J&J Targets Texas for New Round in Baby Powder Legal Battle

J&J Targets Texas for New Round in Baby Powder Legal Battle

Introduction

Johnson & Johnson (J&J) is making a third attempt to secure bankruptcy protection for one of its units to resolve billions of dollars in claims related to its talc-based baby powder, which plaintiffs allege caused cancer.

The company’s previous two attempts were blocked by judges in New Jersey, who ruled that the thousands of lawsuits did not create enough financial distress to justify bankruptcy. For this new effort, J&J is eyeing Texas, a state known for its business-friendly courts.

The latest Chapter 11 bankruptcy filing, which includes a $6.5 billion settlement offer, is expected to be filed in Texas. Critics argue that by shifting the case to Texas, J&J is engaging in "forum shopping," a legal strategy where companies choose a court that is more likely to rule in their favor. This tactic is becoming increasingly popular among companies facing litigation in states with less favorable legal environments.

A law professor from the University of Illinois criticized J&J's approach, calling it "a blatant case of forum shopping." The professor noted that while it's the job of lawyers to explore different strategies for their clients, it is up to judges to maintain fairness in the legal process. Texas has become a go-to destination for companies frustrated with rulings in other states, and J&J's decision to file in Texas reflects this trend.

J&J has maintained that its talc-based baby powder never caused cancer and that it was appropriately marketed for more than a century. However, following mounting legal challenges, the company discontinued its talc-based products in favor of a cornstarch-based alternative. Despite its defense, the company continues to face tens of thousands of lawsuits.

In July, a federal appeals court rejected J&J’s second bankruptcy attempt in New Jersey, stating that the company failed to prove it faced a significant threat of financial distress from the litigation, given its substantial financial resources. J&J reported $85.2 billion in revenue in 2023, which undercut its claims of financial jeopardy.

J&J’s third attempt to resolve these cases in bankruptcy court involves a controversial tactic known as the "Texas Two-Step." This strategy involves creating a subsidiary to absorb liability for the talc lawsuits, which is then moved to Texas to seek bankruptcy protection. Critics argue this allows wealthy companies to confine mass-tort cases to bankruptcy courts, effectively forcing victims to accept lower settlements.

This latest bankruptcy attempt differs from the previous ones in that J&J has secured the support of over 75% of claimants who allege the company’s talc-based baby powder caused their cancers. This level of support is crucial under Chapter 11 rules, as it could enable a bankruptcy judge to swiftly approve the unit’s settlement plan, which proposes $6.5 billion to resolve all current and future cancer claims.

Despite the support from claimants, some legal experts remain skeptical that J&J's latest strategy will succeed. A law professor from the University of North Carolina expressed doubts, saying the chances of the company succeeding in its third attempt "should be zero." The first attempt was made in North Carolina, but the case was transferred to New Jersey after a judge ruled that J&J didn’t have sufficient ties to North Carolina. A similar situation could unfold in Texas.

However, a Wake Forest University law professor suggested that the process could still result in a fair settlement for victims, many of whom have been waiting years for compensation for their injuries or the loss of loved ones.