Lawsuits filed by the Attorneys General of New Mexico and Mississippi against Johnson & Johnson (J&J) over the company’s misleading marketing claims for its talc products have been stayed while an appeals court reviews J&J’s bankruptcy plan. The corporation’s bankruptcy proceedings are seeking to dump all its legal liabilities over talc cancer claims into a subunit, LTL Management, and immediately file for Chapter 11 protection for LTL.
U.S. bankruptcy judge Michael Kaplan announced the pause in litigation against J&J Oct. 6, and said he would reconsider the states’ lawsuits in December, Insurance Journal reported.
J&J announced on Oct. 14, 2021, that it was forming LTL Management “to hold and manage … [and] resolve all claims related to cosmetic talc in a manner that is equitable to all parties, including any current and future claimants.”
The legal maneuver by J&J is known as the “Texas Two-Step,” due to the fact that Texas has a business-friendly climate, in which a company is able to take two steps to form a subunit and declare that entity bankrupt. After a company creates a subunit, that subunit can relocate to Texas, which is what LTL Management did.
Under the Texas Two-Step, the non-bankrupt parent company (J&J) maintains its assets while LTL Management carries the legal liabilities, thereby shielding the parent company from liability while the subunit is able to restructure under Chapter 11 of the U.S. bankruptcy code.
To date, over 38,000 personal injury lawsuits have been filed against J&J over the company’s talc products. Plaintiffs allege that for decades, J&J has known that its talcum powder products, such as its discontinued J&J baby powder, could become contaminated with asbestos, a known carcinogenic mineral that is naturally found in very close proximity to talc.
Thousands of long-term users of J&J’s talc products developed ovarian cancer after they applied talcum powder to their genital area. Fine particulate matter containing asbestos may travel into the fallopian tubes and irritate the cells, causing tumors. Thousands of other users of J&J’s talc powder products developed mesothelioma, a cancer of the lining of the lungs, allegedly from inhaling contaminated talc powder.
The Third Circuit Court of Appeals is reviewing J&J’s bankruptcy plan for LTL Management. As part of the bankruptcy plan, J&J has established a $1 billion trust to compensate claimants without admitting wrongdoing. In June 2021, the U.S. Supreme Court left a Missouri jury trial’s verdict in place that awarded $2.1 billion to 22 women with ovarian cancer.