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.

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