Johnson & Johnson has taken another significant step in its protracted legal battle over its talc-based products by filing for bankruptcy for the third time. The healthcare conglomerate’s subsidiary, Red River Talc, submitted the bankruptcy filing on Friday as part of a broader strategy to advance an $8 billion settlement that could resolve tens of thousands of lawsuits accusing J&J’s talc products of causing cancer due to asbestos contamination. The filing was made in the U.S. Bankruptcy Court for the Southern District of Texas, a venue frequently chosen by companies seeking resolution for large-scale litigation.
For years, J&J has faced mounting lawsuits—more than 62,000 in total—claiming that its baby powder and other talc products were tainted with asbestos, a known carcinogen. Plaintiffs allege that regular use of these products led to life-threatening diseases such as ovarian cancer and mesothelioma. J&J has vehemently denied the allegations, asserting that its talc products are free of asbestos and safe for use. Despite these assurances, the company has found itself embroiled in one of the largest product liability litigations in U.S. history.
Understanding J&J’s Bankruptcy Tactic: The Texas Two-Step
To manage the onslaught of litigation, J&J has employed a controversial legal maneuver known as the “Texas two-step.” This involves creating a new subsidiary—Red River Talc in this instance—and assigning the talc-related liabilities to the new entity. The subsidiary then files for Chapter 11 bankruptcy, while J&J itself avoids bankruptcy and protects its core business operations. This strategy allows J&J to centralize all lawsuits and potentially settle them in one fell swoop, under the supervision of a bankruptcy court.
The two-step strategy has been met with considerable opposition, with critics arguing that it allows profitable companies like J&J to escape full accountability for their products. Nevertheless, J&J remains committed to this approach as a means of resolving the thousands of claims against it. By seeking a global settlement, the company aims to avoid the risk of facing multiple jury trials that could result in unpredictable—and potentially devastating—financial awards.
Gaining Majority Support from Claimants
A key aspect of J&J’s third bankruptcy filing is the level of claimant support it has achieved. The company reports that 83% of current claimants have agreed to the terms of the proposed settlement, which exceeds the 75% threshold required for a bankruptcy court to impose the settlement on all claimants. This is a critical milestone for J&J, as it increases the likelihood that the court will approve the settlement and bring the litigation to a close.
If approved, the $8 billion settlement would resolve the majority of claims related to ovarian and other gynecological cancers. J&J has already reached settlements with several state attorneys general and individuals who developed mesothelioma, a rare form of cancer linked to asbestos exposure. The company’s latest bankruptcy filing focuses on resolving claims tied specifically to ovarian cancer, reflecting its strategy to narrow the scope of the lawsuits and reach a more manageable resolution.
Legal and Legislative Challenges Ahead
However, J&J’s bankruptcy strategy is not without its challenges. The company continues to face opposition from plaintiffs’ attorneys who argue that the bankruptcy filing is an abuse of the legal system. Additionally, J&J’s previous attempts to settle the talc litigation through bankruptcy were dismissed by federal courts, raising questions about whether the company’s latest effort will succeed.
Furthermore, the legal landscape for bankruptcy settlements has shifted following a U.S. Supreme Court ruling in June 2024 that addressed bankruptcy protections for companies like Purdue Pharma. The ruling could have implications for J&J’s ability to use bankruptcy as a means of resolving its liabilities. In addition, proposed federal legislation aims to prevent financially robust companies from using bankruptcy to sidestep accountability for consumer safety issues. If passed, such laws could significantly hinder J&J’s ability to proceed with its current legal strategy.
As J&J continues its efforts to resolve the talc litigation through bankruptcy, the outcome remains uncertain. While the company has secured support from a majority of claimants, it must still navigate a series of legal and regulatory obstacles. Whether the third time will be the charm for J&J’s bankruptcy strategy remains to be seen, but the stakes could not be higher for both the company and the thousands of individuals seeking justice for the harm they claim was caused by its talc products.
