Corporate Lawsuit Dodge Imperiled After Court Rejects J&J Bankruptcy Tactic

Attorney Greg Gordon, a partner at the Jones Day law firm, offered an innovative solution to Johnson & Johnson and other major companies that faced mountains of lawsuits alleging their products sickened or killed people: They could use the bankruptcy system to force all plaintiffs into one settlement.
It required fancy legal footwork—creating a subsidiary to shoulder all the liability, then putting that new company into Chapter 11.
Plaintiffs’ lawyers attacked the gambit, known as the “Texas two-step,” charging it amounted to a bad-faith bankruptcy filing and a fraudulent ploy to shield the parent companies’ assets. Not so, Gordon told judges overseeing bankruptcies testing the novel strategy. The parent firms, he said, would give these subsidiaries plenty of money—billions of dollars—to compensate plaintiffs….