Ap­peals court toss­es J&J's con­tro­ver­sial 'Texas two-step' bank­rupt­cy case

A US ap­peals court has ruled against John­son & John­son’s use of bank­rupt­cy to deal with mount­ing talc law­suits, de­cid­ing that do­ing so would “cre­ate a le­gal blind spot.”

The Third Cir­cuit Court of Ap­peals re­versed a pre­vi­ous bank­rupt­cy court de­ci­sion on Mon­day, call­ing for the dis­missal of a Chap­ter 11 fil­ing by J&J’s sub­sidiary LTL Man­age­ment.

Faced with more than 38,000 law­suits al­leg­ing its talc-based prod­ucts caused can­cer, J&J spun its talc li­a­bil­i­ties in­to a sep­a­rate com­pa­ny called LTL Man­age­ment back in Oc­to­ber 2021 and filed for bank­rupt­cy, a con­tro­ver­sial move col­lo­qui­al­ly re­ferred to as a “Texas two-step” bank­rupt­cy. Claimants ar­gued that the strat­e­gy is a mis­use of the US bank­rupt­cy code — and on Mon­day, a pan­el of judges agreed.

Unlock this article instantly by becoming a free subscriber.

You’ll get access to free articles each month, plus you can customize what newsletters get delivered to your inbox each week, including breaking news.

SIGN UP LOG IN BECOME A PREMIUM SUBSCRIBER