J&J Creates LTL to Shield Talc Liability

Johnson & Johnson announced in October 2021 that it had created a new subsidiary called LTL Management LLC to hold all liabilities related to talc-based products. The subsidiary immediately filed for Chapter 11 bankruptcy protection in North Carolina, halting approximately 38,000 pending lawsuits.

A Controversial Legal Strategy

The maneuver employed a legal technique known as the Texas Two-Step, which allows corporations to use Texas’s divisive merger laws to separate assets from liabilities. Under this approach:

1. A company undergoes a divisive merger under Texas law, splitting into two entities
2. One entity retains the valuable operating assets
3. The other entity (in this case, LTL Management) receives the liabilities
4. The liability-holding entity files for bankruptcy

Johnson & Johnson, one of the world’s most valuable corporations with a market capitalization exceeding $400 billion, transferred an estimated $2 billion to LTL to fund potential settlements. The parent company remained solvent and continued normal operations.

Why North Carolina?

LTL Management filed its bankruptcy petition in Charlotte, North Carolina, rather than New Jersey where J&J is headquartered. Legal observers noted that North Carolina’s bankruptcy courts had been viewed as more favorable to corporate debtors.

The case was later transferred to New Jersey following objections from plaintiffs’ attorneys who argued the filing location was chosen for strategic advantage rather than legitimate business reasons.

Plaintiff Reaction

Attorneys representing talc claimants condemned the move as an abuse of the bankruptcy system. The strategy effectively froze all pending lawsuits while the bankruptcy court took control of the claims resolution process.

“This is a solvent company trying to use bankruptcy to avoid accountability,” said one plaintiffs’ attorney quoted in news reports at the time. “Bankruptcy is supposed to be for companies that cannot pay their debts, not for companies that simply don’t want to.”

The tactic prevented cases from going to trial, where juries had previously returned multibillion-dollar verdicts against J&J in talc-related lawsuits.

The Claims at Issue

The lawsuits consolidated under the bankruptcy involved allegations that Johnson & Johnson’s talc-based baby powder was contaminated with asbestos and caused cancer. Claims fell into two primary categories:

Ovarian cancer claims: Women who used talc powder for feminine hygiene alleged that the product caused ovarian cancer. These claims represented the majority of cases.

Mesothelioma claims: A smaller number of claimants alleged that asbestos contamination in talc products caused mesothelioma. These cases were often excluded from bankruptcy settlement proposals due to their different nature and the strength of causation evidence.

J&J’s Position

Johnson & Johnson maintained that its talc products were safe and did not contain asbestos. The company characterized the bankruptcy filing as an effort to efficiently resolve claims rather than fight them case by case.

“We continue to believe our products are safe, do not contain asbestos, and do not cause cancer,” the company stated in announcing the bankruptcy filing. “This action is consistent with our effort to resolve all remaining talc litigation in a fair and efficient manner.”

Setting a Precedent

The J&J bankruptcy became a test case for whether the Texas Two-Step strategy would survive legal challenges. Consumer advocates, bankruptcy scholars, and some lawmakers warned that allowing wealthy corporations to use this tactic would undermine the bankruptcy system and deny claimants their day in court.

The case attracted attention from Congress, with some legislators calling for reforms to prevent abuse of bankruptcy by solvent companies facing mass tort litigation.

What Followed

LTL Management’s first bankruptcy would ultimately be dismissed in 2023 when the Third Circuit Court of Appeals ruled that the filing was made in bad faith. J&J would attempt the strategy two more times before finally abandoning the bankruptcy approach in 2025.