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DrScientist 4 hours ago

Yet large companies appear to get away with it all the time - for example the so called Texas two step.

https://en.wikipedia.org/wiki/Texas_two-step_bankruptcy

In my view the best way to get this sort of stuff banned is to start using it yourself.

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reenorap 4 hours ago | parent | next [-]

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

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triceratops 3 hours ago | parent [-]

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.

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reenorap 3 hours ago | parent | next [-]

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.

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triceratops 2 hours ago | parent [-]

The thread we're in started with the discussion of fraudulent transfers: 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.

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reenorap 38 minutes ago | parent [-]

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 10 minutes ago \| parent [-]
		> 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 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 been worked of it were structured right.

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FireBeyond 2 hours ago | parent | prev [-]

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 2 hours ago \| parent [-]
		> 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/... 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 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?

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FireBeyond 2 hours ago | parent | prev [-]

Yup. It's "weird" that all of these companies claim that "swear to god, we fully intend to honor our obligations", then all of them use this one law firm who specializes in doing exactly the opposite and "oops, look what happened, we have no more legal obligation, that belongs now to this other entity that we said we'd fund but ... somehow ... didn't. Or certainly not anywhere near where we said we would."

But there are definitely apologists and deniers of it, even right here on HN. Or "you don't know that's what's going to happen, we owe it to them to wait and see", even as you watch the exact same law firm guide another company through the exact same process in the exact same way, but somehow, maybe, this time, it'll have a different outcome.