Bankruptcy Judge Declines to Prevent Hypothetical Talc Liability Restructuring

Johnson & Johnson currently has approximately 25,000 lawsuits pending against it related to its talc products, including talcum powder and baby powder

Reports have circulated that Johnson & Johnson is considering a strategic plan to move its liabilities from talcum litigation related to baby powder and other products into a newly created business that would later seek bankruptcy protection. Recently, lawyers for plaintiffs requested that the bankruptcy judge block the move of Johnson & Johnson. However, bankruptcy judge Laurie Selber Silverstein declined to prevent Johnson & Johnson from offloading these liabilities from the rest of its business, effectively allowing the company to move thousands of claims from individuals who claim they were injured as a result of its talc products to a business that will later file for bankruptcy.

Counsel for Johnson & Johnson applauded the court’s decision and defended the “legitimate business transactions” that the company was considering pursuant to Texas’ “divisive merger” law. This legal strategy is known as ‘Texas two-step bankruptcy’ and has been popular among companies facing this type of litigation in recent years. To date, Johnson & Johnson has not confirmed whether it will take this course of action, as it is previously stated only that it has “not decided on any particular course of action in this litigation other than to continue to defend the safety of talc and litigate these cases in the tort system, as the pending trials demonstrate.”

Judge Silverstein is overseeing the chapter 11 bankruptcy case of Imerys Talc America, which once supplied talc to Johnson & Johnson. While lawyers for potential claimants argued that allowing Johnson & Johnson to offload its talc liabilities to a unit that may later file for bankruptcy would harm Imerys’ reorganization, the judge determined that it would be improper for her to legally bar Johnson & Johnson from taking this proposed future action, and stated that the option would remain for Imerys to take its own legal action against Johnson & Johnson, should it separate its’ talc liabilities in a way that Imerys deemed harmful or unlawful.

Should Johnson & Johnson proceed with this course of action, individuals with pending or future claims may find themselves in protracted bankruptcy proceedings with a much smaller company, and future payouts are likely to be affected. It remains to be seen if Imerys or claimants’ attorneys will attempt once again to challenge this move, if and when Johnson & Johnson takes affirmative steps toward this restructuring. Meanwhile, plaintiffs’ attorneys, undeterred by the recent ruling, continue to attempt to block the hypothetical move and have requested a similar restraining order against Johnson & Johnson in Missouri Court.