In a significant escalation of its legal troubles, Johnson & Johnson’s subsidiary has filed for bankruptcy for the third time in a bid to advance an $8 billion proposed settlement to resolve more than 62,000 lawsuits that accuse the company’s talc-based baby powder of causing cancer. The subsidiary, Red River Talc, submitted its filing in the U.S. Bankruptcy Court for the Southern District of Texas, marking another chapter in the complex and contentious litigation surrounding the safety of J&J’s iconic products.
The lawsuits stem from claims that J&J’s talcum powder products were contaminated with asbestos, a known carcinogen, and led to serious health conditions such as ovarian cancer and mesothelioma, a rare and aggressive form of cancer directly linked to asbestos exposure. J&J has consistently denied these allegations, maintaining that its talc products are safe and free from asbestos. Despite the company’s assertions, a growing number of plaintiffs have sought damages for the alleged harm caused by the products, putting J&J in the center of one of the largest consumer safety legal battles in recent history.
The “Texas Two-Step” Strategy Explained
At the heart of J&J’s defense is its use of the controversial “Texas two-step” bankruptcy maneuver, a legal strategy that involves separating liabilities from the main company into a newly created subsidiary, which then declares bankruptcy. This tactic allows J&J to avoid filing for bankruptcy itself, while the newly bankrupt subsidiary takes on the financial responsibility for resolving the claims. In this case, the Red River Talc unit has been created to handle the lawsuits, while J&J’s broader operations remain insulated from direct financial risk.
The primary goal of this strategy is to consolidate all claims into one global settlement, thereby preventing future lawsuits and avoiding unpredictable jury verdicts that could result in multibillion-dollar awards. The company’s previous attempts to use this legal strategy were struck down by federal courts, but J&J remains determined to resolve the litigation through this route. The current $8 billion settlement proposal, which focuses primarily on claims related to ovarian cancer, represents J&J’s most aggressive attempt to settle the case and move forward.
Claimant Support and the Path Forward
Crucially, J&J has secured the backing of 83% of current claimants for its proposed settlement plan, a key factor in the company’s decision to proceed with its third bankruptcy filing. Under bankruptcy law, J&J needs at least 75% of claimants to support the plan for a judge to impose the settlement on all plaintiffs. This level of support gives J&J significant leverage as it navigates the complex legal landscape of mass tort litigation.
If the settlement is approved, it would effectively close the door on new lawsuits related to the company’s talc products. The bankruptcy court would enforce a global settlement, halting all ongoing litigation and preventing new claims from being filed in the future. This would provide J&J with a measure of finality, although the company’s reputation has already been significantly damaged by the protracted legal battle.
Ongoing Legal and Regulatory Challenges
Despite the progress J&J has made in securing support for its settlement plan, the company faces considerable legal challenges. In June 2024, the U.S. Supreme Court ruled on a bankruptcy case involving Purdue Pharma, setting new precedents that could complicate J&J’s ability to use the bankruptcy process to resolve its liabilities. Additionally, several federal court rulings have dismissed previous attempts by J&J to settle the talc litigation through bankruptcy, signaling that the courts may continue to scrutinize the company’s legal tactics.
Moreover, proposed legislation in Congress seeks to limit the ability of financially healthy companies like J&J to take advantage of bankruptcy protections. Lawmakers have criticized the use of bankruptcy by large corporations to sidestep full accountability, arguing that it undermines the intent of bankruptcy laws, which are designed to provide relief to financially distressed companies rather than shield profitable corporations from liability.
As J&J faces these legal and regulatory headwinds, the outcome of its third bankruptcy filing remains uncertain. While the company has made strides in gaining support from plaintiffs, the legal road ahead is likely to be fraught with challenges as courts and lawmakers weigh the implications of allowing a corporate giant like J&J to resolve mass tort claims through bankruptcy.