J&J Spin-Off Company Allowed to Proceed with Bankruptcy Affecting Baby Powder Lawsuits

Those suing Johnson & Johnson, claiming talc-based baby powder caused their cancer found themselves frustrated again. After separating into two companies, Johnson & Johnson’s subsidiary LTL Management can proceed with its bankruptcy filing.

Under a Texas law, commonly known as the “Texas Two-Step,” Johnson & Johnson separated the company and created LTL Management. After its creation, Johnson & Johnson assigned legal liability for baby powder lawsuits to LTL Management. This business was then moved to North Carolina, where it declared bankruptcy. Filing for bankruptcy paused all lawsuits against LTL. Some of these baby powder lawsuits are sitting before the court in jury trials close to verdicts.

Bankruptcy Pauses Baby Powder Litigation

Opponents argue that LTL’s bankruptcy was a move in bad faith to protect Johnson & Johnson from the mountain of litigation originating from their baby powder product. Judge Michael Kaplan ruled that LTL’s bankruptcy can continue to move forward. In Judge Kaplan’s decision, he referenced that frustration would be felt by plaintiffs but was optimistic that bankruptcy would be an efficient conclusion for those who claim the use of Johnson & Johnson’s talc-based baby powder caused medical problems. 

“The Court is aware that its decision today will be met with much angst and concern,” Judge Kaplan wrote in his decision. “The Court remains steadfast in its belief that justice will best be served by expeditiously providing critical compensation through a court-supervised, fair, and less costly settlement trust arrangement.”

Market valuations of Johnson & Johnson estimate the company’s worth to be more than $430 billion, with a strong credit rating. Experts believe that J&J’s credit score to be higher than the federal government’s score. 

Is Bankruptcy Being Misused?

Bankruptcy expert David Skeel shared with NPR that, “in an extreme case, a company that’s facing a lot of litigation could stick all the litigation exposure — all of those liabilities — into one entity and stick everything else into the other entity, and the [Texas] statute doesn’t do anything to stop that.”

Members of Congress have shared that they wish to rewrite the bankruptcy code to limit legal maneuvers, such as this Johnson & Johnson-LTL Management tactic. Illinois Senator Dick Durbin shared this statement, “We need to close this loophole for good…Bankruptcy is supposed to be a good-faith way to accept responsibility, pay one’s debts as best you can, and then receive a second chance, not a Texas two-step, get-out-of-jail-free card for some of the wealthiest corporations on earth like Johnson & Johnson.” 

Johnson & Johnson Baby Powder Lawsuits

Plaintiffs allege that the use of Johnson & Johnson’s talc-based baby powder products caused health risks, including lung, ovarian and other cancers. It is believed that asbestos was mixed with talc. As a well-known carcinogen, asbestos is nearly impossible to remove from the body after it enters. Once inside an organ, it is impossible to remove.

As consumers continued to use baby powder and other products containing talc, mounting evidence suggests that Johnson & Johnson knew of the toxic risk of talc and other associated products. In 2009 the first case against J&J was filed. Since 2009 nearly $3.5 billion has been awarded in verdicts and settlements to those plaintiffs whose health was harmed by the consumer giant’s products. Some of the settlements have been overturned in the appeals process.

In 2019, many U.S. retailers removed the talc-based baby powder from shelves as mounting evidence that using this product harmed people’s health. It was nearly a year later, in 2020, that J&J announced that it was discontinuing the talc-based baby powder in the U.S. and Canadian markets. J&J claimed that demand for the product decreased, “in large part to changes in consumer habits and fueled by misinformation around the safety of the product and a constant barrage of litigation advertising.” Talc-based baby powder continues to be sold in other countries.