Johnson & Johnson was on a seemingly inevitable course to be deemed officially liable for the opioids that the company took part in distributing. However, the company managed to slip out of the legal matter after paying $5 billion in settlement fees. If this seems like a large bill to front, it’s only a fraction of the full settlement with state attorneys general, totaling $26 billion. With these expensive consequences adding up, J&J has turned to Texas to prevent a growing list of liabilities from sinking the company. This new legal liability that Johnson & Johnson is facing relates to asbestos that was distributed in its baby powder mixture.
The Texas two-step
There’s a loophole called the Texas two-step that allows a company, such as Johnson & Johnson, to declare bankruptcy for no other reason than avoiding tort liabilities. J&J would split in two with half of the company absorbing the financial blow and declaring bankruptcy. The other half is then able to move forward with a clean slate.
This transfer is widely considered questionable at best and fraudulent at worst. In Texas, however, such a move is considered a divisive merger instead of a type of transfer, which is where the loophole comes in.
There’s still a chance that this bold move by Johnson & Johnson won’t work, but the alternative may look bad enough for the company to try anything. Over 30,000 talc-related liabilities currently have to be answered for. For a sense of how deep that puts J&J in the hole, a single case involving 22 claimants resulted in Johnson & Johnson paying $2.12 billion. This is a prime example of multidistrict litigation allowing victims to seek compensation for the harm they suffered.
If Johnson & Johnson successfully performs the Texas two-step, the company might move forward with complete invulnerability to its laundry list of talc-related lawsuits. Professionals in this area of law will likely keep an eye on the case.