Can Johnson & Johnson Just Dump Its Racist, Cancer-Causing Baby Powder Biz?
They’re trying, says Rep. Katie Porter, but it’s not clear if they’ll get away with their Texas Two-Step.
On Oct. 12, Johnson & Johnson announced that corporate restructuring had created a “separate” subsidiary named LTL Management LLC for its baby powder and other talcum products. Roughly 48 hours later, the health-care behemoth declared its newly established division had “filed for voluntary Chapter 11 bankruptcy protection.” A company press announcement about the petition noted that “Johnson & Johnson and its other affiliates did not file for bankruptcy” despite claims of empty coffers at its spin-off.
Why would J&J, one of the world’s most profitable multinational conglomerates, with an estimated worth of more than $400 billion, need to plead poverty on behalf of one of its properties? The short answer appears to be to get out of potentially paying tens of billions to litigants who allege that J&J knowingly sold talcum powder containing cancer-causing asbestos.
“These women are counting on our court system to hear their cases, to give them a chance to present facts, to talk about the science, and to talk about the harms that they’re suffering,” Rep. Katie Porter (D-CA) told me. “What we’re seeing is a huge corporation game the legal system to shut the doors of the courthouse to these victims. They’re leaving the assets, the resources, the income in one company, and they’re putting their liabilities, their debts in another company. And this is problematic because it means the victims don’t have a way to get paid for the harms that the company caused. And that is, unfortunately, not new. But this is particularly egregious. There’s a very, very blatant way that this was done.”
Porter, a tenured professor who taught bankruptcy law from 2004 until her election to the House in 2019, explained that J&J is using a tried-and-true corporate ploy known as the “Texas Two-Step.” Lone Star State laws let companies split off a chunk of their business and declare it a separate entity, offload tort liabilities faced by the parent company to the new branch, and then file for bankruptcy to put the brakes on litigation and cap their potential payouts to claimants—all while otherwise conducting business as usual.
J&J, which is based in New Jersey but filed for Chapter 11 in Texas, says as part of “its commitment to resolving the cosmetic talc cases,” it will “establish a $2 billion trust” to settlements that LTL Management is ordered to pay. But there are an estimated 38,000 lawsuits still outstanding, and in a single 2018 case, J&J was ordered to pay $4.7 billion. (J&J appealed all the way to the U.S. Supreme Court, which refused to take on the case. The settlement was ultimately cut to $2.1 billion in a lower court, still more by itself than the promised holdings of the LTL trust.)
On the heels of the bankruptcy announcement by LTL, Porter took to Twitter to call out the company’s corporate shell game, writing, “J&J knew asbestos laced some bottles but kept it a secret for decades.”
With those 38,000 lawsuits from women with diseases that include mesothelioma and ovarian cancer, Porter wrote, “the company wants to shield its assets. J&J sold the powder for 60 years, and now that it has to pay for these women’s medical bills, it wants the courts to treat ‘Johnson & Johnson Baby Powder’ as a separate company,” Porter wrote, calling J&J’s maneuvering “an injustice.”
“We are taking these actions to bring certainty to all parties involved in the cosmetic talc cases,” Michael Ullmann, J&J general counsel, said in a statement. “While we continue to stand firmly behind the safety of our cosmetic talc products, we believe resolving this matter as quickly and efficiently as possible is in the best interests of the Company and all stakeholders.”
A 2018 Reuters investigation found J&J internal documents showing company knowledge of trace amounts of asbestos in its products date to 1957. In the early 1970s, the New York Times reported, a J&J executive warned higher-ups about asbestos contamination in the company’s iconic Baby Powder brand and suggested “the company ‘upgrade’ its quality control of talc.” A few years later, as the presence of asbestos in talcum products became an issue of concern to federal regulators, J&J told FDA officials that it had found no evidence of asbestos in talcum products made from December 1972 and October 1973. “It didn’t tell the agency that at least three tests by three different labs from 1972 to 1975 had found asbestos in its talc – in one case at levels reported as “rather high”,” Reuters reports.
J&J kept those findings under wraps from the public with help from the FDA. The Times cites a 1976 memo in which “an executive ultimately won assurances from an official at the Food and Drug Administration that the findings would be issued only ‘over my dead body.’”
But fears about the carcinogenic elements in J&J talcum products began to swirl in the following decades, and the company saw a drop-off in the number of consumers. A 1992 J&J memo uncovered by Reuters noted that 52 percent of Black women and 37.6 percent of Hispanic women regularly used talcum powder, outpacing the rate of use by white women. The document went on to suggest the company look into “ethnic (African American/Hispanic) opportunities to grow the franchise.”
