Earlier this year, the United States Supreme Court refused to overturn a $2 billion verdict against Johnson & Johnson in a lawsuit claiming its talc baby powder caused ovarian cancer in a group of women.
Now, J&J is employing a provision under Texas law—referred to in bankruptcy law as the Texas two step—to avoid liability in talc cases. Last week, J&J created a new company called LTL Management, which purportedly assumed all liability for the talc cases. Then, J& J went to bankruptcy court in North Carolina and put LTL into bankruptcy. On top of that, J&J sought a stay of all talc litigation.
It is common in bankruptcy cases for the court to stay—meaning stop—all pending litigation against a company that goes into bankruptcy. The idea is the bankruptcy court will adjudicate any pending claims against the bankrupt company under the bankruptcy laws. Such procedures almost always limit the money the bankrupt entity will have to pay.
What is different about this situation is that J&J just created a new company in the last couple of weeks specifically for the purpose of going into bankruptcy. And J&J itself is claiming that the direct claims against it should be stopped pending the bankruptcy. In other words, J&J is seeking bankruptcy protection even though it is not bankrupt.
Indeed, J&J itself has plenty of assets—in the hundreds of billions if not more. However, it has not funded this new company with sufficient assets to pay the talc liability. This maneuver appears to be a blatant effort to manipulate the corporate and bankruptcy laws to avoid accountability.
Thus far, these machinations have not worked. The bankruptcy court in North Carolina thus far ruled that J&J failed to establish why it should be protected under the bankruptcy laws. Furthermore, the court questioned why the case was brought in North Carolina instead of in New Jersey, where over 90% of the talc litigation is pending in a multi-district litigation.
Lawyers like ourselves representing ovarian cancer victims in talc litigation continue to pursue these claims and are fighting J&J's efforts to side step legal responsibility.