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J&J tried it but was ultimately rejected last year.

triceratops 7mo ago
Somewhat different circumstances. Summarizing Matt Levine's various columns on the issue from memory: 1. J&J lost a lawsuit about talc and the winner was awarded $Xb (or maybe $XXXm, my memory is fuzzy) in damages. 2. J&J transferred $XXb to a new company. 3. It let the new company take on current and future liabilities for judgements on the talc issue. 4. J&J then had the new company declare bankruptcy. The bankruptcy process is designed to pay out money fairly to all creditors. The new company's only creditors were the plaintiffs in the lawsuit J&J lost + any future claimants. So this wasn't necessarily nefarious. 5. A judge rejected the bankruptcy because J&J had funded the company with $XXb and that was in excess of its current liabilities. As Levine put it, the company wasn't "bankrupt enough" yet. I didn't keep up with the story after that so maybe I missed something.
- reenorap 7mo ago
  I'm not sure what you mean. I think we are saying the same thing. The strategy to use Texas Two Step failed in 2025 and J&J gave up, and now they are going back to the regular way of resolving the litigation.
  - triceratops 7mo ago
    The thread we're in started with the discussion of fraudulent transfers: https://news.ycombinator.com/item?id=47220263 https://news.ycombinator.com/item?id=47220263 You said the Texas Two Step can't be used for fraudulent transfers (or at least, that's how I interpreted) and offered J&J's case as an example. My reply to that is J&J's Texas Two Step failed for a different reason, unrelated to fraudulent transfers.
    - reenorap 7mo ago
      No. My OP said that Texas Two step was used all the time. I said J&J tried to use Texas Two Step and it ultimately failed. And yes it did fail mostly because it was not being used in good faith.
      - triceratops 7mo ago
        > And yes it did fail mostly because it was not being used in good faith As of today, judgments against J&J total to less than $10b. J&J committed up to $61.5b to LTL, the company it spun off. Simple arithmetic shows us all current judgments will be satisfied. https://news.ycombinator.com/item?id=47222778 https://news.ycombinator.com/item?id=47222778 The judge used this $61.5b commitment - which J&J made to ensure LTL would pay for all the lawsuits J&J lost - as proof that LTL wasn't actually bankrupt. Which is weird but also correct. Where is the bad faith today? I mean it's possible J&J has done some internal analysis and expects to be on the hook for more than that in the future. Or there's some other arcane legal issue I don't understand. And in that sense committing the $61.5b is a smart way of capping their losses while still looking like good guys today. There's no evidence of that right now though. To re-iterate, the bankruptcy was rejected because of how it was structured. Not because there was an attempt to dodge liability. To me that's a more damning indictment of the legal system because it implies liability dodging might have worked if it were structured right.
- FireBeyond 7mo ago
  Nah, Matt Levine is an absolute Texas Two Step apologist, something that made me lose a lot of respect for him. He repeatedly contorts himself into pretzels trying to defend it (why?) and into equal pretzels avoiding exploring the two elephants in the rule: 1. He (and those involved) claim that the process is "actually, truly, intended to be solely for the benefit of the plaintiffs suing us", and that defendants are doing them a favor, going out of their way to spin off these entities that are flimsy houses of cards. 2. Is it just a coincidence that of the firms who've gone through the Texas Two Step process, that they've managed to get away with not having to pay ninety per cent of court-ordered liabilities, and in at least one case, ninety-eight per cent? Why on earth would these companies bend over backwards to do something that they claim has zero benefit for them, and is only truly intended to help streamline and optimize plaintiff's efforts in suing them? Why is it even called the Texas Two Step? Is it because: 1. it assists claimants and plaintiffs (their adversaries) to bond together and present one solid unified case against you, or... 2. because it assists them to elegantly dance around their liabilities? Levine and the firms and companies he's carrying water for insist the name has nothing to do with the second point. In the JJ case, Levine's apologism of "they weren't bankrupt enough, yet" is horseshit. JJCI was funded to the tune of $2B. Slightly less than the $61.5B of liability, you'll agree. After the bankruptcy was rejected, the Judge had said that the bankruptcy might be necessary at some point in the future, but "now wasn't the time". JJCI re-filed bankruptcy proceedings three hours later. All these apologists are taking the piss.
