Tuesday, January 31, 2023

A federal appeals court rejected Johnson & Johnson's effort to use bankruptcy to avoid a massive number of lawsuits over baby powder possibly causing cancer

WWXI on some unconscionable facts and the ruling:

The company tried to short-circuit the lawsuits in 2021, using a controversial legal tactic known as the "Texas Two Step." It first assigned liability for the baby powder complaints to a spin-off company, called LTL Management, then immediately put that company into bankruptcy.


Other big companies including Georgia Pacific and 3M have tried similar tactics to limit their exposure to widespread lawsuits. Legal experts and policymakers are watching the cases closely.


The 3rd U.S. Circuit Court of Appeals dismissed a bankruptcy filing by a Johnson & Johnson spinoff company, ruling that the company was not in genuine financial distress. The court noted that the spinoff company still has access to Johnson & Johnson's assets, worth an estimated $61.5 billion.

(Matt Levine wrote about the nuances in today's newsletter, but it just seems impossible for a reasonable person to hear what J&J tried and even momentarily think it tolerable.)