Ovarian Cancer Victims Ask Court to Block Johnson & Johnson's 'Texas Two-Step' Bankruptcy Plan

Attorneys for thousands of women diagnosed with ovarian cancer after decades of exposure to Johnson & Johnson's (NYSE:JNJ) talcum powder products are seeking a temporary restraining order and permanent injunction to prevent J&J, or any of its corporate affiliates, from transferring assets to a subsidiary and plunging it into bankruptcy.

The company has not denied that it is scheming to shield its $500 billion in assets from women cancer victims by moving its growing talc-cancer liabilities to a subsidiary before forcing that entity into bankruptcy. The total damages suffered by current talc-cancer victims is estimated at close to $17 billion .  Historically, bankruptcy cases filed to resolve litigation, including those related to asbestos, often take years, and almost never fully repay creditors, including personal injury victims.

In a motion filed in state district court in Missouri , the women argue that such a move amounts to a fraudulent conveyance and that laws in Missouri and most other states prevent such transfers of liabilities by solvent and profitable companies.  They also note that such an approach could immediately halt more than 34,000 claims by ovarian cancer victims and force all related litigation into bankruptcy court, rather than giving these victims their day in trial court before judges and juries.

"Johnson & Johnson has actively threatened attorneys for plaintiffs with this scheme to force out-of-court settlements at pennies on the dollar. This is clear from what has been widely reported, combined with J&J's response," says Andy Birchfield , Mass Tort Section Head of the Beasley Allen law firm , attorney for three women or surviving relatives named in the filing. "J&J has betrayed its customers and concealed from the public that its asbestos-contaminated talc was poisoning women for generations. It used its powerful marketing arm to target Black women and other minorities, bullied the FDA to look the other way, and is now attempting to abuse the bankruptcy system to avoid its responsibility."

The strategy is known in legal circles as the "Texas Two-Step" because Texas law allows economically viable companies to incorporate in the state and then transfer liabilities to another entity with limited or no assets. In a recent similar case, In re DBMP LLC , U.S. Bankruptcy Judge J. Craig Whitley was critical of the practice and said personal injury claimants may have been defrauded in the process. In recent years, other companies including Georgia-Pacific LLC also split off asbestos liabilities through divisional mergers before placing them in bankruptcy.

"J&J has not denied they are considering such an outrageous plan," says Michelle Parfitt , co-lead counsel in the Talcum Powder MDL and Senior Partner at Ashcraft and Gerel , who also represents the plaintiffs. "If J&J is willing to resolve these claims within the civil court system, then such an injunction would have no effect on J&J's business operations and should not create any objections on their part."

Birchfield says the filing could have been made in several other states, but Missouri was chosen because several talc-related trials are pending there. The next trial is scheduled to begin September 7 , in St. Louis .

"This scheme is part of a disturbing trend," says Alexandra Walsh , founder of Walsh Law .  "If J&J is allowed to evade its obligations in this way, it will set a dangerous precedent, prompting other hugely profitable corporations to use the bankruptcy laws to shirk responsibility for their wrongdoing."

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.

In May 2020 , Johnson & Johnson announced the company would no longer make or 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