  - triceratops 7mo ago
    > JJCI was funded to the tune of $2B. Slightly less than the $61.5B of liability, you'll agree Your numbers are all wrong. Here's a law firm's summary of all the judgments to date against J&J: https://www.sokolovelaw.com/product-liability/talcum-powder/lawsuit-updates/ https://www.sokolovelaw.com/product-liability/talcum-powder/... These don't add up anywhere close to $10b, let alone $61.5b. $61.5b is the amount that J&J ultimately agreed to pay the new company (LTL) that it spun off to take over the liabilities. This is from the court that rejected the bankruptcy: "we cannot agree LTL was in financial distress when it filed its Chapter 11 petition. The value and quality of its assets, which include a roughly $61.5 billion payment right against J&J and New Consumer, make this holding untenable." https://www2.ca3.uscourts.gov/opinarch/222003p.pdf https://www2.ca3.uscourts.gov/opinarch/222003p.pdf My translation: "This new company can get up to $61.5b from J&J but says it's in financial straits. Bankruptcy denied." I'm aware the Texas Two Step is used by companies to get out of paying what they legally owe. It's unclear to me if this particular case is a good example of that today because J&J has committed to paying at least $61.5b and that's much more than the judgements against them. If in 20 years all the judgements end up being more like $80b and J&J says "Whoopsie, money's run out" then I guess we can call shenanigans. I don't know what Matt Levine has said about the Texas Two Step outside of this case. > JJCI re-filed bankruptcy proceedings three hours later What did they change in their application? What happened to the new filing?
- rayiner 7mo ago
  Generally true, but one key point. Under bankruptcy law, you can give liabilities to a subsidiary, but you have to give the subsidiary enough money to pay the anticipated liabilities. That’s the reason why J&J gave the subsidiary so much money. Otherwise, the bankruptcy would have been dismissed as a fraudulent transfer. The bankruptcy court approved the bankruptcy filing, but on appeal the Third Circuit dismissed the bankruptcy because the subsidiary wasn’t bankrupt enough. Basically, in order to avoid fraudulent transfer law, J&J had to write the subsidiary a big check, but that money made the subsidiary ineligible for bankruptcy. (Disclosure: I was on the team that won the appeal against J&J on this issue. My comment above is about the public record.)
  - triceratops 7mo ago
    > So the Texas Two-Step supports the idea that companies can’t just put liabilities in a subsidiary and put it into bankruptcy. The Texas Two-Step is an effort to work around that rule. Sorry I'm having trouble parsing this because the first and second sentences seem to contradict each other. Or I'm just bad at reading. > Disclosure: I was on the team that won the appeal against J&J on this issue That's actually pretty cool. If I may ask, given that LTL was funded with many multiples of its liabilities, why was the bankruptcy appealed?
    - rayiner 7mo ago
      > Sorry I'm having trouble parsing this because the first and second sentences seem to contradict each other. Or I'm just bad at reading. Sorry, I was unclear. You have a law that says that pre-bankruptcy transfers that were made to avoid liability can be voided: 11 USC 548: https://www.law.cornell.edu/uscode/text/11/548 https://www.law.cornell.edu/uscode/text/11/548. So say J&J put the liabilities into a subsidiary, but didn’t give it a check. The creditors would have been able to void the transfer of liability and give it back to J&J by proving that J&J transferred the liabilities that the subsidiary couldn’t pay. To work around that, J&J did a particular formulation of the Texas Two-Step where it gave the subsidiary a big check to pay for the anticipated liabilities. The fact that J&J had to do that shows that the fraudulent transfer law does have some teeth. It was the reason J&J had to take the approach that ultimately got the subsidiary kicked out of bankruptcy court. > If I may ask, given that LTL was funded with many multiples of its liabilities, why was the bankruptcy appealed So the amicus brief from Public Justice—which I had no involvement with—does a good job of explaining the public interest concerns: https://www.tzlegal.com/wp-content/uploads/2022/07/2022.07.07-Brief-of-Amicus-Curiae-Public-Justice-in-Support-of-Appellants-Official-Committee-of-TALC-Claimants-et-al.-3d-dkt.-78.pdf https://www.tzlegal.com/wp-content/uploads/2022/07/2022.07.0.... Bankruptcy court is a debtor-friendly forum and gives debtors tremendous leverage over creditors.

