Document Type
Article
Publication Date
2024
Publication Information
102 Tex. L. Rev. 1205 (2024).
Abstract
Today's mass torts are headed to bankruptcy. Be it Purdue Pharma 's opioids, United States of America (USA) Gymnastics' sexual abuse, Pacific Gas and Electric Company's (PG&E) wildfires, or Johnson & Johnson 's talc, masstort defendants have determined that bankruptcy-not class actions, multi district litigation, or one-off state suits-is the way to manage their mass-tort liability. But today's mass-tort bankruptcy is not the mass-tort bankruptcy of yesteryear, when the whole business filed for bankruptcy. Instead, these modern mass-tort bankruptcies are designer bankruptcies, where the defendant uses its corporate structure to choose which assets and which liabilities enter bankruptcy. To take today's marquee example, Johnson & Johnson, facing 38,000 tort suits alleging that its talc caused cancer, put those tort liabilities into a distinct limited liability company and had that company file for bankruptcy. Meanwhile, the remainder of Johnson & Johnson, including the division responsible for talc, continued to operate normally, staying outside of bankruptcy entirely. This Article takes stock of those designer bankruptcies. It begins by tracing their evolution from the original Manville Model, which emerged from asbestos litigation in the 1980s, to the contemporary Texas Two-Step, made famous by Johnson & Johnson. The Article then situates these designer bankruptcies in a new theoretical framework, one drawn from organizational law, to understand the promise of designer bankruptcy (for tort victims and businesses alike) and the dangers to tort victims of being shortchanged by those designer bankruptcies. The Article then translates that framework into recommendations for Congress and for courts to better design these designer bankruptcies to capture the value of sound design while protecting tort victims.
Recommended Citation
Michael A. Francus,
Designing Designer Bankruptcy,
102 Tex. L. Rev. 1205 (2024)..
Available at:
https://scholarship.law.nd.edu/law_faculty_scholarship/1597
