Fort Worth Star-Telegram

What Alice Salas misses most about her life before her two cancer diagnoses is her hair. On a recent November afternoon, she displays photos of herself at a younger age: full, waist-length locks that sheen like obsidian over the shoulders of a woman who appears to be in her late 20s, at the oldest. “I was close to 50 in that one,” Salas, 72, said as the afternoon sun slanted through the windows of the east Dallas home she grew up in.

Her hair is notably shorter, noticeably thinner, and graying at the roots. Doing herself up now involves applying hair thickening fibers and drawing on the eyebrows she lost with a makeup brush. “I wanted you to see what it’s caused me, and what I have to go through every day now, you know, having to use products on my hair to cover my scalp, having to put on eyebrows,” she said.

The chemo caused Salas’ toenails to fall off and grow back so hard that she can no longer cut them herself. She now gets pedicures to trim them. She is convinced that she can feel dead cells left over from the treatments. The cruel irony of her situation is that she holds what was an ostensibly harmless personal hygiene product responsible for making the last 16 years of her life so difficult: Johnson & Johnson’s talcum-based baby powder. And she is far from alone. Salas is one of thousands of people who have brought personal injury suits against the company with claims that its baby powder gave them ovarian cancer due to likely asbestos contamination.

But the company’s use — or abuse, her lawyers say — of an obscure statute in the Texas Business Organizations Code has put her claim and thousands of others on hold. Known colloquially as the “Texas two-step,” the stratagem has offered New Jersey-based Johnson & Johnson and other large multinationals a way to try and minimize their liability in such cases by filing for bankruptcy.

Johnson & Johnson has a market cap of more than $372 billion and around $20 billion in cash. The company has already filed for bankruptcy twice using the Texas two-step, and bankruptcy courts in other states have twice dismissed the cases. With its liabilities now rebranded as Red River Talc, Johnson & Johnson has brought its bankruptcy plan to a Texas bankruptcy court. The company and its bankruptcy lawyers have said in court filings and media reports that the move will help plaintiffs obtain payouts on their claims, but plaintiffs’ attorneys say it is meant to force them into accepting pennies on the dollar.

What is the Texas two-step, and how does it work?

The Texas two-step starts with a company performing what is called a divisive merger, by which it effectively splits in two.

“They break it into Good Company and Bad Company,” said Houston-based tort attorney Justin Shrader, who has made a career out of representing mesothelioma patients and other toxic exposure victims. Mesothelioma is a rare form of lung cancer caused by exposure to asbestos. Shrader does not represent Salas, but has had around 3,000 such clients in Texas over the last 25 years.

Step two: put all liability for tort claims into Bad Company and file for bankruptcy, while leaving assets in Good Company. That’s how a company worth billions is able to take advantage of bankruptcy protections. Out-of-state companies need not even set foot in Texas to do the dance. Everything can be done online in a matter of minutes. “For a Secretary of State filing fee, these companies are able to launder all of their liabilities, just like you would drug money through a real estate transaction,” Shrader said. “They launder all their liabilities in about 10 to 30 minutes online, and then the good company is free of thousands of people dying of cancer from their products.” By filing for bankruptcy, a company like Johnson & Johnson is able to put complainants’ lawsuits on hold for years — something many of them do not have.

Salas received her first diagnosis in 2008, and has been in remission since a recurrence in 2016. But not all ovarian cancer patients make it as far as she has. Nearly half do not live more than five years after a diagnosis, according to the Ovarian Cancer Research Alliance.

The bankruptcy process can drag on for 10 years or more. The average life expectancy for mesothelioma patients is around 18 months, according to researchers at the University of Pennsylvania.

“They’ll never see their day in court, because they’ll be dead,” Shrader said. Meanwhile, the company continues to have bankruptcy hearings, “and the only people that are making money off this are the bankruptcy lawyers for the big corporations.” The Texas statute was never meant to be used this way, he said. Established in the late 1980s, it was meant to allow Texas oil and gas companies to split off and sell unproductive wells at a tax loss, not for bankruptcy. “The law was only envisioned to be a domestic Texas entity that could get the light shone on it by Texas courts, and the way that foreign corporations are using the Texas two-step now kind of perverts justice,” Shrader said.

Who came up with the Texas two-step bankruptcy tactic?

The Texas two-step truly is a Lone Star original. Not only does it use Texas law, it was also developed by a bankruptcy lawyer from right here in the Metroplex.

The tactic is the brainchild of Dallas-based attorney Gregory Gordon of the multinational law firm Jones Day. In addition to Johnson & Johnson, he has also done divisive mergers for the building product conglomerates Georgia-Pacific and CertainTeed, as well as the heating and air conditioning company Trane Technologies, since pioneering the technique in 2017.

