Mass tort and the Texas Two Step
(Photo by Mike Mozart on Flickr)

Mass tort and the Texas Two Step

Not illegal but isn't this just outsourcing liability?

Summary: It’s not illegal, but it’s something that ESG investors might feel uncomfortable with. 3M, the subject of the largest mass tort law case in US history, wants to adapt a bankruptcy structure that will effectively halt the case in its tracks.

Why this is important: Potential liabilities and reputational risks.

The big theme: Human rights has a broad scope. We traditionally think about it in the context of supply chains, or mine tailing dam collapses, or the murder of human rights defenders in LatAm (all stories we have covered). But at its most basic, it’s about access to the protection of the law, being able to have your case heard and decided fairly.

The details

Summary of a story from The Financial Times:

3M faces the largest mass tort case in US history, over earplugs that apparently didn’t work and hence were responsible for hearing loss. There are 230,000 personal injury claimants, including many from the military. But, if 3M gets their way, using a controversial bankruptcy strategy, the claimant’s might not get their day in court.

The plan is simple, split the company into two, and ringfence the liabilities in just one of them. The split is commonly known as a Texas Two step, a catchy title that sounds harmless. However, the legal manoeuvre has attracted criticism from Congress, with Senate Democrats saying they will draft a bill to outlaw the move.

Other companies that have used similar strategies include J&J (over claims relating to their baby talc) and French cement group Saint Gobain (over asbestos claims).

Let's take a look at why this is important...

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