Somewhat different circumstances. Summarizing Matt Levine's various columns on the issue from memory: 1. J&J lost a lawsuit about talc and the winner was awarded $Xb (or maybe $XXXm, my memory is fuzzy) in damages. 2. J&J transferred $XXb to a new company. 3. It let the new company take on current and future liabilities for judgements on the talc issue. 4. J&J then had the new company declare bankruptcy. The bankruptcy process is designed to pay out money fairly to all creditors. The new company's only creditors were the plaintiffs in the lawsuit J&J lost + any future claimants. So this wasn't necessarily nefarious. 5. A judge rejected the bankruptcy because J&J had funded the company with $XXb and that was in excess of its current liabilities. As Levine put it, the company wasn't "bankrupt enough" yet. I didn't keep up with the story after that so maybe I missed something.

reenorap 7mo ago
I'm not sure what you mean. I think we are saying the same thing. The strategy to use Texas Two Step failed in 2025 and J&J gave up, and now they are going back to the regular way of resolving the litigation.
- triceratops 7mo ago
  The thread we're in started with the discussion of fraudulent transfers: https://news.ycombinator.com/item?id=47220263 https://news.ycombinator.com/item?id=47220263 You said the Texas Two Step can't be used for fraudulent transfers (or at least, that's how I interpreted) and offered J&J's case as an example. My reply to that is J&J's Texas Two Step failed for a different reason, unrelated to fraudulent transfers.
  - reenorap 7mo ago
    No. My OP said that Texas Two step was used all the time. I said J&J tried to use Texas Two Step and it ultimately failed. And yes it did fail mostly because it was not being used in good faith.
    - triceratops 7mo ago
      > And yes it did fail mostly because it was not being used in good faith As of today, judgments against J&J total to less than $10b. J&J committed up to $61.5b to LTL, the company it spun off. Simple arithmetic shows us all current judgments will be satisfied. https://news.ycombinator.com/item?id=47222778 https://news.ycombinator.com/item?id=47222778 The judge used this $61.5b commitment - which J&J made to ensure LTL would pay for all the lawsuits J&J lost - as proof that LTL wasn't actually bankrupt. Which is weird but also correct. Where is the bad faith today? I mean it's possible J&J has done some internal analysis and expects to be on the hook for more than that in the future. Or there's some other arcane legal issue I don't understand. And in that sense committing the $61.5b is a smart way of capping their losses while still looking like good guys today. There's no evidence of that right now though. To re-iterate, the bankruptcy was rejected because of how it was structured. Not because there was an attempt to dodge liability. To me that's a more damning indictment of the legal system because it implies liability dodging might have worked if it were structured right.
FireBeyond 7mo ago
Nah, Matt Levine is an absolute Texas Two Step apologist, something that made me lose a lot of respect for him. He repeatedly contorts himself into pretzels trying to defend it (why?) and into equal pretzels avoiding exploring the two elephants in the rule: 1. He (and those involved) claim that the process is "actually, truly, intended to be solely for the benefit of the plaintiffs suing us", and that defendants are doing them a favor, going out of their way to spin off these entities that are flimsy houses of cards. 2. Is it just a coincidence that of the firms who've gone through the Texas Two Step process, that they've managed to get away with not having to pay ninety per cent of court-ordered liabilities, and in at least one case, ninety-eight per cent? Why on earth would these companies bend over backwards to do something that they claim has zero benefit for them, and is only truly intended to help streamline and optimize plaintiff's efforts in suing them? Why is it even called the Texas Two Step? Is it because: 1. it assists claimants and plaintiffs (their adversaries) to bond together and present one solid unified case against you, or... 2. because it assists them to elegantly dance around their liabilities? Levine and the firms and companies he's carrying water for insist the name has nothing to do with the second point. In the JJ case, Levine's apologism of "they weren't bankrupt enough, yet" is horseshit. JJCI was funded to the tune of $2B. Slightly less than the $61.5B of liability, you'll agree. After the bankruptcy was rejected, the Judge had said that the bankruptcy might be necessary at some point in the future, but "now wasn't the time". JJCI re-filed bankruptcy proceedings three hours later. All these apologists are taking the piss.
