Bill in Congress would eliminate bankruptcy as a path for profitable companies to avoid liability claims

The attorneys representing tens of thousands of women in their talc-related ovarian cancer lawsuits against Johnson & Johnson (NYSE: JNJ) are calling for passage of a measure in Congress that would end the ability of solvent companies to use the so-called Texas Two-Step bankruptcy process in order to avoid lawsuit liabilities.

The process involves taking a company’s liabilities – in this case, the thousands of talc-ovarian cancer lawsuits – placing them into a new company and then filing a petition aimed at resolving the cases in bankruptcy court rather than the tort system. Johnson & Johnson has twice tried and failed to use the Two-Step to resolve the ovarian cancer claims tied to its iconic Baby Powder.

Michelle Parfitt and Leigh O’Dell are co-lead counsel in multidistrict litigation in the cases before a federal court in New Jersey. Both support passage of the Ending Corporate Bankruptcy Abuse Act (ECBA), introduced in July 2024.

"This legislation is critical to protect the American system of justice, fairness, and the original intent of the bankruptcy laws," declared Ms. Parfitt, Senior Partner at the Ashcraft & Gerel law firm.

This bipartisan legislation, sponsored by Sens. Sheldon Whitehouse (D-R.I.) and Josh Hawley (R-Mo.), along with Reps. Emilia Sykes (D-Ohio) and Lance Gooden (R-Texas) would ensure that courts treat such bankruptcy filings as bad faith and prohibits stays of litigation against non-bankrupt affiliates involved in these maneuvers.

Ms. O'Dell highlighted the severe impact on women forced into personal bankruptcy due to exorbitant medical bills from ovarian cancer caused by Johnson & Johnson’s talc powder, which contains asbestos, one of the most poisonous substances on the planet.

“With average medical costs exceeding $220,000, these women face actual financial ruin while J&J, which earned over $83 billion in 2023, is trying for the third time to claim bankruptcy. This egregious tactic primarily targets African American, Hispanic, and overweight women, whom J&J aggressively targeted in advertising," said Ms. O'Dell, who practices in the Mass Tort Section at the Beasley Allen Law Firm.

After gaining initial momentum, the use of the Texas Two-Step is drawing increasing criticism from legal scholars and members of Congress:

“In this case, the company tried to use a legal scheme known as the ‘Texas Two-Step.’ It’s an accurate name because it would have allowed J&J to dance around its obligations to consumers it harmed. And this is not a few people we’re talking about: this case concerns nearly 40,000 Americans who used J&J products and have been diagnosed with ovarian cancer or mesothelioma.”

Sen. Richard Durbin (D-Ill.)

“Just like the Sacklers, who are using a legal loophole to escape accountability for their role in the opioid epidemic, Johnson & Johnson is blatantly abusing our bankruptcy system in a way that protects the wealthy and giant corporations and stiffs the ordinary Americans who they have harmed.”

Rep. Carolyn B. Maloney (D-N.Y.)

“For too long, corporations have used dirty backroom deals to shield themselves from liability for corporate misconduct. This bipartisan bill will put an end to it.”

Sen. Josh Hawley (R-Mo.)

Original sponsors and early supporters of the Texas legislation have made it clear that they did not intend for the Texas Two-Step to be used so corruptly and fraudulently. "As co-chairs of the MDL, we are very grateful to these courageous elected representatives who are standing up against the millions of dollars that J&J and other corrupt companies are using to influence officials and contaminate the rule of law and America’s system of fairness,” say Ms. Parfitt and Ms. O'Dell.

There are more than 57,000 pending cases in the Johnson & Johnson Talcum Powder Products Marketing, Sales Practices and Products Liability Litigation, in the United States District Court for the District of New Jersey, MDL No. 2738 (3:16-md-02738).

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