Justice Department's Trustee Program Alleges Johnson & Johnson's Talc Litigation Bankruptcy Bid Is Bad-Faith Tactic To Avoid Liability

The U.S. Trustee Program, a unit of the Department of Justice (DOJ) overseeing bankruptcy cases, has filed a motion in federal bankruptcy court in Houston to dismiss a Chapter 11 filing by a subsidiary of Johnson & Johnson JNJ.

The filing aims to settle more than 60,000 talc-related lawsuits, marking J&J's third attempt to pursue this strategy in as many years.

In September, Johnson & Johnson reportedly increased its settlement offer by $1 billion, now totaling about $9 billion, to address claims that its talc baby powder caused gynecological cancer.

The DOJ argues that Johnson & Johnson's latest bankruptcy maneuver is a bad-faith attempt to shield itself from billions in personal injury claims without actually entering bankruptcy.

The company's approach involves creating a new subsidiary, transferring billions in liabilities but few assets to this entity, and then filing for bankruptcy on its behalf.

This move is seen as a way for Johnson & Johnson to secure a third-party release that would discharge both itself and the subsidiary from liability—an action that was expressly prohibited in a recent Supreme Court ruling.

Johnson & Johnson has used similar tactics in the past, both dismissed due to findings of bad faith.

Despite these setbacks, the company has filed this new case under a different entity and jurisdiction, which the DOJ believes is an attempt to sidestep previous rulings.

The trustee's motion claims that the debtor in question has no valid reason for bankruptcy protection and that the filing serves no legitimate restructuring purpose.

The ongoing litigation stems from numerous claims that Johnson & Johnson's talc-based products, including baby powder, caused personal injuries.

Many lawsuits assert a link between talc exposure and ovarian cancer, while others allege that the products were contaminated with asbestos, leading to mesothelioma.

J&J has consistently denied these allegations.

As of October 2021, around 36,000 ovarian cancer claims and 470 mesothelioma cases were tied to Johnson & Johnson's talc products, with many cases consolidated in a multi-district litigation in New Jersey.

Price Action: JNJ stock closed 0.38% at $163.45 on Tuesday.

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