Appeals Court Ruling on Talc Suits

Posted on Friday, February 10th, 2023 at 10:13 am    

A U.S. appeals court rejected Johnson & Johnson’s bankruptcy filing, the company’s attempt to transfer tens of thousands of talcum powder lawsuits against it into bankruptcy court. The denied request is the first significant ruling on cases involving the strategy corporations are beginning to use to stop pending legal action against them.

Johnson & Johnson is one of four major corporations that have filed for bankruptcy to avoid the consequences and exposure of a lawsuit. The legal strategy involves establishing an independent company owned by a parent company to take on the liability and filing for Chapter 11 bankruptcy immediately after.

The court’s ruling indicated the manufacturer placed its subsidiary into bankruptcy despite no financial hardship. The initial filing aimed to stop over 38,000 lawsuits from proceeding.

Plaintiffs filed these lawsuits alleging that the company’s baby powder and other talc-based products contained asbestos, a cancer-causing mineral. With the court’s ruling, plaintiffs can proceed with their lawsuits.

Failed Attempts at a Texas Two-Step

“Texas two-step” is the term people are using to refer to this maneuver companies are using to manage their exposure to pending legal claims. The scheme involves creating a separate legal entity to hold a company’s tort liabilities and a small portion of business assets. The new corporation files for bankruptcy to shield the parent or holding company from the cost of those tort liabilities.

The Third U.S. Circuit Court of Appeals in Philadelphia dismissed the bankruptcy case, initially filed by the subsidiary in 2021. Before filing, the manufacturer faced $3.5 billion in settlements and verdicts.

Some legal experts and attorneys for the plaintiffs involved in the suits argued the two-step strategy might set a dangerous precedent. It shows other corporations the possibility of avoiding unwanted litigation by implementing the maneuver themselves.

The appeals court decision might cause companies to rethink whether they want to attempt the Texas two-step strategy.

Reaction to the Bankruptcy Ruling

When a company files for bankruptcy, it suspends currently pending lawsuits in the trial court, requiring plaintiffs to move their cases into bankruptcy court and participate in time-consuming settlement negotiations.

The bankruptcy ruling against Johnson & Johnson doesn’t affect the bankruptcies pursued by subsidiaries of Trane Technologies, Georgia Pacific, and multinational construction corporation Saint-Gobain. These cases, also using the two-step plan, are in the 4th Circuit appeals court’s jurisdiction.

According to a statement by Saint-Gobain, the company believes its subsidiary will resolve the pending cases with asbestos claimants fully and fairly. The 3rd circuit court’s ruling does not affect Saint-Gobain’s subsidiary’s Chapter 11 bankruptcy filing.

The other two corporations didn’t comment on the recent ruling, having defended the bankruptcy strategy previously as an adequate method of paying claims fairly.

However, attorneys for Johnson & Johnson lawsuit plaintiffs argued the Texas two-step manipulates the bankruptcy system.

Panel Rules Illegitimacy of Bankruptcy

Johnson & Johnson is a multinational corporation based in New Jersey with a value of over $400 billion. The company claims its subsidiary initiated the bankruptcy case in good faith and pledged $2 billion for resolving the talc lawsuits.

The appeals court’s three-judge panel found Johnson & Johnson created its subsidiary LTL Management specifically to file for Chapter 11 despite having no legitimate reason for bankruptcy protection. The panel ruled only debtors in financial distress qualify for bankruptcy.

The panel also discussed Johnson & Johnson’s plan to give LTL money to pay talc claims. The company’s good intentions to protect its brand or resolve litigation aren’t enough to justify bankruptcy. When LTL filed, it was a solvent company with access to the necessary financial resources to meet its liabilities easily.

Two-Step Strategy Sparks Criticism from Lawmakers

Johnson & Johnson might have to fight the lawsuits it faces in the trial courts for many years. Its track record is inconsistent to date. Despite significant judgments against the company before filing for bankruptcy, the courts also dismissed over 1,500 lawsuits. The cases that proceeded to trial resulted in verdicts favoring Johnson & Johnson, mistrials, or favorable judgments on appeal.

The law firm Jones Day has helped other corporations pursue two-step bankruptcies to manage lawsuits related to asbestos injuries. Johnson & Johnson hired the firm for representation in pending litigation.

In Washington, Democratic lawmakers criticized the questionable legal strategy, prompting proposed legislation to restrict it.

Rhode Island Democratic Senator Sheldon Whitehouse supports the appeals court ruling against the bankruptcy filing. Last year, he chaired the first congressional hearing to investigate two-step bankruptcy maneuvers. He said filing for bankruptcy allows honest debtors a fresh start when facing financial hardships. It’s not supposed to help profitable corporations avoid liability for misconduct.

Holding Johnson & Johnson Liable for Cancer-Causing Products

Talc is a mineral found in talcum powder. It consisted primarily of silicon, magnesium, and oxygen. Many products contain talc in powder form because it absorbs moisture and minimizes friction effectively. However, researchers discovered asbestos in many talc-based products. The International Agency for Research on Cancer (IARC) classifies asbestos as carcinogenic to humans. That means it can cause cancer.

The U.S. Food and Drug Administration (FDA) tested baby powder samples in one bottle purchased from an online retailer and discovered sub-trace levels of chrysotile asbestos contamination. Johnson & Johnson responded to test results by voluntarily recalling a single lot of the product in the United States. The company also plans to manufacture baby powder with cornstarch instead of talc despite its claims that talc-based products are safe.

You might be eligible for a lawsuit against Johnson & Johnson if you used talcum powder or a similar talc-based product and developed medical conditions, such as:

  • Cervical cancer
  • Uterine cancer
  • Mesothelioma
  • Lung cancer
  • Endometrial cancer
  • Respiratory illness
  • Fallopian tube cancer
  • Ovarian cancer

Seek Justice with Help from Attorney Tom

At Attorney Tom, our defective products attorneys believe in fighting for clients harmed by others’ wrongdoing. We aggressively pursue legal action against large corporations to hold them liable. You can count on us to protect your rights and try to achieve a favorable outcome.

If you developed cancer, mesothelioma, or another disease after using talcum powder made by Johnson & Johnson, call Attorney Tom at (713) 244-6363 for a free consultation. We can review your case to determine whether we can represent you in a lawsuit against the talcum powder maker.


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