Great to hear. Stuff like this degrades basically belief that we presently have rule of law in America.
Imagine trying to pull this shit as an individual. You burn down some apartment complex and then just create an empty company and assign all of your liabilities to that company and say "you've got to sue them, I've got no liability here". You'd get laughed out of the courtroom. But this came pretty close to working for J & J.
When I see looters lighting businesses on fire or breaking windows, I tend to think back to stuff like this or civil forfeiture and say "seems fair". I think the establishment underestimates the extent to which normal people hold this doctrine and feel ok with an all means are justified attitude because they've heard too many stories like this where the law doesn't apply to powerful interests.
One egregious example of this are the mining companies which create a toxic mess and then let the shell company go bankrupt. I can't imagine going into any community downstream of that and saying that the law protects them knowing that not a single penny of the extracted value will be recovered.
Honestly, I don't really see the relevance. It's mixed, but that being said, J&J (sorry, LTL) have been found in multiple civil courts to be, by the rules of those courts, to be liable.
It's a cake-and-eat-it. "Oh, we are more than happy to use the letter of the law to create a shell company with the intent to bankrupt it for liability sake", but "oh, just because we went to trial and lost, repeatedly, doesn't mean that we're actuaaaaally liable".
Yeah, I'm not saying there's a 1:1 correspondence in the level of harm but rather that the corporate structure to shirk legal responsibility seems very similar. They had the opportunity to make the case that the scientific evidence was weak repeatedly and were unsuccessful, so it seems like they should be expected to honor the rules of the court or stop doing business in the United States.
Our entire legal system is based on the idea that both parties respect the court's decision (or appeal it, of course) and it seems really dangerous to allow the party with the most power to unilaterally opt out of that when it'll save them money.
>When I see looters lighting businesses on fire or breaking windows, I tend to think back to stuff like this or civil forfeiture and say "seems fair"
It seems "fair" that some random business owner has their place of business burned down because of the shenanigans that Johnson & Johnson is up to? The only way this can remotely be considered "fair" is if looters only set Johnson & Johnson buildings on fire, and somehow the employees working in those buildings aren't affected.
The absurdity of the looting example illustrates the absurdity of modern jurists channeling the original intent of people who died 200 years ago or selectively granting the rights of citizenship (without responsibility) to fictitious legal entities. Or in this case, playing a shell game with assets.
J&J’s officers chose to continue to sell a product that was known to be harming people. They could have stopped or limited the sale of the product and replaced it with a less hazardous version. But they chose not to. Why would the failure of the company’s board and management to manage risk be rewarded?
They probably figured they would get away with it is a similar strategy to how Phillip Morris bought Kraft Foods years ahead of litigation and spun out Altria to own the tobacco business.
>The absurdity of the looting example illustrates the absurdity of modern jurists channeling the original intent of people who died 200 years ago or selectively granting the rights of citizenship (without responsibility) to fictitious legal entities.
1. Contrary to all the "corporations are people too" memes you see everywhere, corporations definitely do not have "the rights of citizenship".
2. If you're talking about "Citizens United v. FEC", the reason behind the ruling isn't that "corporation are people too", it's that "corporations and unions are composed of people, and the federal government can't limit speech of people just because they're in an organization".
>Or in this case, playing a shell game with assets.
In what sense is this a constitutional matter? AFAIK the reason why J&J can pull this off is due to a loophole in texas corporation law. I'm not sure whether "the original intent of people who died 200 years ago " is relevant here.
>J&J’s officers chose to continue to sell a product that was known to be harming people. They could have stopped or limited the sale of the product and replaced it with a less hazardous version. But they chose not to. Why would the failure of the company’s board and management to manage risk be rewarded?
How does this have anything to do with whether it's "fair" for "looters lighting businesses on fire or breaking windows"?
No, I don't think that's fair. I'm talking when it's large businesses. Keep in mind, I'm not espousing a legal doctrine here. I'm just saying that's what my gut reaction is.
So I feel bad for a small business owner who get's affected and just see them as collateral damage in the other issue
> No, I don't think that's fair. I'm talking when it's large businesses.
That seems like a pretty important point to omit, don't you think? Moreover, I addressed this point in my original comment. Sure, the business loses a few million dollars in damages, but what about all the previous employees that were displaced? Were they acceptable collateral damage? What about "large businesses" that won't engage in such behavior? Do you think they're acceptable collateral damage as well and/or that all "large businesses" would engage in such behavior?
>Keep in mind, I'm not espousing a legal doctrine here. I'm just saying that's what my gut reaction is.
Don't you think, we as a society should expect that whatever people are espousing something publicly, that they should have given thought/consideration that's above "gut reaction"?
No, but it seems "fair" that the looters and criminals don't get punished. If we choose to not enforce the law for some, we're choosing not to enforce the law period.
If society wants the laws to not apply to corporations beyond some market capitalization, we'll have to explicitly write that into the laws.
> No, but it seems "fair" that the looters and criminals don't get punished. If we choose to not enforce the law for some, we're choosing not to enforce the law period.
What's your line of reasoning here? Because we're not properly enforcing civil judgements on J&J, it's therefore "fair" for unrelated people to suffer losses, and for criminals to commit property crimes with impunity? If I pulled a gun on you right now and demanded that you hand me your phone and laptop, would you also consider that fair for the same reason?
If the law doesn't protect regular folks, regular folks won't (and shouldn't) respect the law. Living in the Wild West is unfair in many ways, but living in a kleptocracy is even more so.
> If I pulled a gun on you right now and demanded that you hand me your phone and laptop, would you also consider that fair for the same reason?
