A judge is currently hearing a motion to dismiss a Johnson & Johnson-owned company’s bankruptcy filing. An asbestos victims’ group alleges the filing is illegitimate. They claim Johnson & Johnson (J&J) created the company to deny them compensation. The result of the motion could affect the rights of mesothelioma victims.
Johnson & Johnson Knew Their Talc Products Contained Asbestos
J&J learned their talc products contained asbestos as early as 1971. Internal documents show company executives, lawyers and doctors were concerned about this fact. At the same time, J&J failed to disclose this information to the public and regulators. The company’s talc products continued to test positive for asbestos until at least the early 2000s.
J&J stopped selling talc-based baby powder in the United States and Canada in 2020. Organizations are now advocating for a global ban on J&J’s talcum powders, citing consumer health concerns.
Johnson & Johnson Created a Company to Handle Talc Lawsuits
In October 2021, J&J created a subsidiary company called LTL Management LLC (LTL). According to J&J, the company created LTL to manage talc-related lawsuits. This includes mesothelioma lawsuits related to asbestos exposure from talcum powder. LTL took on all of J&J’s talc liabilities and received limited assets with which to operate.
Two days after its creation, LTL filed for Chapter 11 bankruptcy. LTL claims that Chapter 11 bankruptcy is the best way to resolve its liabilities.
What Is Chapter 11 Bankruptcy?
Chapter 11 bankruptcy is designed to help struggling companies whose debts overwhelm their profits. A company remains in business during Chapter 11 bankruptcy proceedings. A court will help the company restructure and settle its debts.
J&J allocated approximately $2.5 billion in assets to its LTL subsidiary. In comparison, J&J itself has a total stock value of approximately $400 billion. The company’s sales in 2021 alone netted them almost $94 billion, resulting in a growth of approximately 13%.
Talc Victims and Legal Scholars Claim the Bankruptcy Filing Is Illegitimate
A bankruptcy court is currently considering a motion to dismiss LTL’s bankruptcy. At issue is the legitimacy of LTL’s bankruptcy filing.
- Who filed the motion: A committee of plaintiffs’ representatives called the talc claimants’ committee. The committee represents people involved in lawsuits against J&J. The claimants allege that J&J’s talc products caused them to develop mesothelioma or ovarian cancer.
- Why they filed the motion: The motion claims J&J created the LTL subsidiary to deny victims full compensation. They are arguing that this is not a legitimate reason for declaring bankruptcy.
Several legal scholars submitted a brief to the court in support of the committee’s motion. They claim that LTL is a shell company designed to protect J&J’s assets from its victims. They warn that J&J’s strategy threatens the integrity of the bankruptcy system.
These legal scholars emphasize the danger of allowing LTL’s bankruptcy proceedings to continue. They note it would set a dangerous precedent. If the court dismisses the committee’s motion, they warn, profitable companies could:
- Create a company to handle unwanted liabilities
- Provide the newly created company with insufficient assets to pay its liabilities
- Have this company declare bankruptcy, citing its artificially insufficient assets
If the court allows this strategy to go forward, the scholars write, companies could set the terms of how much they are willing to pay victims. This would include asbestos companies.
The hearing to dismiss LTL’s bankruptcy began on February 15 and could continue until February 18 at the latest. Both the claimants’ committee and legal scholars believe they have strong arguments against LTL. They hope they will convince the presiding judge to dismiss LTL’s bankruptcy filing. A dismissal would help ensure asbestos victims receive proper compensation in the future.