Battle Against Johnson & Johnson "Texas Two-Step" Ploy Moves to New Jersey

In a new state court filing, women who hold Johnson & Johnson (NYSE:JNJ) and the company's iconic talc baby powder responsible for their ovarian cancer are seeking a temporary restraining order and preliminary injunction to prevent J&J, or any of its corporate affiliates, from fraudulently transferring assets to a subsidiary and plunging it into bankruptcy.

Faced with more than 34,000 ovarian cancer lawsuits, many consolidated in New Jersey federal court, J&J has told attorneys for the victims that the company is actively exploring options to transfer its potential talc-related liabilities – valued at approximately $24 billion – to a stand-alone subsidiary and seek bankruptcy protection for that business entity. Such a move would limit compensation for victims to pennies on the dollar and could bring an indefinite halt to all related trials scheduled in state courts across the nation, as well as the federal multidistrict litigation being heard in Trenton.

In a motion filed in Superior Court of New Jersey , attorneys for the plaintiffs argue that the bankruptcy strategy violates fraudulent conveyance laws in New Jersey and most other states. However, under a scheme known in legal circles as the "Texas Two-Step," economically viable companies can incorporate in Texas and then transfer liabilities to another entity with limited or no assets. As a result, a new company could be created by J&J to hold all legal liabilities but with limited or no funds to pay litigation claims.

In one recent case, In re DBMP LLC , U.S. Bankruptcy Judge J. Craig Whitley , in the Western District of North Carolina , was critical of the "Two Step" practice. In recent years, other companies such as Georgia-Pacific LLC have shifted asbestos liabilities to a separate company - with few if any assets - before placing it in bankruptcy.

"Plaintiffs deserve to have their day in court before a judge and jury, not arbitrarily placed in bankruptcy court with little hope of adequate compensation," says Andy Birchfield , Mass Tort Section Head of the Beasley Allen law firm , which represents thousands of ovarian cancer victims. "Bankruptcy should not be used as a ploy to delay or deny justice for the victims of a dangerous product produced by a company with hundreds of billions of dollars in assets."

The filing in New Jersey answers J&J complaints that a similar previous petition in Missouri unfairly burdened the company. "We'll take this cause to J&J's backyard where it cannot hide and avoid what is obviously a need for judicial oversight and intervention," says Michelle Parfitt , co-lead counsel in the Talcum Powder MDL and Senior Partner at Ashcraft and Gerel , who also represents the plaintiffs.

Dozens of peer-reviewed medical studies published in the last 35 years have found a statistically significant correlation between talcum powder use and ovarian cancer. Further research has confirmed that talc particles, when applied to the perineal area, can migrate to the ovaries, and result in inflammation and related malignancies. In December 2018 , Reuters reported that J&J knew for decades that its talc products were laced with asbestos but kept that information from regulators and the public.

"Companies that are bursting at the seams with available cash cannot be allowed to abuse the bankruptcy system this way," says Alexandra Walsh , founder of Walsh Law . "Make no mistake; this case is a wake-up call to anyone who is concerned about the rights of individuals, the right to trial by jury and the belief that huge corporations must play by the rules and accept responsibility when they commit wrong."

In May 2020 , Johnson & Johnson announced the company would no longer make nor market talc-based powders for the North American market.

In June, the U.S. Supreme Court declined to hear an appeal resulting from a $2.1 billion judgment against the company entered by the Missouri Court of Appeals and upheld by the Missouri Supreme Court. That appellate court found that J&J had engaged in "reprehensible conduct" for decades by repeatedly denying the presence of asbestos and the known association between talc use and ovarian cancer.

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SOURCE Beasley Allen Law Firm