Appeals Court Decision to Overrule a New Jersey Filtering of the “Texas Two Step” against Johnson & Johnson

The cancer victims asked the appeals court to overrule a New Jersey bankruptcy judge who had allowed LTL’s bankruptcy to continue. LTL’s bankruptcy filing automatically stopped lawsuits from proceeding against it, and U.S. Bankruptcy Judge Michael Kaplan in Trenton, New Jersey ruled in February that LTL’s bankruptcy should also stop talc lawsuits from proceeding against parent company J&J.

The company tried to short-circuit the lawsuits in 2021, using a controversial legal tactic known as the “Texas Two Step.” It first assigned liability for the baby powder complaints to a spin-off company, called LTL Management, then immediately put that company into bankruptcy.

J&J, which maintains and reiterated on Monday that its talc products are safe, created and spun off LTL and assigned its talc liabilities to the unit and placed it in bankruptcy in 2021.

“Applied here, while LTL faces substantial future talc liability, its funding backstop plainly mitigates any financial distress foreseen on its petition date,” said the 56-page opinion by the three-judge panel.

Thousands of people are trying to get rid of Johnson & Johnson because they claim the baby powder it produces is made with a substance that causes cancer. The company insists its baby powder is not harmful. In recent years, the company has reformulated its baby powder, replacing talc with corn starch.

A U.S. Circuit Court of Appeals Denounced a Spinoff Company’s Cosmetic talc Litigation in the Two-Step Strategy

J&J used the Texas two-step strategy to avoid juries in mass tort lawsuits and was criticized by lawmakers and academics who said it could provide a template for other companies to avoid juries.

J&J faced a number of settlements and verdicts, including one in which 22 women were awarded over $2 billion, before it filed for bankruptcy.

More than 1,500 talc lawsuits have been dismissed without J&J having to pay anything, and most of those cases have resulted in defense verdicts or judgments for the company on appeal.

The 3rd U.S. Circuit Court of Appeals dismissed a bankruptcy filing by a Johnson & Johnson spinoff company, ruling that the company was not in genuine financial distress. The court noted that the spinoff company still has access to Johnson & Johnson’s assets, worth an estimated $61.5 billion.

“Bankruptcy courts aren’t a way for rich companies to get out of their responsibilities for harming people”, said attorney Jon Ruckdeschel. “And that’s what was happening here.”

“Our objective has always been to equitably resolve claims related to the Company’s cosmetic talc litigation,” the company said in a statement. The best interests of both the people who have claimed and all of the others who have taken part are best served by quickly resolving this matter.

Georgia Pacific and 3M have tried similar moves to limit their exposure to lawsuits. Legal experts and policymakers are keeping an eye on the cases.

A New Bankruptcy Settlement from a New York High-Dimensional Court of Appeals for a Class of Drug Makers

“We have to close this loophole for good” said Sen. Dick Durbin last year. Bankruptcy is supposed to be a good-faith way to give someone a second chance, and not a Texas two-step method, where you get a jail free card for some of the wealthiest corporations on earth.

A similar case is now pending before a different federal appeals court in New York. The Sackler family of drug makers, who are not bankrupt, could pay more than $6 billion in a settlement under a provision of the deal that federal judges are reviewing.