DOJ Calls J&J Talcum Powder Cancer Lawsuit Bankruptcy Filing “Textbook Example of Bad Faith”

U.S. Trustee tells Texas Bankruptcy Judge that there is no effective difference between this plan and the two previously rejected Johnson & Johnson talcum powder bankruptcy filings.

The U.S. Department of Justice has come out in opposition to a recent bankruptcy filing by Johnson & Johnson, which the company is attempting to use to resolve tens of thousands of talcum powder lawsuits brought by women diagnosed with ovarian cancer, by employing a controversial tactic known as the “Texas Two-Step.”

The manufacturer currently faces about 62,000 Baby Powder lawsuits and Shower-to-Shower lawsuits filed by women nationwide, who say they developed ovarian cancer after years of using Johnson & Johnson’s talc-based products on their genitals.

The litigation has been ongoing since 2016, following studies linking ovarian cancer to talc use, and the discovery of asbestos in talcum powder products sold by the company for years.

Despite several massive verdicts returned in early trial dates, including billions awarded to women with ovarian cancer from talcum powder, Johnson & Johnson has failed to negotiate direct settlements to resolve claims. Instead, the company has made several attempts to force the resolution of all current and future lawsuits through the U.S. bankruptcy system.

Talcum Powder Texas Two-Step

Last month, as part of an $8 billion talcum powder lawsuit settlement offer, Johnson & Johnson created a new subsidiary, Red River Talc, LLC., which then filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Southern District of Texas. Johnson & Johnson’s filing made the newly created subsidiary liable for the company’s failure to warn about the link between talcum powder and ovarian cancer for decades.

This tactic is known as the Texas Two-Step, which results in whatever assets the parent company assigns to the newly-created, sacrificial subsidiary being all that its debtors and litigation plaintiffs are able to recover. This artificially caps the financial damage to the parent company, and can result in plaintiffs recovering just pennies on the dollar of what they are truly owed in damages. The tactic has been heavily criticized by legal experts, judges, and now, the Justice Department.

This is Johnson & Johnson’s third attempt at resolving the talcum powder cancer litigation through bankruptcy. The previous two bankruptcy filings, which have delayed additional trials in the litigation for years, were thrown out after federal judges determined the company faced no real financial distress.

This time, the company has filed in Texas, the state for which this bankruptcy tactic gets its name, even though Johnson & Johnson is headquartered in New Jersey.

On October 21, Kevin Epstein, the United States Department of Justice (DOJ) Trustee representing the Texas region, filed a motion to dismiss (PDF) the latest talcum powder lawsuit bankruptcy filing. The motion admonishes the manufacturer for its third attempt at an illegitimate use of the U.S. bankruptcy system.

“Although its basic strategy is unchanged, J&J has caused this case to be filed under the name of a new shell entity and in a different district, all in an apparent effort to evade the bad faith findings entered in the previous cases,” the U.S. government argues. “Taken as a whole, J&J’s tactics are a textbook example of bad faith. The Debtor itself has no need for bankruptcy relief and it had no valid restructuring purpose when it filed its bankruptcy petition. Furthermore, there is no legitimate purpose in allowing the Debtor to remain in bankruptcy while it pursues a futile strategy, designed to benefit a non-debtor, J&J, that cannot lead to a confirmable plan of reorganization.”

The filing lays out the previous failed attempts, repeatedly using the term “bad faith” to describe the company’s actions, and noting that this latest filing should fail for the very same reasons. Epstein notes that the only difference this time is that Red River has less liability, because Johnson & Johnson didn’t need to include talcum powder asbestos mesothelioma lawsuits, which have almost all been settled or otherwise resolved.

“Although it involves a nominally different debtor, the Debtor’s case is in all relevant respects a repackaged version of the two dismissed LTL cases, which J&J has now caused to be filed in a different circuit in hopes of relitigating the issue of bad faith,” the motion to dismiss states. “This Court should not permit J&J and the Debtor to evade the rulings of another federal court in this manner.”

Talcum Powder Lawsuit Bankruptcy Filing Delays

Given common questions of fact and law raised in the complaints, talcum powder cancer lawsuits filed in federal court have been centralized in the U.S. District Court for the District of New Jersey since 2016. The litigation was previously assigned to U.S. District Judge Freeda Wolfson, but was ultimately reassigned to U.S. District Judge Matthew Shipp after her retirement a few years ago.

If the court grants the DOJ’s motion to dismiss this latest bankruptcy filing, the litigation will return, for a third time, to that court for resolution. While a number of state court talcum powder lawsuits have resulted in massive verdicts, no federal trials have yet been held.

Judge Shipp previously scheduled the first federal bellwether trial to begin in December 2024, which would be closely watched to gauge how juries may respond to evidence and testimony that will be repeated throughout the litigation if a global settlement is not reached.

However, Johnson & Johnson’s continuous use of bankruptcy filings has prolonged the litigation process and may cause a further postponement of any planned trial date. The company and its subsidiaries have repeatedly requested that the litigation be halted while bankruptcy plans are under consideration, a tactic that could extend these delays if the proceedings are successfully stayed again.

Attorneys for the plaintiffs have pointed out that many of the women they represent have either died or are in declining health as these delays prevent them from having their day in court.