Courts continue to review J&J’s controversial bankruptcy scheme to avoid liability

Legal experts say Johnson & Johnson’s (NYSE:JNJ) decision to halt future sales and distribution of talc-based products around the world, including its iconic Johnson’s Baby Powder, indicates growing pressure on the company to resolve tens of thousands of legal claims brought by victims of ovarian cancer and mesothelioma.

Numerous scientific studies spanning decades have established the carcinogenic effects of cosmetic talc, while US and Canadian government regulators have called for improved testing techniques for products containing the mineral, especially after independent Food & United States Drug Administration revealed the presence of asbestos in samples of consumer talc. based on powders. Meanwhile, internal company documents presented in trials over the past few years have shown that J&J and its consultants knew about the dangers of the company’s products and took steps to deny or conceal those findings in order to avoid any legal liability.

“J&J finally did the right thing. For decades selling talc products, the company knew that talc could cause deadly cancers to unsuspecting women and men around the world,” says Leigh O’Dell of the Beasley Allen law firm in Montgomery “They stopped sales in North America over two years ago and blamed that decision on litigation. The delay in taking this action is inexcusable. I cannot only to hope that J&J will now do the following right: take responsibility and adequately compensate the victims they have unnecessarily injured.”

The vast majority of the more than 38,000 cases filed by ovarian cancer victims against J&J have been consolidated into multidistrict litigation in federal court in New Jersey, and landmark trials were scheduled to begin last spring. Those proceedings were put on hold at the end of 2021 when the company elected to pursue a controversial “Texas Two-Step” bankruptcy.

This scheme involved the creation of a new shell company to hold all talc-related liabilities before putting this entity into bankruptcy. If successful, the tactic would allow Johnson & Johnson to avoid paying cancer victims and protect a market capitalization of around half a trillion dollars. Due to the bankruptcy, all lawsuits by MDL and others filed in state courts are currently on hold.

The two-step decision raised eyebrows in Congress, where representatives began discussing potential changes to bankruptcy laws that would prevent this kind of consumer harm in future cases.

“The potential loss of a jury trial is not a mere byproduct of filing; the sole purpose of bankruptcy is to remove tort plaintiffs from the tort system and disenfranchise them against extraordinarily wealthy and highly creditworthy entities,” wrote Erwin Chemerinsky, dean of the University’s Berkeley School of Law. of California, in a brief filed with the bankruptcy court.

“The Debtor is a newly created shell, with no business to restructure, no operations to rehabilitate, and no customers or real employees to serve. In short, the Debtor has no reorganization goals,” he noted in the brief, one of many filed by constitutional scholars raising concerns about “two stages.”

The merits of the bankruptcy and the accompanying stay of litigation imposed by the bankruptcy court will be considered by the United States Court of Appeals for the Third Circuit at a hearing on September 19.

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