Court documents show Jones Day has been paid over $150 million to represent CertainTeed, Trane, Georgia-Pacific and Johnson & Johnson in their Texas two-step bankruptcies. No asbestos victim has been or was compensated in any of these bankruptcies. “It’s a very bizarre situation where these billionaires that don’t need bankruptcy are in bankruptcy court, so the sick people can’t have their day in court before a jury,” said Clay Thompson, a New York City-based attorney who represents mesothelioma victims whose claims have been stayed against these companies. “And all these bankruptcy lawyers are just raking it in. It’s incredibly frustrating for my clients.”

Gordon did not respond to multiple requests for comment, but he has described the tactic as “the greatest innovation in the history of bankruptcy.” A spokesperson for CertainTeed’s parent company Saint-Gobain said it is fully behind DBMP, the company created in CertainTeed’s Texas two-step.

“We are confident in DBMP’s legal position and our ability to reach a final, full, and fair resolution with asbestos claimants,” she said. “We continue to support DBMP’s intention to equitably and permanently resolve current and future asbestos claims.” The other companies that have used the Texas two-step likewise did not respond to requests for comment. But they and Gordon have said in court filings and media reports that the tactic benefits plaintiffs in toxic tort cases because a settlement via a bankruptcy filing is more reliable than hoping for a payout through a trial. Johnson & Johnson has maintained that its talcum-based baby powder is safe to use, but it took the product off U.S. shelves in 2022 and did so globally in 2023. Lawyers representing Salas and thousands of others with similar claims say they have presented courts with sufficient evidence to link the company’s talcum powder to cancer. And they accuse Johnson & Johnson of using the Texas two-step to minimize payouts to complainants or avoid paying them at all.

“On their worst day, it might take them a few billion dollars to deal with this whole problem, but they don’t want to,” said Shrader, the Houston tort attorney. The Texas two-step pressures plaintiffs and their lawyers to accept pennies on the dollar instead of waiting out a legal process that could take longer than the time they have left.

Johnson & Johnson kicked off its first Texas two-step attempt when it split its liabilities off into a company it called LTL Management using the Texas law and filed for bankruptcy in a North Carolina court in October 2021. The case was moved to a court in New Jersey, and an appeals court dismissed the bankruptcy claim in March 2023. During that time, 600 people with claims against the company died of complications from cancer, according to lawyers with Beasley Allen, the Montgomery, Alabama-based firm that represents Salas, and the D.C.-based injury firm Ashcraft & Gerel. Johnson & Johnson filed a second bankruptcy attempt with LTL Management just a couple hours after the dismissal was finalized in April 2023. This second case was thrown out by a New Jersey court a few months later. LTL Management has now been rebranded as Red River Talc, which filed a Chapter 11 case in a Houston bankruptcy court in September.

“It’s called the Texas two-step for a reason, but it’s not benefiting anybody in Texas,” said Thompson. “The Constitution doesn’t give bankruptcy courts this power. Bankruptcy courts don’t have power to protect companies that are worth billions of dollars. The Constitution does give injured people the right to a jury trial, and that right is being trampled upon.”

‘Lots of little things’

In her family home in east Dallas, Salas listed off the ways her cancer diagnoses and treatments drastically changed her life. “It’s just caused lots of little things that don’t make you feel very good as a woman,” she said, as though she were embarrassed to invest so much importance on features of her appearance. Hair and toenails, however, aren’t little things. They’re big things we take for granted until we lose them. And they aren’t the only effects of the chemo, by far. She was often too sick to work. The chemo caused her such severe constipation that she once had to be taken to the hospital for disimpaction, a procedure she described as extremely painful. When her sick days ran out, she stayed home without pay. Eventually, she had to quit her job doing administrative and payroll work. She had to leave her home in Amarillo and move back into her parents’ home in Dallas with her brother.

The loss of this autonomy and agency in her own life has been the hardest part of the last 16 years. “I have always been a very strong woman. I’ve always worked since I was 13 years old,” she said. “This last job that I retired from, I’d been there 16 years, and the hardest part was feeling like I couldn’t function, and like I would be sick and I knew that I still had to go to work.”

She found strength in the support from her children, but the financial distress changed her life completely. “It totally affected me, really, in a bad way. I mean, no money. Can’t pay your bills,” she said. In another twist of irony, Salas was forced to file for bankruptcy herself. But unlike Johnson & Johnson, she had no Good Company full of billions of dollars in assets to fall back on. “They don’t care what we have to go through because of their product,” she said. “Some people have passed away and left families devastated, and they don’t care. All they care about is making money, whether it hurts anyone or not.” The Texas two-step, Shrader said, is a way for a company worth nearly half a trillion dollars to treat people who are dying of cancer “like an accounting problem.”

At the center of that legal maelstrom, Salas had a poignant message for the people who hold executive positions in Johnson & Johnson: “Look at my hair. Look at my face. Listen to how sick my body has been for the last 16 years because of the chemo, because of a product that caused this disease, this cancer. Don’t you care how I feel? Don’t you care about helping me and others like me? Why are you trying to avoid it? Why are you trying to abuse the system instead of trying to help the people who have used your products?”