[Congressional Record Volume 168, Number 30 (Tuesday, February 15, 2022)]
[Senate]
[Pages S682-S683]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



                      Johnson & Johnson Bankruptcy

  Mr. President, what would a great corporation do, one that is just so 
identified with America that new parents trust their products and the 
work they do with the health of themselves and their brandnew baby?
  When you think back, for many of us, to when we became fathers, there 
was hardly a time when we didn't have, holding in our hands, Johnson & 
Johnson's Baby Powder. It clouded the room as we sprinkled it all over 
our babies and knew that it was just the right thing because others 
before us, other generations, had used the same product.
  What is a company like Johnson & Johnson to do, then, when it turns 
out that there was an ingredient in that talcum powder that was 
dangerous? Asbestos. Literally, asbestos. Well, it turns out they knew 
about it. They knew there was asbestos in Johnson & Johnson Baby Powder 
long before the lawsuits were filed.
  So what does a corporation worth $450 billion do when they discover 
that the product that they had been selling for generations to trusting 
American families was actually a danger and was now being connected to 
cancers and mesothelioma?
  Years ago, there was a great folk singer in America known as Woody 
Guthrie. He said there are two ways to get robbed. ``Some will rob you 
with a gun, some with a fountain pen.''
  There are two systems in America, and Johnson & Johnson bears that 
out. There is a justice system for rich, powerful people and 
corporations, and then there is a justice system for everybody else. 
And many days, it seems that the gulf between these two systems is just 
getting wider and deeper.
  There is something called the Texas two-step. It used to be just a 
dance step, but in recent years, it has taken on a new meaning, and it 
relates directly to Johnson & Johnson. It is a name given to a highly 
controversial form of legal strategy that some of the biggest 
corporations are using to shield their assets from accountability. It 
allows massively wealthy corporations whose products caused harm to 
avoid paying damages to the victims.
  Not just that, the Texas two-step denies the victims their right to 
make their case in court and take their issue to a jury or a judge. And 
it can stretch the process of seeking justice out for years and years 
and years, while victims get sicker and die.
  Does that sound like justice? It doesn't sound like American justice. 
It sounds like somebody getting robbed with a fountain pen.
  A big law firm that is credited with dreaming up this Texas two-step 
charges over $1,000 an hour to advise large corporations on how to 
perform this maneuver.
  But we received a lesson on the Texas two-step in our committee last 
week for free.
  The Judiciary Committee's Subcommittee on Federal Courts, Oversight, 
Agency Action, and Federal Rights held the first ever Senate hearing on 
the Texas two-step. We heard from experts just how it works. We also 
heard from one of its victims, Ms. Kimberly Naranjo, who has been given 
a fatal diagnosis from the lung disease mesothelioma. The name of that 
corporation she believes caused her illness: Johnson & Johnson.
  Here is what we heard about how the Texas two-step works now, in a 
nutshell. Here is a big corporation like Johnson & Johnson that is 
being sued because it sold a dangerous product or it is likely to be 
sued for causing harm to victims. Well, they take their corporation and 
reincorporate in the State of Texas and execute what is called a 
``divisive merger.'' They cut their corporation not in half but legally 
in half.
  In a traditional merger, two companies become one. With a divisive 
merger, it is just the opposite: One company becomes two. The original 
company keeps all the wealth, all the assets, and all the operations. 
The new company, created in this Texas procedure, is really just a 
shell. It receives the original company's debts and liabilities and a 
small trust fund.
  The new company then reincorporates and turns around and files for 
bankruptcy in a jurisdiction where it is hard to get a bankruptcy 
filing dismissed for bad faith. This bankruptcy filing prompts a stay 
of litigation by people like Ms. Naranjo. The stay of litigation 
applies to both the shell company and the original company. So instead 
of being able to seek justice in a court of law for injuries, perhaps 
fatal injuries, victims are forced to try to recover from this newly 
created shell company that was made up in a bankruptcy court. How long 
does that take? Years. Sadly, for many of these victims, they don't 
have years.
  As the victims wait for some measure of justice in bankruptcy court, 
the original company goes about its business. It has shielded all its 
assets, passed its liabilities off in divisive merger to a shell 
corporation. The good corporation, so to speak, or the rich corporation 
ends up with no liabilities, admitting no wrongdoing.
  Under the laws of most States, companies cannot move assets around 
like this through divisive mergers, but you can do it in Texas, hence 
the nickname

[[Page S683]]

the Texas two-step. So, step 1, create a shell company and transfer 
your legal liabilities; step 2, have the new company immediately 
declare bankruptcy.
  So far, four major corporations have used the Texas two-step and 
bankruptcy to try to avoid legal accountability for their own 
wrongdoing.
  The case that the subcommittee examined last week involved the 
healthcare and pharmaceutical giant Johnson & Johnson, the maker of 
Johnson's baby powder. As I mentioned earlier, how many of us fathers, 
mothers, and kids changing diapers did it in a cloud of Johnson & 
Johnson's baby powder?
  For years, Johnson & Johnson denied the story that its products 
contained asbestos. We know that substance can cause cancer and 
mesothelioma. Then it claimed that any amount of asbestos in its baby 
powder was just too small to cause any harm. But internal company 
documents at Johnson & Johnson obtained through discovery told a 
different story. They showed that Johnson & Johnson knew of tests going 
back decades which found the presence of asbestos in their products. 
While they were actively advertising the use of this product by adults 
for use on our babies, they knew there was asbestos in their product.
  In 2018, a jury in Missouri ruled in favor of 22 women who attributed 
their ovarian cancer to Johnson & Johnson talc products. The women won 
an award of $2 billion. Remember that number: 22 women in Missouri, an 
award of $2 billion.
  Today, there are an estimated 38,000 people with ovarian cancer or 
mesothelioma who have sued Johnson & Johnson, alleging that the 
company's talcum products caused their illness, but Johnson & Johnson's 
use of this Texas two-step divisive bankruptcy means that these 38,000 
cancer victims are no longer able to bring their claims against the 
company. They have lost their right to have their case heard in court 
because Johnson & Johnson, this giant company, has created a bankruptcy 
in a shell corporation that has absorbed all of the legal liabilities 
of the original Johnson & Johnson. So anybody who wants to sue them now 
has to get in line in bankruptcy court with all the creditors and 
alleged victims and wait and hope there will be a day when some 
fraction of the trust fund that Johnson & Johnson gave to its shell 
company when it spun it off and loaded it down with legal liabilities 
may provide some relief. The chances: next to none.

