J&J Spin-Off Company cleared to file for bankruptcy affecting baby powder lawsuits

Those suing Johnson & Johnson, claiming talc-based baby powder caused their cancer, have once again been frustrated. After splitting into two companies, Johnson & Johnson’s subsidiary, LTL Management, can file for bankruptcy.

Under a Texas law, commonly referred to as “Texas Two-Step”, Johnson & Johnson spun off the business and created LTL management. After its inception, Johnson & Johnson gave legal responsibility for baby powder lawsuits to LTL Management. This company was then transferred to North Carolina, where it declared bankruptcy. The bankruptcy filing put all lawsuits against LTL on hold. Some of them baby powder chases sit in court in jury trials close to verdicts.

Bankruptcy suspends baby powder litigation

Opponents argue that LTL’s bankruptcy was a bad faith move designed to shield Johnson & Johnson from the mountain of litigation stemming from their baby powder product. Judge Michael Kaplan ruled that LTL’s bankruptcy could proceed forward. In Judge Kaplan’s ruling, he mentioned that the frustration would be felt by the plaintiffs, but he was optimistic that bankruptcy would be an effective conclusion for those who claim the use of Johnson & Johnson’s talc-based baby powder Johnson caused medical problems.

“The Court is aware that its decision today will be met with great anguish and concern,” Judge Kaplan wrote in his ruling. “The Court remains firmly of the view that justice will be best served by providing prompt and critical compensation through a court-supervised, fair and less costly settlement trust agreement.”

Johnson & Johnson’s stock market valuations put the company’s value at more than $430 billion, with a strong credit rating. Experts believe that J&J’s credit rating is higher than that of the federal government.

Is bankruptcy misused?

Bankruptcy expert David Skeel shared with NPR that, “in an extreme case, a company facing a lot of litigation could place all litigation risk – all those liabilities – with one entity and everything else with the other entity, and the [Texas] the law does nothing to stop this.

Members of Congress have signaled their desire to rewrite the bankruptcy code to limit legal maneuvering, like this tactic by Johnson & Johnson-LTL Management. Illinois Senator Dick Durbin shared this statement, “We must close this loophole for good…Bankruptcy is supposed to be a good faith way to accept responsibility, to pay debts as best you can, then receive a second chance, not a Texas two-step get out of jail card for some of the world’s richest companies like Johnson & Johnson.

Johnson & Johnson Baby Powder Lawsuits

The plaintiffs allege that the use of Johnson & Johnson’s talc-based baby powders has resulted in health risks, including lung, ovarian and other cancers. It is believed that the asbestos was mixed with talc. As a well-known carcinogen, asbestos is almost impossible to eliminate from the body after entering. Once inside an organ, it is impossible to remove it.

As consumers continued to use baby powder and other talc-containing products, growing evidence suggests that Johnson & Johnson knew about the toxic risk of talc and other related products. In 2009, the first complaint against J&J was filed. Since 2009, nearly $3.5 billion has been awarded in verdicts and settlements to plaintiffs whose health has been damaged by the consumer giant’s products. Some of the settlements were overturned as part of the appeal process.

In 2019, many U.S. retailers pulled talc-based baby powder from shelves, mounting evidence that using the product was harming people’s health. It was almost a year later, in 2020, that J&J announced that it was quit talcum based baby powder in the American and Canadian markets. J&J claimed that demand for the product has declined, “largely due to changes in consumer habits and fueled by misinformation about product safety and a constant barrage of litigation-related advertisements.” Talc-based baby powder continues to be sold in other countries.