More than a decade later, in 2006, J&J internal paperwork directed that future marketing efforts target “under developed geographical areas with hot weather, and higher AA [African American] population.” By that same year, the World Health Organization had already begun to sound the alarm over potential cancer-causing properties of asbestos. Since then, the CDC, EPA, NIH, OSHA, Dept of Housing and Urban Development and WHO have all written that “there is no safe level of asbestos exposure.”
In a media statement released in October, J&J noted that the creation of a trust within LTL Management to resolve talcum lawsuits the company faces is “not a concession of liability but rather a means to achieve an equitable and efficient resolution of the claims raised in the cosmetic talc litigation.”
Porter points to a process in bankruptcy—she dubs it “you buy the ticket, you take the ride”—that requires Chapter 11 “ticket buyers” to take the legally mandated “ride” through a fact-finding process, which creditors can take part in, before any aid with debts can happen. But “non-debtor releases,” which companies are increasingly using to their benefit, help the individuals within the company, who might also bear some liability, to circumnavigate that process.
“What non-debtor releases do is provide a get-out-of-jail free card. You get a chance to not have to pay your debts in full. Maybe you pay a portion of them—10 cents on $1, let’s say. Non-debtor releases say, even though you—related company, owner of a company, big shareholder of a company, parent subsidiary—even though you’re not a debtor in bankruptcy, you can get a reduction in debt, an elimination of liability, even though you didn’t go through the process of filing bankruptcy, disclosing your assets, and giving your creditors those rights. That’s what we've seen go on in the Sackler case. The individual members of the Sackler family are not bankrupt in the sense that they’re broke. They’re also not bankrupt in the sense that they didn’t file bankruptcy. Only Purdue filed bankruptcy, but the court is nonetheless considering giving them non debtor releases—that get-out-of-jail card, even though they didn’t go through the work. And that’s an issue with Johnson & Johnson as well. In other words, they're basically doing what we call the Texas Two Step, and the goal is to get a release for the company that retains all the assets at the same type.”
The Sackler family, the billionaire owners of OxyContin manufacturer Purdue Pharma, recently used a non-debtor release to gain individual immunity from any lawsuits that might target their personal fortune. As a recent article in the Intercept noted, under the terms of the Purdue Pharma bankruptcy deal, the Sacklers will retain “$6 billion at minimum in total assets—money that will be effectively untouchable.” Meanwhile, groups including Koch Industries, which established and almost immediately filed bankruptcy for a division named Bestwall, and mining giant Peabody Holdings, owner of the newly formed and also bankrupt Patriot Coal, have also been accused of using the Texas Two-Step to shield money from lawsuits filed by those who claim they were harmed by those companies.
Porter is co-sponsor of two bills—the Non-Debtor Release Prohibition Act and the SACKLER (Stop shielding Assets from Corporate Known Liability by Eliminating non-debtor Releases) Act—both of which she says would eliminate some of the corporate trickery employed by companies facing debt.
“The Non-Debtor Release Prohibition Act mandates that bankruptcy courts have a hearing to determine if a bankruptcy has the intent or foreseeable effect of splitting off the liabilities from the bankrupt company. And if that's true, the judge is supposed to dismiss the bankruptcy case. Which is totally appropriate because it’s an abuse of process to [use bankruptcy to escape liability]. And the Sackler Act also deals with non-debtor releases. These bills are in the Judiciary Committee,” Porter told me. “These problems are not new. But companies are getting more and more emboldened.”
J&J—which like the Sacklers’ Purdue unit has faced numerous lawsuits related to its role in the opioid crisis—has reportedly provided hundreds of thousand of dollars for lobbying efforts against the bill.
Last week, a federal bankruptcy judge denied J&J’s request to put a freeze on cases, “including some that are nearing a jury verdict,” filed against J&J in relation to its talcum products. Lawsuits against LTL will be halted in accordance with bankruptcy laws. J&J, which stopped selling baby powder and other talcum goods in 2020, is due back in court in early November. Porter told me she’s keeping a watchful eye on the case.
“This is an example of what I see as a larger problem, which is the way that our laws provide such extreme levels of limited liability to corporations,” Porter says. “Granted, the whole reason we have corporate statutes is to allow people to form companies and not be personally liable—it separates the liability from the individual, owner, manager, or whatever. We’ve had that rule for a long time, but there needs to be a boundary. We need to have individual accountability, and certainly corporate accountability. So if you’re gonna say that corporations exist to peel off this personal liability, then you better make sure corporations end up being accountable.
“Otherwise, it’s clear that in these bankruptcy cases, they’re not trying to give people their day in court and to avoid having to litigate 30,000 individual cases. They’re trying to make sure that they escape accountability entirely.”