To block lawsuits, rich companies use a quiet tactic: bankruptcy

To block lawsuits, rich companies use a nice strategy: failure. Hanna Wilt, aged 27 at the time of her death in February 2007, was still living at her mother’s house on the New Jersey Shore.

She said, “I feel tired and very bloated.” “I get fluid buildup in my belly.”

It was a bright morning and Wilt was enjoying her sunny day.

The big, cushioned chair was so comfortable that she could hardly move. Wilt stated, “Essentially, you starve to death. This is the nature and origin of this disease.”

Wilt was an athlete at college, CrossFit instructor, and a keen horseback rider. At 22 years old, Wilt felt her first signs of mesothelioma.

Wilt said, “It was really strange.” “I stopped being able walk right from the beginning.”

After years of ineffective treatment, she was now terrified at the rapid progression of her illness. Wilt expressed outrage and frustration, along with her fear.

A few weeks prior, her lawsuit against Johnson & Johnson, which she claimed made her sick, was abruptly stopped.

Wilt stated, “What I see are those who can play the best game.” Big corporations are trying to manage the system so that they don’t have to assume full responsibility for it is not new.

Johnson’s Review on the Lawsuits

Johnson & Johnson is valued at more than $400 billion, and the company’s headquarters are located in New Jersey. In October 2021, Johnson & Johnson used an unusual legal move in bankruptcy court to stop the freezing of Wilt’s and many other cases.

There were 38,000 lawsuits against Johnson’s Baby Powder for causing ovarian cancer and mesothelioma.

Wilt stated that J&J’s Talcum Powder would be used every day.

Wilt filed her January 2020 lawsuit accusing company executives of knowing the risks for decades but not disclosing it to customers.

She referred to the FDA’s October 2019 announcement that it had discovered asbestos in one Johnson’s baby powder sample.

Wilt stated that there was “definitely an element of justice” to Wilt’s lawsuit against J&J, and she wanted her day in court in order to hold J&J accountable.

“This powerful group, they lied and were capable of potentially ruining so many people’s life.”

Company files of $400 billion for bankruptcy

J&J took its iconic Johnson baby powder from the U.S. shelves in 2020. However, the company claims that it did so because of bad publicity.

NPR repeatedly asked company executives for interviews, but they declined. They have long denied that the product was contaminated with any cancerous substances.

In a statement J&J sent NPR, Allison Brown, an attorney for the company, stated that Johnson’s baby powder does not cause cancer.

This is usually the type of dispute that civil lawsuits are intended to settle. In a case such as Hanna Wilt’s, a judge or jury would examine the evidence and determine if J&J committed any wrongdoing.

Johnson & Johnson has been able to defend itself against many of the baby powder claims in recent years but has also lost.

After a baby powder trial in Oklahoma, 2018, J&J was forced to pay 22 women suffering from ovarian cancer more that $2 billion. The award was upheld by the U.S. Supreme Court in 2017.

However, with many of the cases, including Wilt’s, still pending, the company was able to stop the legal proceedings in civil court using a complicated bankruptcy strategy, known as the “Texas Two-Step”. “

Texas’: two-step program for cancer patients

Here’s how it worked. J&J first created LTL, a Texas subsidiary, in October last year.

J&J used a twist in Texas state law to transfer all potential liability related to the tsunami of baby-powder asbestos claims to the shell of the new business while keeping valuable assets separate.

LTL quickly filed for bankruptcy in North Carolina. This immediately stopped the baby powder cases from being put on hold, even if they were in court for many months.

One of J&J’s top executives spoke out in defense of the strategy during a conference call with investors last October.

Joseph Wolk, J&J Chief Financial Officer, stated that “there’s an established procedure that allows companies…to resolve claims in an efficient und equitable manner.” “It is the bankruptcy courts who will decide this.”

Families seeking compensation from J&J were angered and dismayed by the decision of one of America’s wealthiest corporations.

Hanna’s mother Hope Schiller Wilt said, “It is heartless; it’s ruthless.” “It is disgusting that they will stop at nothing for monetary gain.

Hanna Wilt added, “It’s so expensive to be sick.” “I cannot work so I don’t provide an income. My Mom can’t work. She takes care of me.”

Is there a separate justice system for “Bankruptcy Grifters?”

NPR hears from legal experts that many wealthy individuals, companies and organizations are resorting to similar bankruptcy strategies in an effort to delay or block lawsuits.

They have found opportunities in federal and state law that enable them to use the vast power of bankruptcy judges when they cut deals.

They aren’t being forced to suffer the financial pains and exposure that come with filing for bankruptcy.

This can often mean creating a new subsidiary or pushing it into bankruptcy. Other times, wealthy organizations or companies may be able to “piggyback” on bankruptcies of insolvent companies.

Lindsey Simon, a professor of bankruptcy law at the University of Georgia, stated that “I think there is a lot of concern about this strategy”

She was the first to voice concern about this practice in a paper called “Bankruptcy Grifters”, which was widely distributed before it was published in the Yale Law Journal.

Simon Review on Lawsuits

Simon wrote, “These bankruptcy grifters’ act as parasites.” They enjoy many of the benefits associated with actual bankruptcy, but they also have to deal with “only a fraction” of the burdens.

