J&J’s ‘Texas two-step’ talc bankruptcy case heads back to appeals court
In late February, Johnson & Johnson won a controversial case surrounding its bankruptcy filing designed to settle 38,000 lawsuits accusing its talc-based products of causing cancer. However, it appears that bankruptcy case is far from over as the US appeals court has now agreed to revisit that ruling.
The dispute stems from J&J’s use of a “Texas Two-step”: applying a law that enabled it to spin out its liabilities related to the ongoing talc lawsuits into a separate company. That company, known as LTL Management, then filed for bankruptcy — a move that shielded LTL (and therefore J&J) from further judicial action in the talc lawsuits.
The claimants in the case said that J&J’s moves are a misuse of the US bankruptcy code, though J&J maintained that previous companies have done the same.
The lawsuits allege that J&J’s widely-used baby powder and other talc-based products were contaminated with asbestos and caused mesothelioma and ovarian cancer.
Judge Michael Kaplan of New Jersey, where J&J is headquartered, sided with J&J in the bankruptcy case, who said at the time J&J’s filing “with the expressed aim of addressing the present and future liabilities associated with ongoing global personal injury claims to preserve corporate value is unquestionably a proper purpose under the Bankruptcy Code.”
However, Kaplan later granted expedited appeal to the case, allowing it to skip district courts and head directly to the 3rd US Circuit Court of Appeals, which has now agreed to review the case.
J&J stopped selling its baby powder in 2020, though the megapharma said it was due to declining sales. The company has maintained that its iconic talc products do not contain asbestos.
The pharma is also facing a separate lawsuit in New Jersey from the family of a former worker that alleges the company hid evidence of the presence of asbestos at a former J&J subsidiary. In that case, Kaplan ruled that J&J’s bankruptcy filing did not apply.
The mesothelioma claimants committee declined to comment on the appeals update. Johnson & Johnson did not respond to a request for comment before publication.