In its most recent proposal, Johnson & Johnson (J&J) said it would set aside nearly $9 billion to settle talc lawsuits. The company would funnel this money into a trust fund. The trust fund would handle all talc litigation.
In 2021, J&J faced more than 40,000 lawsuits that say its talc caused cancers, including mesothelioma, in many victims. That year, LTL began filing Chapter 11 bankruptcy. Many people have scrutinized this bankruptcy maneuver. In February 2023, a judge rejected it. With this recent proposal, J&J/LTL would refile for bankruptcy.
J&J Seeks to Create an Asbestos Trust Fund to Compensate Victims
J&J created LTL during its first Chapter 11 bankruptcy attempt. At the time, its asbestos liabilities already exceeded $3.5 billion. Despite these liability totals, it only planned to fund LTL with approximately $2.5 billion. J&J itself is worth more than $400 billion. This specific bankruptcy strategy is called the Texas Two-Step. J&J is not the first asbestos company to use it.
What Is the Texas Two-Step?
The Texas Two-Step is a controversial bankruptcy maneuver.
In this maneuver, a profitable company keeps its assets and places liabilities in a subsidiary. Then, that subsidiary files for bankruptcy, claiming it does not have enough assets to cover its liabilities.
Critics say companies could use the Texas Two-Step to avoid significant liability costs.
After various rulings, a judge rejected J&J’s LTL bankruptcy plan in early 2023. The judge said J&J did not have the financial distress required for bankruptcy. Since then, the company has been creating a new plan to handle asbestos-contaminated talcum powder claims. The proposed nearly $9 billion would more than quadruple the original funding plan.
J&J says this decision is not an admission of any wrongdoing. But since the 1970s, independent tests have found asbestos in its talc products. The company disagrees with these findings.
Still, J&J has moved away from using talc. In 2019, it recalled 33,000 bottles of talcum baby powder over asbestos concerns. In 2020, it stopped talc sales in North America. In 2022, the company announced it would also stop global sales of talc-based baby powder. Despite these decisions, J&J claims its talc is asbestos-free.
What Happens Next?
J&J’s recent proposal is not yet official. The bankruptcy court still needs to review and approve it. When a company is in bankruptcy proceedings, most litigation against it is on pause. This means victims may not be able to pursue lawsuits against J&J at this time.
If the court rejects this proposal, lawsuits may resume against the company. But if the court approves this plan, it will result in the creation of an asbestos trust fund. Victims could then file claims against it for their asbestos cancers. This compensation can help cover patients’ medical costs and lost income.