Once upon a time, Johnson and Johnson’s (J&J) Talcum Baby Powder was loved by women across the United States. Not only did they use it for their newborn babies, but these women also incorporated it into their daily feminine hygiene routine. They believed the myth that a sprinkle per day would leave them feeling and smelling good.
However, the scales fell off the eyes of many when prolonged use of the talcum Baby Powder caused many to develop ovarian cancer and mesothelioma. This, in turn, gave birth to thousands of lawsuits against the manufacturer, Johnson and Johnson. In November 2020, J&J announced that it was splitting into two companies. The company plans to separate the Band-Aids and Baby Powder from its pharmaceutical and medical devices businesses.
The announcement came a month after J&J decided to move the talcum Baby Powder lawsuits under a division that filed for bankruptcy using the Texas Two-Step strategy. In this article, our mass tort lawyers at Dalimonte Rueb Stoller LLP discuss this legal strategy and what it means for the thousands of plaintiffs awaiting justice. For expert legal representation, contact our offices today.
What Is the Texas Two-Step Strategy?
Johnson and Johnson are taking advantage of the unusual provision in the Texas Business Organization Code. This law recognizes conventional mergers combining two or more companies into one entity. However, in 1989, Texas began recognizing what is known as divisional mergers (also called divisive mergers). The preceding allows a company to split into two companies and allocate their assets and liabilities among the new companies as it sees fit.
The divisive merger law is known as the Texas Two-Step strategy. First, the law allowed J&J to split some of their assets and talcum Baby Powder liabilities into a separate inadequately funded entity in Texas. Then, the newly created subsidiary, LTL Management LLC, moved to North Carolina.
After the move, LTL filed for bankruptcy protection in Charlotte. In addition, J&J offered $2 billion towards resolving the remaining Talcum Baby Powder litigation. The company said it’s part of the bankruptcy reorganization of the newly created subsidiary. This move now has many people questioning the future of the current and future lawsuits against J&J.
How Does Texas Two-Step Affect Talcum Baby Powder Lawsuits?
In November 2021, a North Carolina judge overseeing the J&J proceedings transferred the case to New Jersey, where the company is headquartered. The judge also halted the talc litigation against Johnson and Johnson for 60 days. This decision extended the legal shield LTL already had under bankruptcy protection.
The above decision and Texas Two-Step strategy move have led to many debates on how it affects the ongoing lawsuits against J&J. Below, we discuss two crucial things plaintiffs can expect with the way things stand.
A channeling injunction directs or channels tort claims, including those that have not been discovered, to a litigation trust funded by the participating parties. J&J can use this injunction to get a final judgment on the lawsuits, meaning that the company can settle the tort claims once and for all. It also means that J&J does not have to worry about future litigation once the bankruptcy case has been decided and current plaintiffs paid settlements.
Plaintiffs are often against a channeling injunction because they cannot go after the defendant post-bankruptcy. They can only file claims against J&J’s trust, which means very little settlement. There’s a huge likelihood that J&J can get a channeling injunction as seen in several bankruptcy cases.
A third-party release is one of the most controversial parts of a bankruptcy plan. Concerning the talcum Baby Powder lawsuits, J&J, through LTL, will order a third-party release in return for the money paid into the victims’ trust. Often, third-party releases benefit the defendant more than the plaintiff, who gets very little in exchange for signing the release.
The worst part of Texas Two-Step is that it might lead to infighting among the two classes of plaintiffs, that is, those with ovarian cancer and those with mesothelioma. However, conflict among the plaintiffs is avoidable if they stick together and use the voting mechanism. This is the most powerful tool the plaintiffs have, and it is guaranteed under the Bankruptcy Code section 1129(b). The voting mechanism allows victims to confirm or reject an offer if it does not discriminate unfairly and is fair and equitable.
Contact Dalimonte Rueb Stoller Today!
Our mass tort lawyers can help you understand better the implications of the bankruptcy protection J&J has. We can also help you get compensation if talcum baby powder has affected you. So, call today for a free case review.