Johnson & Johnson Talc-Based Powder
Johnson & Johnson (NYSE:JNJ) stopped 38,000 personal injury cases alleging that its talc-based baby powder caused cancer by employing the controversial “Texas two-step” bankruptcy tactic. The business is now seeking to dismiss claims from two states that it misrepresented the safety of a consumer good it sold for many years.
On Tuesday, a New Jersey court will decide whether to grant a Johnson & Johnson subsidiary’s request to halt the parent company’s lawsuits from New Mexico and Mississippi. According to legal experts, the ruling could establish a precedent on whether and to what degree corporations can handle claims alleging violations of state consumer protection regulations through the Chapter 11 bankruptcy procedure.
Last year, Johnson & Johnson, a company with a market capitalization of almost $440 billion, divided itself into separate entities and filed for bankruptcy protection for LTL, the subsidiary that held all of its talc liabilities, in response to an increasing number of jury verdicts against it in talc-related personal injury cases. This move is known as the “Texas two-step.”
When Johnson & Johnson declared bankruptcy, the court granted the subsidiary permission to halt the 38,000 personal injury claims brought against the company due to talc. It was a contentious decision; opponents claimed it would prevent litigants from getting a jury trial and force them to accept settlements, but Johnson & Johnson believes it has helped the company manage legal claims totaling billions of dollars. In order to expedite settlements in those lawsuits, J&J set up a $2 billion trust.
J&J said recently that it would phase out sales of its talc-based baby powder globally starting in 2023. Talc-based powder has already ceased to be sold in the US and Canada. It claimed that its stance, according to which the product is secure and does not cause cancer, has not altered.
In addition to the personal injury actions in bankruptcy court, certain states have also filed lawsuits against the firm, claiming it violated consumer protection laws by marketing and selling its talc to people while knowing it could occasionally be contaminated with asbestos, which causes cancer.
According to a filing, the LTL subsidiary is in discussions with forty US states and the District of Columbia on a prospective settlement of consumer protection issues. However, two additional states—New Mexico and Mississippi—are attempting to have their challenges heard in state courts.
LTL has requested that a restraining order be issued by the bankruptcy court to stop them from doing so. The corporation said that allowing the litigation to proceed would obstruct its efforts to settle personal injury cases with the other states through mediation and jeopardize continuing efforts at comparable concerns.
In a brief, the state said that the actions were still being pursued “is not an exercise of the states’ police power, but rather an endeavor to recover fines and penalties for previous conduct from the debtor and other parties.”
The charges brought by the states entail comparable factual accusations, but they are separate from the personal injury lawsuits filed on behalf of people who purportedly contracted cancer after using Johnson & Johnson’s talc-based baby powder. In order to stop it from resuming talc sales, New Mexico and Mississippi are requesting monetary damages, penalties, and the opportunity to use state consumer protection laws.
According to court documents, both states object to the request to halt their cases, contending that it “mocks” bankruptcy law and infringes on their ability to “exercise police and regulatory powers.”
The states stated in their petition that “this is a bridge too far in a case already filled with questionable uses of the bankruptcy code by one of the wealthiest firms on earth.”
“[LTL] appears to think that the bankruptcy code is the ultimate trump card—the court can simply waive its wand and federalist principles vanish while a multi-billion-dollar entity contorts the bankruptcy code to shield itself from the states’ constitutional and statutory exercise of their police and regulatory powers.”
A verdict against the states “would be a precedent-setting order,” according to Harvard Law School professor Jared Ellias, for businesses facing state law or consumer protection actions and attempting to use the bankruptcy system to block or stall those cases.
The same “Texas two-step” bankruptcy plan that Johnson & Johnson used has been implemented by a number of businesses facing asbestos-related claims, including Georgia-Pacific, a US division of France-based Saint-Gobain, and Trane Technologies.
And last month, 3M filed for Chapter 11 bankruptcy protection for its Aearo subsidiary in an effort to settle hundreds of thousands of claims relating to purportedly flawed earplugs. In an ongoing action that started on Monday, claimants are contesting 3M’s bankruptcy.
Featured Image: Megapixl @Andreistanescu
Author Jowi Kwasu 
