Johnson & Johnson is facing new obstacles in its ongoing legal battle as the U.S. Trustee program, a Department of Justice (DOJ) arm overseeing bankruptcy cases, filed to dismiss the Chapter 11 filing of J&J subsidiary Red River Talc LLC.
The bankruptcy, J&J’s third attempt, aimed to settle over 60,000 lawsuits alleging that the company’s talc products caused cancer. However, the DOJ argues that the bankruptcy is a “bad faith” move to shield J&J from liability rather than a legitimate reorganization effort, as Red River itself allegedly lacks financial distress.
J&J said it had gathered support from 83% of talc plaintiffs, surpassing the 75% threshold required for approval under bankruptcy law, and increased its settlement offer to $8 billion, payable over 25 years.
This approach, known as the Texas two-step, separates liabilities from assets by creating subsidiaries like Red River to shoulder litigation risks. Despite these efforts, the U.S. Trustee contends that J&J’s strategy circumvents previous rulings and benefits a non-debtor without achieving a viable reorganization.
The U.S. Trustee’s motion references J&J’s two earlier attempts to resolve the claims through bankruptcy filings, dismissed by the Third Circuit for lack of financial distress in its subsidiary, LTL Management. The DOJ also notes that J&J’s move resembles a Purdue Pharma case rejected by the U.S. Supreme Court, where a similar attempt to settle claims through bankruptcy was deemed unacceptable.
This latest challenge leaves J&J with 21 days to respond and could further complicate its goal to manage litigation costs while avoiding protracted court battles. But as the DOJ calls for dismissal, J&J’s efforts to achieve a conclusive settlement remain uncertain. With mounting legal scrutiny, J&J’s journey to a comprehensive settlement looks bumpy at best. — Andrea Corona
