J&J tried to block lawsuits from 40,000 cancer patients. A court wants answers

Brian Mann | September 19, 2022
A bottle of Johnson & Johnson baby powder is displayed on a table. J&J pulled its iconic Johnson's baby powder off the shelves in the U.S. in 2020.
A bottle of Johnson & Johnson baby powder is displayed on a table. J&J pulled its iconic Johnson’s baby powder off the shelves in the U.S. in 2020. Justin Sullivan | Getty Images

An attorney for Johnson and Johnson faced probing questions Monday over the corporation’s use of a controversial bankruptcy maneuver that has frozen tens of thousands of lawsuits linked to Johnson’s baby powder.

During the hearing, members of a three-judge panel of the United States Court of Appeals for the Third Circuit in Philadelphia asked whether J&J had used the legal strategy to gain “a litigation advantage” over roughly 40,000 cancer patients who have sued the company.

The cases were filed mostly by women. They claim Johnson’s iconic talc baby powder was contaminated with asbestos, which caused their mesothelioma or ovarian cancers.

J&J, which announced last month it would suspend all talc baby powder sales worldwide, has denied any wrongdoing.

Attorney Neal Katyal, representing the company, responded by arguing that the bankruptcy maneuver — known as the “Texas two-step” — would benefit victims by producing a faster settlement, possibly worth as much as $61 billion.

Katyal acknowledged criticism that a “big company that has all these profits is somehow trying to evade liability.”

But he said that if the tsunami of baby powder-related cases were allowed to play out in civil courts it would create legal chaos and “reduce the number of dollars available to claimants.”

Johnson & Johnson headquarters in New Brunswick, N.J., in 2020.
Johnson & Johnson headquarters in New Brunswick, N.J., in 2020. Mark Kauzlarich/Bloomberg via Getty Images

The “Texas two-step” and how it worked for J& J

Here’s how the legal maneuver known as the “Texas two-step” worked in this case.

In October of last year, J&J — which is headquartered in New Jersey — used a wrinkle in Texas state law to spin off a new subsidiary called LTL.

The healthcare giant pushed all baby powder-related liabilities onto the new firm’s books.

Within a matter of days, LTL relocated from Texas to North Carolina and filed for bankruptcy, effectively halting the baby powder lawsuits.

The U.S. Appeals for the Third Circuit will eventually rule on whether LTL’s bankruptcy was filed in good faith and whether it should shield J and J from baby powder related lawsuits.

During Monday’s session, attorneys representing women with claims against J&J slammed the healthcare giant’s legal strategy.

“Talc victims … are mired in bankruptcy as they die,” said attorney Jeffrey Lamken.

He noted that during the LTL bankruptcy process, Johnson and Johnson has paid out billions of dollars to shareholders and for stock buy-backs – a practice not allowed for firms that are actually bankrupt.

Meanwhile, women who filed cancer lawsuits against the corporation have been forced to wait and “can only get more desperate as they face medical expenses and come closer to their own deaths,” Lamken argued.

Attorneys representing cancer patients say the civil court system, not the bankruptcy court, is the proper venue for establishing the corporation’s liability.

A portrait of Hanna Wilt outside her home on Nov. 19, 2021 in Manasquan, NJ.
A portrait of Hanna Wilt outside her home on Nov. 19, 2021 in Manasquan, NJ. Jackie Molloy for NPR

This case that could reshape civil justice in the U.S

The U.S. Department of Justice has also challenged J&J’s bankruptcy maneuver.

On Monday, a DOJ attorney argued that if this legal strategy is upheld by the courts, it would open the door to other non-bankrupt companies and wealthy individuals using similar maneuvers to avoid liability.

“If Johnson and Johnson can get away with this bankruptcy, what’s to stop any other company in America from doing the same thing?” asked Sean Janda, an attorney representing the U.S. Trustee, a division of DOJ that oversees bankruptcy cases.

J&J’s strategy has also sparked criticism from some members of Congress as well as public outrage.

Speaking late last year, Hanna Wilt who was sick with mesothelioma voiced fury over the delay in her baby powder lawsuit against the company.

