‘Texas Two-Step’: A Controversial Legal Strategy to Avoid Corporate Liability

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Companies facing massive litigation are using a new legal strategy to avoid liability.

It’s called two-step Texas.

First step: create a subsidiary and transfer some assets and all the processes. Second step: the subsidiary files for bankruptcy.

“Given the way the law is applied, I don’t know why not everyone does it. You can commit all your debts to bankruptcy.”

It may be legal, but is it fair?

“When the wealthiest and most powerful corporations in the country use the federal bankruptcy system to avoid paying the most vulnerable, something is wrong.”

Today, About: Texas two-step faces legal challenge.


Rob Rasmussenprofessor of law and political science at the Gould School of Law at the University of Southern California.

Mike Spector, US business crisis correspondent for Reuters. Author of the article How a bankruptcy “innovation” halted thousands of lawsuits from sick plaintiffs. (@mike_d_spector)

Leigh O’Dell, co-lead counsel for the plaintiffs’ steering committee in the multidistrict consolidated talc litigation, involving approximately 38,000 women and families who claimed they were harmed by Johnson & Johnson’s baby powder.

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Curtis Huff, one of the two-time Texas drafters.

Barbara Jacksonwho is suing Johnson & Johnson for allegedly giving her ovarian cancer due to the talc in their baby powder.

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