Pretty sure threatening to shoot and shooting someone is not merely a property crime. Especially not one against a business, which seems to be critical to the context here.
A better comparison that would related to what we likely do around here would be something like "I 'hack' into your Git server and copy your source code and ransom it off." This is also criminal.
Indeed, if you want to change the scope and context, then one could argue that companies are already out there killing people, and by participating and supporting the system that upholds the companies doing that, you are therefore contributing to that killing. Meaning you are not innocent. But I wouldn't want to do that, so let's not.
>Pretty sure threatening to shoot and shooting someone is not merely a property crime. Especially not one against a business, which seems to be critical to the context here.
Fair point. How about I burgle your house instead?
If J&J ultimately wins this, maybe I should form an LLC to take ownership of my car and house just in case I do something in the future where I have massive liability just so I can pull this stunt.
I was actually just wondering what is stopping companies from forming separate LLCs for every product line or even product? I mean at some point the administrative overhead is not worth it but 100-1000 individual LLCs seems pretty trivial to manage for a fortune 500 company and that cuts your liability massively if you are able to effectively distribute assets.
It's pretty common in the financial world. The US government doesn't offer zero-coupon bonds, so the big banks create special purpose vehicles that buy US government bonds, split the cash flows into the strips and the zero-coupon bonds, and sell them separately. If some pork belly futures trader wipes out the bank, at least in theory, the special purpose vehicle outlives the rest of the bank and keeps paying out those cash flows, and the pork belly creditors don't get those zero-coupon bonds you bought.
At least, I think that's the way it's supposed to work. I used to work at Goldman, and at some point, someone told me that the number of legal entities was roughly the number of employees. I'm not sure how true that was, but I'd believe it.
There are some good reasons to allow these separate legal entities, to allow orderly partial collapses of businesses to reduce the risk of cascading systemic failures. There's also something to be said about either keeping businesses small enough that failure of a handful of them won't collapse markets, or else single-purpose enough that they have less direct effects on multiple markets. The flip side is that diversification across markets should tend to stabilize firms, and larger firms are also more able to effectively diversify.
This is essentially what movie studios do: a separate, new company produces each film. (Here though the main goal isn’t liability, it’s to insulate the BigCo from losses, and avoid paying those that made the film that don’t have star contracts.)
For a corporation with thousands of employees and R&D labs, etc, the administrative overhead has to be massive. Like working for Alphabet times 100. An employee would be switching their legal employer every few months, every time they switch teams, all the time; new payroll, new health plan enrollment, etc. People would just Nope the F out of that place.
Surely you'd just be employed by the internal HR company and on the books each product company would be contracting your services according to timesheets.
It's pretty easy to pierce the corporate veil for these separate but not really separate LLCs. They have to be bona fide separate companies to enjoy the LLC protection.
Yeah, but then the internal HR company has all the money and also has all the liability. So you've gained nothing for all that administrative headache.
Real estate is a special situation with lots of subcontracting. They can make it work. In big multi-unit residential cities like NYC and Chicago, the doorman in that high-rise is in a union that provides all his benefits and has a set pay scale. The building ownership just contracts all that stuff out to the union. But that doorman can go work in some other building owned by some other owner too. You don't want that happening with your corporate employees developing and managing your consumer products.
This is effectively how all real estate works. I'm not quite sure why this doesn't work for things like software, but from my understanding owning actual property makes it significantly more possible / legal.
this is different, the actual underlying asset is at stake for liabilities it causes. This is the whole point of corporations.
The analogy would be if a landlord created a shell company, and then only gave that company it's legal liabilities without any assets. That's what J&J did here and why this case is so obviously egregious.
If you could do that, it would be a get out of jail free card for all legal liability in all cases. It's essentially renouncing rule of law
That exact strategy is very common for owners of small general aviation aircraft. From what I understand it is primarily for liability reasons just like you propose.
There's a secrecy reason as well for some (the FAA registry will show "N1234, LLC" as the owner) as well as a sales tax avoidance reason for others. ("I didn't buy an airplane for which I'd owe sales tax on; I bought a company for which no sales tax is due.")
In the case of liability avoidance, it's hard to do if the (real-world human) owner of the airplane is also the pilot at the time of any accident. They might not be able to sue you as the owner, but they can still sue you/your estate as the pilot, or the person who oversaw the maintenance, etc.
Many people where I am own GA aircraft as a syndicate - everyone is a shareholder in a company and you get x hours per year of flight time per share, and have to pay your share of the costs.
I imagine that the limited liability helps if there are say 20 people in the syndicate and you own a share of it. One of the other members can crash the aircraft into something expensive, and as long as it had nothing to do with you or your negligence, you shouldn't be liable beyond your share value going to 0 (or having to pay up any unpaid capital to the book value of your share)
An unincorporated partnership would make this much riskier.
In Australia, it's fairly common for builders to incorporate a company for the sole purpose of putting up a shitty building, then have it file bankruptcy once the repair bills and lawsuits start flying, leaving property owners holding the bag. Rinse and repeat.
Imagine trying to pull this shit as an individual. You burn down some apartment complex and then just create an empty company and assign all of your liabilities to that company and say "you've got to sue them, I've got no liability here". You'd get laughed out of the courtroom. But this came pretty close to working for J & J.
When I see looters lighting businesses on fire or breaking windows, I tend to think back to stuff like this or civil forfeiture and say "seems fair". I think the establishment underestimates the extent to which normal people hold this doctrine and feel ok with an all means are justified attitude because they've heard too many stories like this where the law doesn't apply to powerful interests.