Johnson & Johnson wins major court battle in baby powder case – NPR | Vette Leader

Johnson & Johnson baby powder is displayed on a table in this photo illustration. A federal judge has allowed a split from Johnson & Johnson to proceed with a controversial bankruptcy.

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Johnson & Johnson baby powder is displayed on a table in this photo illustration. A federal judge has allowed a split from Johnson & Johnson to proceed with a controversial bankruptcy.

Justin Sullivan/Getty Images

A federal judge has allowed a company spun off from Johnson & Johnson to file for controversial bankruptcy, despite complaints from thousands of people who say they have been harmed by the consumer goods giant’s baby powder and may now be denied the opportunity to sue.

J&J created spin-off LTL Management under a Texas law last fall while facing about 38,000 lawsuits from people saying its baby powder was contaminated with asbestos and causing cancer and other diseases.

J&J, which also makes products like Tylenol and band-aids, transferred legal liability for the complaints to the spinoff, which promptly filed for bankruptcy — a maneuver dubbed the “Texas Two Step.”

Critics slammed the bankruptcy as a bad faith attempt to shield J&J itself from responsibility for an allegedly harmful product.

“Bankruptcy law was never intended to be abused in this way by massively profitable corporations to delay or prevent cancer victims from having their day in court,” said Jon Ruckdeschel, an attorney representing some of the people who are Track J&J.

The judge acknowledges that the verdict will frustrate the plaintiffs

Judge Michael Kaplan ruled Friday that LTL can proceed with the bankruptcy, leaving individual lawsuits on hold.

Kaplan acknowledged the frustration this would cause, but the completed bankruptcy offers a more efficient remedy for those who claim to have been harmed by J&J.

“The court recognizes that today’s decision will be met with much fear and concern,” Kaplan wrote in his decision. “The Court remains steadfast in its belief that justice is best served when critical compensation is provided in trust through a court-supervised, fair and less expensive settlement agreement.”

Johnson & Johnson called the ruling “a positive development and a step forward in achieving a global resolution” of the lawsuits.

“We remain committed to the safety of Johnson’s baby powder, which is safe, contains no asbestos and does not cause cancer,” the company said in a statement.

J&J stopped selling baby powder made with talc in the US and Canada in 2020, saying consumers in those countries preferred a version made with cornstarch. In other countries, the company still sells talc-based baby powder.

Johnson & Johnson consumer products include Band-Aid, Johnson’s Baby Powder and Tylenol.

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Johnson & Johnson consumer products include Band-Aid, Johnson’s Baby Powder and Tylenol.

Mike Derer/AP

Texas’ controversial two-stage maneuver

While the bankruptcy process has been used for years to resolve large-scale product liability cases involving asbestos, silicone breast implants and contraceptives, the two-stage process is relatively new in Texas.

It’s controversial because it allows a company to limit which of its assets are available to resolve grievances.

“In the extreme, a company that faces a lot of litigation could put all of the litigation risk — all of those liabilities — in one entity and put everything else in the other entity, and that [Texas] The law does nothing to stop that,” said David Skeel, a bankruptcy expert at the University of Pennsylvania.

Appeals against the judge’s verdict are likely

The plaintiffs pursuing J&J vowed to appeal Judge Kaplan’s decision.

“We are disappointed that J&J’s bankruptcy filing for its Fall Guy subsidiary, LTL Management, has not been dismissed,” Ruckdeschel said. “Americans who have cancer caused by J&J asbestos-contaminated talc have a constitutional right to have a jury rule in their case.”

Skeel notes that J&J has a market valuation of more than $430 billion and a credit rating higher than that of the US government. He suspects that if the company manages to limit its liability through bankruptcy, imitators will soon follow.

“You could see companies starting to push the envelope,” Skeel said. “Companies that don’t have thousands of lawsuits, but maybe 10 lawsuits. This has a huge impact on future liability levels.”

Some members of Congress want to rewrite bankruptcy laws to limit such maneuvers.

“We need to close this loophole for good,” Sen. Dick Durbin, D-Ill., said earlier this month. “Bankruptcy is supposed to be a good way to take responsibility, pay off your debt as best you can and then get a second chance, not a Texas two-step no-jail card for some of the richest corporations in the world like Johnson & Johnson.”

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