“What I see is who can play the game best,” Wilt told NPR. “Big corporations trying to work the system in a way they don’t have to take full responsibility is not something new.”

Wilt died in February of this year at age 27.

It’s unclear how quickly the Third Circuit will rule, though judges tend to move quickly in bankruptcy-related cases. Legal experts have suggested that regardless of the outcome, an appeal will likely be filed to the US Supreme Court.

Copyright 2022 NPR. To see more, visit https://www.npr.org.

Transcript :


Johnson & Johnson was back in court yesterday defending its efforts to block tens of thousands of lawsuits linked to Johnson’s baby powder.


A growing number of people, mostly women, say there is asbestos in the Johnson & Johnson powder, which gave them cancer. J&J denies wrongdoing, and the company is using a controversial bankruptcy maneuver to block the lawsuits.

FADEL: NPR’s Brian Mann has been following this case and joins us now. Hi, Brian.


FADEL: Brian, what was at stake in the courtroom yesterday?

MANN: Well, really, the question is whether this is a legitimate use of the bankruptcy system. One of the federal appeals court judges asked point-blank whether J&J’s maneuver here is just a ploy to gain legal advantage over all these sick people who are suing the company.

FADEL: So remind us how the maneuver worked. How can a wealthy corporation use bankruptcy like this?

MANN: Yeah, this is really the controversial part. Last October, J&J spun off a new subsidiary, brand-new company. Then they pushed all the liability tied to these baby powder lawsuits onto the books of that new firm, which then immediately filed for bankruptcy. So what that means is that overnight, roughly 40,000 people with claims against J&J, this super wealthy corporation, were told they would have to deal instead with a bankrupt company with basically no assets. I spoke about this with Hanna Wilt from New Jersey, who believed Johnson’s baby powder caused her mesothelioma, and she was furious.

HANNA WILT: What I see is who can play the game best? Big corporations trying to work the system in a way that they don’t have to take full responsibility is not something new.

MANN: And Leila, Wilt died in February while her case was still caught up in all this legal wrangling.

FADEL: Oh, my gosh. Now, this case involves tens of thousands of people, but it’s also being described as precedent-setting for other big corporations. Why?

MANN: Well, the concern is that if J&J is allowed to go forward with this strategy, lots of other wealthy companies will follow suit. Jon Ruckdeschel is an attorney with clients suing J&J.

JON RUCKDESCHEL: The floodgates will be opened. If companies that sicken and kill people are allowed to create fake corporations, bankrupt that company and have business as usual, there’s no reason why everybody wouldn’t do it.

MANN: And the U.S. Justice Department actually shares this concern. In court yesterday, a DOJ attorney argued that J&J’s legal maneuver here subverts the bankruptcy system and should be rejected by the court.

FADEL: Now, J&J’s attorney was in court yesterday to answer questions about this. What did he say?

MANN: Yeah. J&J was represented yesterday by one of the most high-profile attorneys in the country, Neal Katyal, who served in the Obama administration. He pointed out that J&J has promised to back a bankruptcy deal here to the tune of $60 billion, money he says would go to cancer patients. Katyal also argued the bankruptcy process could be faster than trying to deal with all these thousands of lawsuits in civil courts. I spoke with Lindsey Simon, a bankruptcy expert at the University of Georgia, and she says this argument does have merit.

LINDSEY SIMON: Bankruptcy can be very efficient. And again, it takes away some of the element of uncertainty, this idea outside of bankruptcy, you never know what you’re going to get.

MANN: So despite the controversy here, this is a big question. Could bankruptcy be a shortcut to resolving all these baby powder cases?

FADEL: So where does this go next?

MANN: Well, this court in Philadelphia is expected to rule quickly, but the legal experts say this is also likely to go on to the U.S. Supreme Court. It’s so precedent-setting. Meanwhile, all these people suing J&J – a lot of them, again, incredibly sick – they’re just going to have to keep waiting.

FADEL: NPR’s Brian Mann, thank you for your reporting, Brian.

MANN: Thank you. Transcript provided by NPR, Copyright NPR.