before asking Haas how that commitment is “consistent with what you are asking us to do today.” Haas replied that the pledge is consistent with the company’s credo to put “the public and patient first.”
Sen. Peter Welch, D-Vt., took aim at the Sackler settlement in
Purdue, calling the Sacklers’ ability to keep billions in wealth under the Purdue plan “mystifying.” Welch asked Haas whether the Sacklers should have the right to use bankruptcy to “not put all of their billions into a pot” for opioid claimants.
Haas responded that he is not familiar with the facts of the Purdue case but suggested the proper standard is whether the settlement is in the best interests of creditors. “It’s in the best interests of the Sacklers,” Welch replied.
Professor Samir Parikh testified that bankruptcy may be a superior venue for resolving mass tort cases rather than the federal multidistrict litigation system. To take advantage of this, Parikh said, Congress should amend section 524(g) of the Bankruptcy Code to make that special asbestos claim resolution provision applicable to all mass tort cases. Congress should also amend the Bankruptcy Code to explicitly endorse nonconsensual nondebtor releases, Parikh added, which would effectively moot the U.S. Supreme Court’s
consideration of that issue in the Purdue case.
Professor Melissa Jacoby countered that although bankruptcy may provide a “new set of power tools” to deal with mass tort liability, these tools cannot be used to fix problems with the tort system, “never mind what the instruction manual is telling us.” Jacoby said the bankruptcy courts are not the “complaint department” for companies’ issues with the civil justice system or a place to “hash out” the science behind mass tort claims, and should be used for their “intended purpose.”
Stephen Hessler of Sidley Austin testified that changes to the Bankruptcy Code to address Texas two-step cases are unnecessary because the Bankruptcy Code already provides sufficient mechanisms for bankruptcy judges to deal with abuse.
Lori Knapp testified about her father’s illness and death from mesothelioma during the almost six-year pendency of the
Bestwall/Georgia Pacific Texas two-step case in Charlotte, N.C. Welch asked Knapp whether she believed the Bestwall bankruptcy was in her father’s best interests. Knapp responded that it was not, and accused “greedy companies” of falsely depicting themselves as victims of “greedy” claimants.