The encyclopedia · Legal & Compliance · Legal decision · 2023
J&J moved its talc liabilities into a new company, then put that company into bankruptcy
Facing tens of thousands of talc claims, J&J split off the liabilities into a new entity and filed it for Chapter 11. Courts dismissed the case — twice.
Johnson & Johnson · 2023-04
What happened
Johnson & Johnson faced tens of thousands of personal-injury claims alleging that its talc body powders caused ovarian cancer and mesothelioma. The company has consistently maintained that its talc is safe and does not contain asbestos, and the causation question remains contested in court.
In October 2021 it restructured: the consumer subsidiary that carried the talc liabilities ceased to exist, and three new entities were created. One of them, LTL Management, received the talc liabilities and little of the operating business. Two days later LTL filed for Chapter 11, which stayed every talc case at once.
The manoeuvre — splitting liabilities into a new company and bankrupting it — is known as the Texas two-step. Claimants moved to dismiss on the grounds that LTL was not in financial distress. The Third Circuit agreed in 2023 and the case was dismissed; a second filing, with a proposed $8.9 billion settlement, was dismissed as well. J&J's own 10-K sets out the sequence.
Why it happened
- A restructuring designed to reach bankruptcy protection has to survive the question of whether the debtor was actually in distress.
- The stay bought time but concentrated every claim into one proceeding, with one outcome.
- The strategy became the story: the manoeuvre drew more scrutiny than the underlying claims.
- Two years of litigation about the forum produced no resolution of the claims themselves.
The lesson
A legal structure that only works if a court accepts a novel reading of it is a bet, not a shield. Losing it costs the years you spent arguing for it and leaves the original problem untouched.
Aftermath
Both bankruptcy filings were dismissed and the talc claims returned to the tort system. The Texas two-step drew Congressional attention and appellate scrutiny of whether a solvent company may use Chapter 11 to resolve mass tort liability.
Sources
- Johnson & Johnson — Wikipedia (talc lawsuits, settlement)
- Johnson & Johnson — FY2023 Form 10-K (talc litigation and proposed $8.9B settlement)
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