The possible leverage of the "Texas two-step" is likely having an effect on how Bayer is looking to resolve thousands of lawsuits alleging its herbicide Roundup causes cancer, according to a mass tort litigation expert.
“It's entirely a possibility,” said Ted Frank, senior attorney, and director of litigation with the Hamilton Lincoln Law Institute. “In the absence of a Texas two-step kind of procedure, their liabilities are potentially beyond whatever they paid for Monsanto.”
Bayer acquired Monsanto for $63 billion and is the sole owner of St. Louis-based Monsanto.
The Texas two-step refers to Section 1.002(55)(A) of the Texas Business Organizations Code, in which a corporation is split into two separate entities before filing for bankruptcy - one for handling assets and another for liabilities, such as protracted litigation.
“The allegations are that glyphosate causes harm decades later so it's very hard to settle cases now,” Frank told the St. Louis Record. “To the extent those allegations have any bearing on reality, somebody who comes down with leukemia in 2032, can you settle their case now? Courts are very reluctant to settle those sorts of future claims when people don't even know they might happen.”
The U.S. Supreme Court denied Bayer’s writ of certiorari on June 21 leaving the German conglomerate to pay a $25 million award to a California plaintiff who alleged exposure to the weed killer caused him to develop non-Hodgkin’s lymphoma.
“The fact that Bayer took a $4 billion charge for just the anticipation that the U.S. Supreme Court might not rule in their favor suggests they do recognize some risk but the taking of a charge is just something that generally-accepted accounting principles require and there is no sign that it's definitely going to be $4 million versus $2 billion or $8 billion,” Frank said. “Bayer has won some of these cases and Bayer has lost some of these cases."
Of 138,000 cases, 107,000 cases have been resolved, according to media reports, with Bayer winning four cases at trial.
“There is a future change to the rules of admitting expert evidence in federal court and I imagine Bayer thinks that will help them in some ways,” Frank said. “They challenged the standards by which expert testimony was admitted in this case in the Ninth Circuit and the Supreme Court, and didn't have any success there, but they'll continue to make those challenges.”
However, as previously reported in the St. Louis Post Dispatch, the U.S. Environmental Protection Agency (EPA) was ordered by the 9th U.S. Circuit Court of Appeals to review glyphosate at the request of environmental groups.
“I presume they think the EPA will be more favorable to their view of the scientific evidence under the Biden administration, which is also a risk that Bayer faces because if their whole defense is that the EPA permitted this and then the EPA turns around and says this really is dangerous, that makes Bayer look bad in the trial court,” Frank added.