HOUSTON — A pivotal decision by U.S. Bankruptcy Judge Christopher Lopez has jeopardized Johnson & Johnson’s efforts to mitigate its extensive talc-related liabilities. On March 31, 2025, in the Southern District of Texas, Judge Lopez dismissed the prepackaged Chapter 11 plan of J&J’s subsidiary, Red River Talc LLC, citing multiple legal and procedural flaws, including impermissible nonconsensual non-debtor releases under the recent Supreme Court precedent set by the Purdue Pharma decision.
Johnson & Johnson has faced mounting legal challenges as thousands of lawsuits claim its talcum powder products, used by millions, contain asbestos and have caused cancer. In a strategic move known as the “Texas two-step,” J&J sought to isolate and address these liabilities through a new subsidiary, Red River Talc LLC, which was their third attempt using this approach.
Red River Talc LLC was specifically established to handle claims related to ovarian and other gynecological cancers caused by J&J’s talc products. Shortly after its formation, the subsidiary pursued Chapter 11 bankruptcy protection and proposed a plan to establish a $9 billion trust aiming to settle over 90,000 pending cancer claims.
The bankruptcy code’s Section 524(g) allows for the formation of such a trust to handle asbestos-related liabilities. For judicial approval, however, the plan needed at least 75% claimant approval. According to court findings, this threshold was not met due to irregularities in the voting and solicitation process, including a truncated voting period and unauthorized voting by some plaintiff law firms on behalf of their clients.
Furthermore, Judge Lopez ruled that the plan’s proposed channeling injunction, intended to protect hundreds of non-debtor entities from lawsuits, was excessively broad. The injunction was deemed infeasible since it tried to shield unrelated third-party liabilities which were not directly derivative of claims against the debtor, Red River.
A key component of the ruling rested on the interpretation of the landmark Supreme Court case, Harrington v. Purdue Pharma. The Court in Purdue Pharma restricted the discharge of claims against non-debtors without claimant consent, which directly impacted Red River’s plan that included nonconsensual releases of non-debtor third parties linked to J&J. Despite Red River’s argument for a “full pay” exemption based on their complete satisfaction of released claims, Judge Lopez found that the payment proposed was inadequate against outstanding verdicts, leaving no room for such an exemption.
The failure of this strategic bankruptcy filing spotlights the ongoing limitations corporations face when using bankruptcy to manage mass tort liabilities, especially in light of stringent judicial scrutiny over non-debtor releases. Johnson & Johnson’s three failures to implement the “Texas two-step” strategy reflect a growing judicial trend set against such maneuvers, subsequently influenced by the Purdue Pharma ruling.
Moments after this pivotal ruling, Johnson & Johnson announced their decision to revert to the traditional tort system for liability resolution instead of pursuing an appeal, signaling a significant shift in strategy for managing potential liabilities.
This case not only serves as a critical bellwether for corporate accountability in mass tort scenarios but also outlines the evolving landscape of bankruptcy law as it pertains to corporate restructuring amid large-scale public health lawsuits. Parties looking to explore similar legal strategies might now face heightened scrutiny and should consider alternative jurisdictions or approaches that align more closely with recent judicial precedents.
In continuing to cover this unfolding story, it remains evident that the implications of such legal decisions reach far beyond the immediate parties, potentially redefining how corporations handle widespread liability crises under bankruptcy protections.
This article was generated by Open AI. While care has been taken to ensure accuracy, details regarding people, facts, and circumstances may not be precise. Any concerns about the content of this article can be addressed by contacting [email protected] for corrections, retractions, or removal requests.