U.S Court of Appeals Torpedoes Johnson & Johnson’s Bankruptcy Scheme
Johnson & Johnson is a $400+ billion company with a broad range of products, most of which are fine. But for decades, it also produced and sold talc-based baby powder. Talc is a mineral mined from the earth. Investigations have found that J&J knew that the talc it mined contained asbestos, a substance known to cause cancer. It is alleged that despite knowing its talc-based products were contaminated with asbestos, it concealed and hid lab findings and other evidence from the FDA and the public for decades.
As its talc was linked to more and more cancer cases, it faced mounting legal liability. Rather than take responsibility, it concocted a scheme to try to avoid liability. The plan – put the product that causes cancer into a holding company and then transfer all the liabilities of that product to that new company and then try to take advantage of the bankruptcy system and bankrupt the company. The tactic was designed to protect J&J from liability and block juries from hearing lawsuits and awarding damages.
In January, a U.S. Court of Appeals shot down J&J’s scheme. The decision sent a clear message to corporate America that a bankruptcy action must be “legitimately pursued in good faith” for the purposes of reorganization, rather than solely to gain an advantage over injured consumers in litigation.