By: Nicola Peters
Johnson & Johnson (J&J) has been a leading pharmaceutical and health products and medical device company worldwide for over 135 years.[i] Consumers can recognize their brands stocked on pharmacy shelves, with its name on everything from Band-aids to Covid-19 vaccines.[ii] Despite their wide recognition and innovative contributions to the health field, the company also gained enormous notoriety from its constant legal woes.[iii] The pharmaceutical giant has been plastered on headlines frequently with billion-dollar verdicts.[iv]
In one case, in particular, the jury awarded a punitive damage award of $4.7 billion for women claiming that the “regular use of J&J’s talc-based powder caused their ovarian cancer.”[v] Once the Supreme Court declined to review this exorbitant punitive damage award, which the appellate court found appropriate due to “’significant reprehensibility in (J&J’s) conduct,’” for exposing “consumer to asbestos over several decades,” talc litigation seemed to reach a critical point cost-wise.[vi]
Johnson & Johnson currently still faces nearly 40,000 of these lawsuits against its’ baby powder, and with the severity of the damage verdicts thus far, the company is scrambling for a different legal strategy capable of dealing with this mass of litigation that has severe implications for the company.[vii] One strategy the company is attempting is a bankruptcy maneuver dubbed the “Texas Two-Step,” and it has sparked debate across the nation.[viii]
Using this controversial strategy, LTL Management was created in October 2021 when JJCI (a Johnson & Johnson’s consumer division subsidiary) divided itself into two new entities, assigning one its talc assets and the other billions in talc liability.[ix] LTL Management was subsequently converted into a North Carolina corporation and filed for Chapter 11 bankruptcy two days later.[x] The talc injury liability of the Johnson & Johnson subsidiary was then transferred to New Jersey Federal Court for multi-district litigation proceedings.[xi]
This new spinoff is extremely problematic and should not be permitted to proceed because it steers cancer patients seeking compensation for their claims against Johnson & Johnson “away from juries and into bankruptcy claims processes” and closes off the company to future talc liabilities.[xii] In the past, victims of “’traditional’ asbestos defendants” faced a similar fate when asbestos manufacturers went bankrupt, leaving plaintiffs to sue independent stores that sold the dangerous product in order to recover and others to receive compensation for their injuries, which was not always possible.[xiii] Therefore if the past is any indication, these bankruptcy proceedings will preclude recovery for plaintiffs.
Further, Johnson & Johnson “offered to contribute $2 billion toward resolving remaining talc litigation as part of the newly created subsidiary’s bankruptcy reorganization.”[xiv] This number would not cover the entirety of even one of the current verdicts the company faces, an indication that the near 40,000 claims currently awaiting litigation would result in little to no compensation for these victims.[xv]
Even legislators have decried Johnson & Johnson’s latest moves, accusing the financially healthy company of manipulating the bankruptcy system without filing for Chapter 11 protection itself.[xvi] To interrupt this shady litigation practice, the House Judiciary Committee sent a bill to the floor for a vote specifically targeting the Johnson & Johnson “style divisive mergers in Chapter 11 to the floor” for a vote.[xvii] The main intent behind the bill is to prevent these “bankruptcy plans that force creditors to release nondebtor parties from liability.”[xviii] Most importantly, the bill would also demand It would also “the dismissal of Chapter 11 cases brought by companies formed from divisional mergers that ‘had the intent or foreseeable effect of’ splitting assets from or assigning all of a company’s liabilities to the entity entering bankruptcy,” which would cripple Johnson & Johnson’s current approach to its’ talc liabilities.[xix]
Whatever the merits of the current talc litigation and liability may be on Johnson & Johnson’s behalf, the current “Texas Two-Step” bankruptcy maneuver should not be allowed to proceed.[xx] This process allows big business to undermine and abuse laws to protect against liability while leaving vulnerable victims with very few avenues to recover for their injuries before even stepping foot in front of a jury.[xxi]
[i] Carly O’donnell, How Johnson & Johnson Became the Sprawling Healthcare Giant it is Today, REUTERS LEGAL (Nov. 12, 2021, 3:37 PM), https://www.reuters.com/business/healthcare-pharmaceuticals/how-johnson-johnson-became-sprawling-healthcare-giant-it-is-today-2021-11-12/ [https://perma.cc/4LML-A4KR].
[ii] Id.
[iii] Id.; Ariana de Vogue & Jen Christensen, Supreme Court Won’t Review $2 Billion Verdict Against Johnson & Johnson in Talc Powder Case, Cable News Network, https://www.cnn.com/2021/06/01/politics/johnson--johnson-supreme-court-2-billion-verdict/index.html (last updated June 1, 2021, 12:35 PM)[https://perma.cc/R3U8-HEGR].
[iv] Vogue & Christensen, supra note iii.
[v] Id.
[vi] Id.
[vii] Mike Spector, Factbox: J&J’s Legal Strategy for Baby Powder, Talc Liability, REUTERS, https://www.reuters.com/business/healthcare-pharmaceuticals/jjs-legal-strategy-baby-powder-talc-liability-2021-11-12/ (last updated Nov. 12, 2021, 10:15 AM) [https://perma.cc/Z3MN-3FAN].
[viii] Id.
[ix] Vince Sullivan, J&J Talc Liability Unit’s Ch. 11 Transferred to NJ, LAW360 (Nov. 10, 2021, 3:09 PM), https://www.law360.com/articles/1439777 [https://perma.cc/4EXK-M2E5].; Johnson & Johnson Takes Steps to Equitably Resolve all Current & Future Talc Claims, Johnson & Johnson (Oct. 14, 2021), https://www.jnj.com/johnson-johnson-takes-steps-to-equitably-resolve-all-current-and-future-talc-claims [https://perma.cc/RJ4P-CRDT].
[x] Sullivan, supra note ix.
[xi] Spector, supra note vii.; Steve Korris, Bankruptcy Judge Resists J&J’s Move to Resolve 35,000 Talc Lawsuits in Charlotte: Transfer to NJ Pending, Madison – St. Clair Rec. (Oct. 26, 2021), https://madisonrecord.com/stories/610093744-bankruptcy-judge-resists-j-j-s-move-to-resolve-35-000-talc-lawsuits-in-charlotte-transfer-to-nj-pending [https://perma.cc/RZY8-MBV7].
[xii] Rick Archer, Decision Delayed on Whether Talc Spinoff Stay Shelters J&J, LAW360 (Jan. 10, 2022, 3:34 PM), https://www.law360.com/articles/1454039/decision-delayed-on-whether-talc-spinoff-stay-shelters-j-j [https://perma.cc/KSM9-M2MF].
[xiii] See Francis E. McGovern, Asbestos Litigation I: A Defined Contribution Plan, 71 TENN. L. REV. 155, 155-56, (2003).
[xiv] Spector, supra note vii.
[xv] Id.
[xvi] Rich Archer, House to Consider Curbin Purdue-Style Ch. 11 Releases, Law360 (Nov. 3, 2021, 2:54 PM), https://www.law360.com/articles/1437315/house-to-consider-curbing-purdue-style-ch-11-releases [https://perma.cc/G69K-49NS].
[xvii] Id.
[xviii] Id.
[xix] Id.
[xx] Sullivan, supra note ix.
[xxi] Id.; Archer, supra note xvi.