Plaintiffs accuse J&J of ‘Texas Two-step’ in bankruptcy case

Pharmaceutical giant Johnson & Johnson should not be allowed to escape 40,000 talcum powder lawsuits by creating a shell company and filing for bankruptcy two days later, a coalition of plaintiff attorneys said Wednesday in a motion to dismiss a bankruptcy case in New Jersey.

"Simply put, J&J ... seek to exploit Chapter 11 to deprive tens of thousands of individuals suffering from ovarian cancer and mesothelioma due to J&J's products, their day in front of a jury," the motion to dismiss reads.

It comes weeks after several members of congress, including Sen. Elizabeth Warren of Massachusetts, wrote a letter to J&J's CEO, Alex Gorsky, urging him to end the bankruptcy, that would allow J&J to pay $2 billion in exchange for a shield against current and future talc claims. Congress members called it an effort to exploit and "manipulate the bankruptcy law," in their letter.

J&J faces some 38,000 lawsuits consolidated in California and New Jersey, claiming the company's baby powder contains asbestos and causes ovarian cancer and mesothelioma. The company has for years denied its products cause cancer and said it has won the majority of cosmetic talc-related jury trials.

However, after losing a number of significant jury trials as lawsuits continue to pour in, J&J in October announced the creation and the bankruptcy of a new liability-holding subsidiary. Using a Texas divisive-merger statute, J&J dissolved one of its baby powder-making subsidiaries on Oct. 12. Two days later, it created two new companies: Johnson & Johnson Consumer Inc. and a North Carolina company called LTL Management LLC.

All the debts and liabilities from the talcum powder litigation will go into LTL management, and the new J&J CI will continue operating as usual, according to J&J's state plan. In re: LTL Management LLC, 21-30589 (W.D. N. Carolina Bankruptcy Ct., filed Oct. 14, 2021).

Plaintiffs' attorneys from the Official Committee of Tort Claimants of LTL Management, LLC, such as Oakland attorney Joseph D. Satterley of Kazan, McClain, Satterley & Greenwood APLC, called the J&J strategy the "Texas Two-Step."

"It's obviously a bankruptcy filed in bad faith. J&J is worth over $400 billion. J&J CI is worth over $60 billion, yet they are using the bankruptcy courts as a litigation tactic to avoid juries deciding the merits of a case, and they're doing it to people that are dying of cancer. People that are at their last several months or weeks before they die," Satterley said.

LTL's attorney, Gregory M. Gordon of Jones Day, did not respond to a request for comment, Wednesday.

Corporate bankruptcies have received heavy criticism this year from congress members and others who say it has become a way to escape major tort litigation. California Attorney General Rob Bonta and others are challenging opioid maker Purdue Pharma's bankruptcy after thousands of lawsuits were filed accusing it of fueling the opioid crisis.

As it stands, Purdue will escape all liability in the nationwide opioid litigation, after White Plains Bankruptcy Judge Robert Drain allowed the company's founder, the Sackler family, to pay $4.5 billion.