- triceratops 7mo ago
  > JJCI was funded to the tune of $2B. Slightly less than the $61.5B of liability, you'll agree Your numbers are all wrong. Here's a law firm's summary of all the judgments to date against J&J: https://www.sokolovelaw.com/product-liability/talcum-powder/lawsuit-updates/ https://www.sokolovelaw.com/product-liability/talcum-powder/... These don't add up anywhere close to $10b, let alone $61.5b. $61.5b is the amount that J&J ultimately agreed to pay the new company (LTL) that it spun off to take over the liabilities. This is from the court that rejected the bankruptcy: "we cannot agree LTL was in financial distress when it filed its Chapter 11 petition. The value and quality of its assets, which include a roughly $61.5 billion payment right against J&J and New Consumer, make this holding untenable." https://www2.ca3.uscourts.gov/opinarch/222003p.pdf https://www2.ca3.uscourts.gov/opinarch/222003p.pdf My translation: "This new company can get up to $61.5b from J&J but says it's in financial straits. Bankruptcy denied." I'm aware the Texas Two Step is used by companies to get out of paying what they legally owe. It's unclear to me if this particular case is a good example of that today because J&J has committed to paying at least $61.5b and that's much more than the judgements against them. If in 20 years all the judgements end up being more like $80b and J&J says "Whoopsie, money's run out" then I guess we can call shenanigans. I don't know what Matt Levine has said about the Texas Two Step outside of this case. > JJCI re-filed bankruptcy proceedings three hours later What did they change in their application? What happened to the new filing?
rayiner 7mo ago
Generally true, but one key point. Under bankruptcy law, you can give liabilities to a subsidiary, but you have to give the subsidiary enough money to pay the anticipated liabilities. That’s the reason why J&J gave the subsidiary so much money. Otherwise, the bankruptcy would have been dismissed as a fraudulent transfer. The bankruptcy court approved the bankruptcy filing, but on appeal the Third Circuit dismissed the bankruptcy because the subsidiary wasn’t bankrupt enough. Basically, in order to avoid fraudulent transfer law, J&J had to write the subsidiary a big check, but that money made the subsidiary ineligible for bankruptcy. (Disclosure: I was on the team that won the appeal against J&J on this issue. My comment above is about the public record.)
- triceratops 7mo ago
  > So the Texas Two-Step supports the idea that companies can’t just put liabilities in a subsidiary and put it into bankruptcy. The Texas Two-Step is an effort to work around that rule. Sorry I'm having trouble parsing this because the first and second sentences seem to contradict each other. Or I'm just bad at reading. > Disclosure: I was on the team that won the appeal against J&J on this issue That's actually pretty cool. If I may ask, given that LTL was funded with many multiples of its liabilities, why was the bankruptcy appealed?
  - rayiner 7mo ago
    > Sorry I'm having trouble parsing this because the first and second sentences seem to contradict each other. Or I'm just bad at reading. Sorry, I was unclear. You have a law that says that pre-bankruptcy transfers that were made to avoid liability can be voided: 11 USC 548: https://www.law.cornell.edu/uscode/text/11/548 https://www.law.cornell.edu/uscode/text/11/548. So say J&J put the liabilities into a subsidiary, but didn’t give it a check. The creditors would have been able to void the transfer of liability and give it back to J&J by proving that J&J transferred the liabilities that the subsidiary couldn’t pay. To work around that, J&J did a particular formulation of the Texas Two-Step where it gave the subsidiary a big check to pay for the anticipated liabilities. The fact that J&J had to do that shows that the fraudulent transfer law does have some teeth. It was the reason J&J had to take the approach that ultimately got the subsidiary kicked out of bankruptcy court. > If I may ask, given that LTL was funded with many multiples of its liabilities, why was the bankruptcy appealed So the amicus brief from Public Justice—which I had no involvement with—does a good job of explaining the public interest concerns: https://www.tzlegal.com/wp-content/uploads/2022/07/2022.07.07-Brief-of-Amicus-Curiae-Public-Justice-in-Support-of-Appellants-Official-Committee-of-TALC-Claimants-et-al.-3d-dkt.-78.pdf https://www.tzlegal.com/wp-content/uploads/2022/07/2022.07.0.... Bankruptcy court is a debtor-friendly forum and gives debtors tremendous leverage over creditors.