Johnson & Johnson (J&J’s) Texas two-step strategy nears success as it has tried innovative legal tactics to handle billions in alleged liabilities from its talc products. Since 2021, J&J has attempted the “Texas two-step” approach, seeking bankruptcy protection for a subsidiary to address claims. Despite two previous failures, this third attempt might succeed. In September, a J&J subsidiary named Red River Talc filed for bankruptcy in a Houston federal court. This subsidiary holds only talc-related liabilities, isolating them from the main company.
Previous Attempts and New Approach
In its earlier filings, J&J’s Chapter 11 attempts faced technical rejections. This time, J&J struck a preliminary settlement with claimants before filing. The strategy challenges a bankruptcy judge to reject an agreement already set. J&J insists its talc products are safe and claims are baseless. Yet, it’s willing to pay if it means shielding its $400 billion parent company from lawsuits. Now, J&J is closer to that goal, with J&J’s Texas two-step strategy nears success as it moves forward with this creative legal maneuver.
Why Bankruptcy?
J&J claims that bankruptcy is not a tactic to escape responsibility. It views Chapter 11 as an efficient way to resolve these cases. By isolating the talc subsidiary, J&J hopes to avoid putting its entire company at risk. To support this, J&J created a “funding agreement” to provide billions to the bankrupt entity if a settlement is reached. In return, J&J expects full immunity from future liability.
The Controversy and Legal Battles
Using bankruptcy protections for non-bankrupt companies is highly controversial. This issue is also central in a Supreme Court case involving Purdue Pharma. J&J’s previous funding agreement attempt was rejected in New Jersey courts, which ruled that J&J’s talc subsidiary did not show “financial distress” due to the parent company’s backing.
Current Case Status in Texas
In the Texas case, J&J claims that 83% of claimants support the current settlement. This approval could allow a court to bind all claimants to the terms, including holdouts. The proposed settlement fund now stands at around $8 billion. Bankruptcy laws in Texas differ from those in the Northeast, adding complexity. The Department of Justice has tried to transfer the case to New Jersey, calling J&J’s actions a “textbook example of bad faith.” So far, this attempt has not succeeded.
Johnson & Johnson’s innovative use of bankruptcy strategies to resolve talc product liabilities raises questions about legal tactics and fairness. Learn about the ongoing case and the potential future implications for corporate bankruptcy filings.
Objections from Claimants
Dissenting claimants and their attorneys argue that J&J’s claim of 83% support may be inflated. They accuse J&J of “vote buying,” which the company denies. In response, J&J accuses some plaintiffs’ attorneys and litigation funders of having hidden motives. By February, the court is expected to rule on these objections.
What’s Next for J&J and the Courts?
Many claimants want to settle and receive their money quickly. However, some government officials and holdouts believe J&J is avoiding larger payouts that could result from courtroom trials. This third attempt at the Texas two-step shows legal creativity. Large corporations like J&J want to avoid the risks that old products can bring. They are willing to pay large sums but aim to control the terms.
Future Changes Needed?
Congress could clarify laws to prevent similar strategies. Such changes could allow victims their day in court and companies a way to negotiate settlements. Until then, the courts must handle these complex strategies.
