Most people are familiar with class action lawsuits and the ads that promote them with phrases like, "if you bought this product, you may be entitled to compensation; if you or a family member developed a serious illness and used this product, call this law firm." But how these lawsuits work, and what does the process of getting compensation look like?
Christopher Stombaugh is a trial lawyer based in Platteville, Wisconsin, who’s currently working on a class action lawsuit against General Motors (GM), over an engine defect that caused many of their cars to prematurely age. The defect cost owners thousands of dollars in repairs, and despite prior knowledge of the defect, Stombaugh says GM wasn't forthcoming with its customers and made the process prohibitively time-intensive to avoid accountability.
"It would be a very exhaustive process. This is like the game of Survivor. GM claimed, 'Well, only 3% of people had this repair.' But only 3% of people outlasted, outwitted General Motors to be able to do this," he says.
The process had to be initiated by customers and GM required them to repeatedly test the oil consumption of the vehicle. Stombaugh says it took so long that many customers reached the end of their warranty before they were able to get the repair. Since GM didn't inform customers of the issue, many were unaware of the issue and falsely attributed the engine damage to other issues.
GM was ordered to pay its customers $102.6 million, meaning each customer on the class action lawsuit will get $2,700. But many companies have a way of avoiding the financial consequences of negligence through a process called, "the Texas Two-Step."
Stombaugh explains, "A Texas Two-Step in the bankruptcy world means that [for example,] I have a company which has real assets and I'm also facing serious litigation. And so what I've decided to do is I form a little, smaller company (subsidiary,) and I give it a bunch of paper assets or nominal assets which are not worth very much. And then I give it all the liability that I'm facing right now."
The subsidiary company then declares bankruptcy also immediately after opening, allowing it to claim it doesn't have the money to pay these damages. Currently, Johnson & Johnson has been attempting a Texas Two-Step in litigation over its talc powder, which has been linked to cancer. Although the Third District Court denied its initial bankruptcy claim, the company is once again attempting to declare bankruptcy using the Texas Two-Step and avoid paying damages.
Stombaugh says allowing companies to do this would effectively remove consumer's ability to hold companies accountable.
He explains, "You would have a bunch of bankruptcies being filed all over the place by companies which in the case of J&J, actually have substantial assets."
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