Johnson & Johnson's Bankruptcy Tactics Are Fraudulent, Plaintiffs Accuse Company Of Defrauding Cancer Victims

A group of cancer victims has reportedly filed a lawsuit against Johnson & Johnson JNJ, accusing the healthcare giant of committing fraud through its persistent efforts to use a shell company’s bankruptcy to resolve numerous lawsuits. 

The plaintiffs argue that Johnson & Johnson’s bankruptcy strategy was designed to “hinder, delay, and defraud” them, effectively putting billions of dollars out of their reach and preventing them from having their day in court. 

Most of the lawsuits have been brought by women with ovarian cancer, Reuters noted, while others involve individuals with mesothelioma, a deadly cancer linked to asbestos exposure. 

In 2021, Johnson & Johnson employed a corporate maneuver known as the “Texas two-step” to isolate its talc liabilities into a new subsidiary, which then filed for bankruptcy. 

This move halted the lawsuits against Johnson & Johnson, even though the company did not declare bankruptcy. 

However, courts ruled that Johnson & Johnson and its subsidiary were not in financial distress and, therefore, ineligible for bankruptcy protection. 

Despite these setbacks, Johnson & Johnson announced earlier this month that it plans to pursue a third bankruptcy once it garners enough votes to support a $6.48 billion talc settlement.

The recent lawsuit seeks a ruling that the Texas two-step transaction was fraudulent, claiming it was solely undertaken to protect Johnson & Johnson’s assets from litigation. 

It also argues that subsequent transactions, including the spinoff of Johnson & Johnson’s consumer health business Kenvue, were fraudulent and seeks compensatory and punitive damages.

Johnson & Johnson asserts that its planned third bankruptcy will differ, having secured support from over 75% of claimants. 

The company has streamlined this proposal by negotiating separate settlements with law firms representing mesothelioma patients and various U.S. states that accused Johnson & Johnson of failing to warn consumers about the risks associated with its talc products.

Litigation against Johnson & Johnson resumed after its second bankruptcy attempt was dismissed. In recent trials, the company was ordered to pay $45 million in a mesothelioma case but won an ovarian cancer case.

Price Action: JNJ shares are down 1.72% at $150.86 at last check Thursday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Photo via Shutterstock