  Stick with me and do the math. We ended up with two companies. Once, 
it was just Johnson & Johnson, and then two companies emerged out of 
the bankruptcy court in Texas. The one company with the liabilities--
the one you can actually sue if you can get into court--they created a 
trust fund for that company of $2 billion. They have 38,000 outstanding 
claims. Twenty-women women in Missouri recovered $2 billion from them 
already, so you know that 38,000 people are not going to go very far 
with $2 billion total. What is left in the other fat corporation--
profitable corporation, big corporation--in that bankruptcy division? 
More than $430 billion. Johnson & Johnson stuck all of its assets into 
more than the healthy corporation that can't be sued and left $2 
billion for all of these victims of its dangerous product. What a 
cynical move for a company to make.
  Kimberly Naranjo, a mother of seven, is one of those 38,000 Americans 
who will lose her right to sue Johnson & Johnson and be forced to wait 
in line in bankruptcy court for some sliver of justice.
  She testified at last week's hearing. Her story is not an unusual 
one. Ms. Naranjo grew up surrounded by addiction and abuse. She moved 
from one foster family to another. She had her first baby when she was 
19 years old. She used Johnson's baby powder on all seven of her 
children. It was, she said, ``that white plastic bottle that I 
associated with motherly love.''
  That was the same message Johnson & Johnson used in its baby ads. 
They used to say their product ``feels like love.''
  Ms. Naranjo started her dream job. But a week later, she felt a pain 
in her side. She went to the doctor and, sadly, learned she has 
mesothelioma. She was told she had 12 to 16 months to live. She knows 
she can't beat mesothelioma. Nobody does. All she wants is a chance to 
make her case in court before she dies so she can leave something to 
her kids.
  So she came to Washington to testify before us in that Judiciary 
subcommittee last week, her voice representing thousands of cancer 
victims who went through exactly what she did, exposing themselves to 
Johnson & Johnson's dangerous product. I commend her and thank her for 
her courage. She is fighting for her kids and all the other victims, 
incidentally, whose voices would be silenced by this Texas two-step 
bankruptcy. As she said in her testimony, ``I don't have much time 
left, but I will not quit.''
  Over the past few months, I decided to write to Johnson & Johnson. 
This is a company that used to take such pride in their products. I 
remember all through my life the advertising associated with their 
products: wholesome, safe help for families. I wrote to the former CEO 
and the current CEO, and I urged them to change course, back way from 
this Texas two-step, abandon this cynical scheme, and hold yourself 
accountable to the people who trusted your product. I urged Johnson & 
Johnson to live up to its reputation of being a company that family and 
consumers can trust. Sadly, they ignored me.
  This week, a bankruptcy court is considering a motion by talc 
claimants to dismiss the bankruptcy of the shell company that Johnson & 
Johnson spun off to unload its legal liabilities. It is a key test of 
this Texas two-step and whether wealthy corporations continue to abuse 
chapter 11 bankruptcy to dodge their legal obligations to victims like 
Ms. Naranjo.
  It is not just lawmakers like me who believe that the Texas two-step 
can deprive victims like her of their day in court; listen to what the 
author of the Texas divisive merger statute, Steven Wolens, said 
earlier this week about the law that brought the Texas two-step to 
life: ``Had we known in 1989 that [the] provisions could be dubiously 
interpreted for entities to avoid known liabilities such as those 
causing severe and permanent injuries and deaths, [the law] would never 
have passed with the `Texas two-step' provision. Never, never, never.''

  Mr. Wolens also said: ``Shame on [Johnson & Johnson] for trying to 
evade its liabilities for products it sold with its golden stamp of 
approval for safety.''
  When a legislator like Mr. Wolens publicly states that the company is 
intentionally misusing the law he wrote, I don't think there is any 
room for uncertainty or equivocation; this is a shameful, indefensible 
strategy on the part of Johnson & Johnson.
  I hope the courts reject Johnson & Johnson's abuse of bankruptcy 
laws, but I also believe Congress needs to do something. We need to 
close this loophole for good.
  In July last year, I joined two of my colleagues, Elizabeth Warren 
and Richard Blumenthal, in cosponsoring legislation which would rein in 
various bankruptcy loopholes like the Texas two-step. I am committed to 
working toward this goal. I hope Democrats and I hope Republicans can 
work together on a bipartisan basis to stop this bankruptcy abuse. 
Bankruptcy is supposed to be a good-faith way to accept responsibility, 
pay one's debts as best you can, and then receive a second chance--not 
a Texas two-step, get-out-of-jail-free card for some of the wealthiest 
corporations on Earth, like Johnson & Johnson.
  I yield the floor.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER (Mr. Padilla). The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. THUNE. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.