These bankruptcy maneuvers quietly transformed some of the most important legal cases in recent years.

The members of the Sackler family that own Purdue Pharma don’t have to go bankrupt. They are expected to support the insolvent drug company’s bankruptcy.

They would have to pay $6 billion for broad protections against lawsuits alleging that they promoted OxyContin in ways that fuelled the opioid epidemic.

Critics claim that the payment, although substantial, does not achieve justice or accountability as many OxyContin victims hoped.

Although the settlement is still in process, it does not require any apology from Sacklers who have long denied any wrongdoing. The settlement will not affect much of the $10 million in opioid sales revenue that the family made.

If the deal is reached, the OxyContin addicts who have been affected by OxyContin addiction will lose their right to sue the Sacklers. often receives only a few thousand dollars in compensation.

The Koch brothers, billionaires who have funded a variety of conservative political organizations, used bankruptcy to stop asbestos-related lawsuits against one of their companies, Georgia-Pacific.

The case is still pending. In 2017, Georgia-Pacific created Bestwall, a subsidiary that filed for bankruptcy. Georgia-Pacific offered $1 billion to a compensation fund.

Result

However, no payment has been made. People who tried to sue for cancer claims in this case have had their lawsuits frozen almost five years.

Complex bankruptcy maneuvers were used by the U.S. Olympic & Paralympic Committee as well as the Boy Scouts to protect themselves and their affiliated organizations from lawsuits arising out of claims of child sexual abuse.

Critics, both Republican and Democratic, argue that only those who are wealthy enough to pay large amounts as part of bankruptcy settlements have access to these legal maneuvers.

U.S. Senator Dick Durbin (D-Ill.) said that there is a justice system only for the wealthy and powerful corporations, while there is a system for everyone else. He made this statement in a recent speech to the Senate floor, decrying these bankruptcy agreements.

“Many days, it seems that the gap between these two systems just keeps getting bigger.”

Is this legal?

This type of settlement was also condemned by the U.S. Justice Department’s Bankruptcy Watchdog Division, who deemed them unconstitutional.

The DOJ claimed that people who have filed lawsuits against Purdue Pharma must “involuntarily settle” their cases even though they would prefer to be heard in court. This effectively denies them due process rights.

The U.S. Attorney general Merrick Garland stated that the bankruptcy court had no authority to deny victims of the opioid crisis their right to sue Sackler families in a statement dated December 2021

This settlement agreement, as well as several others that involved non-bankrupt players is being challenged. They will be, according to some legal experts, declared illegal nationwide by federal appeals courts.

Simon stated, “It’s not clear that this is allowed if you look at the bankruptcy code in detail.”

“I believe there is a real chance that a court will decide it’s not allowed.”

Bipartisan legislation is being considered by Congress to limit these bankruptcy transactions.

The floodgates are open

For now, however, bankruptcy judges are reluctant to allow wealthy individuals and companies accused of wrongdoing to use such a maneuver.

The bankruptcy judge who presided over the case, who praised J&J’s offer to establish a fund of billions of dollars through bankruptcy court to pay cancer victims, commended the arrangement.

Judge Michael Kaplan wrote in February, “Justice is best served by expeditiously supplying critical compensation through a Court-supervised, fair and less expensive settlement trust arrangement.”

Kaplan expressed concern that “allowing the case to proceed will invariably open the floodgates for similar machinations by other companies.” Kaplan then suggested that the gates might need to be opened. “

Kaplan acknowledged that this case was both controversial and precedent-setting during a hearing this week on the J&J matter. Accordingly, the federal appeals court should review it.

Kaplan stated, “I’m being held responsible for a lot.” “Clearly, this impacts decisions and restructurings (or potential restructurings) beyond what’s being litigated at this court.”

However, these bankruptcy maneuvers, which involve non-bankrupt individuals and companies, have support.

Bankruptcy court is a method to resolve complex litigation cases, according to some judges, legal scholars, and corporate executives.

They claim that sometimes companies pay victims and creditors more quickly than they should.

Simon is not the only one who thinks these types of settlements should be made available to bankruptcy courts in limited, well-regulated cases.

As time expired, I was caught in a legal maze

However, those caught up in the legal maze feel unfair and confused when their lawsuits are thrown out of court by bankruptcy maneuvers performed by wealthy corporations.

There is a high chance that people will die waiting for mesothelioma and ovarian cancer cases to unfold.

Hanna Wilt stated that she was a young girl and that her entire life had been drastically changed before her death on Valentine’s Day. “I am angry and there is a lot of sadness.”

Hope, Hope’s mother, said that her daughter would not have been able to see justice if she had. “But she would feel like a company such as this couldn’t get away doing what they’ve done, causing such terrible heartache.”

Wilt’s family stated that they plan to continue her suit — “It was what she wanted,” Wilt’s mother said. However, the case could be left in bankruptcy court for months or even years.

If they are allowed to proceed, it is not clear how a court will rule on any of the remaining baby powder cases.

According to legal experts, it is evident that the Johnson & Johnson case has been watched and studied as a testing case.

Johnson & Johnson’s bankruptcy maneuver will work for them. This means that more wealthy individuals and companies can use bankruptcy court to defer or block lawsuits against them when they are accused of wrongdoing.