Court Rejects J&J's 2nd Talc Bankruptcy
A federal judge rejected Johnson & Johnson's $8.9 billion settlement plan in July 2023, ruling the LTL Management bankruptcy was filed in bad faith.
A federal bankruptcy judge in New Jersey dismissed Johnson & Johnson’s second attempt to use bankruptcy to resolve tens of thousands of talc cancer lawsuits, ruling in July 2023 that the company’s subsidiary LTL Management had filed its Chapter 11 petition in bad faith.
The $8.9 Billion Proposal
Johnson & Johnson had offered to fund an $8.9 billion trust to compensate claimants who alleged that the company’s talc-based baby powder caused ovarian cancer. The proposal would have required at least 75% of claimants to accept the deal through a bankruptcy plan confirmation process.
Judge Michael Kaplan found the strategy problematic. Despite increasing the proposed settlement from the original $2 billion offer, J&J still failed to demonstrate that its subsidiary faced genuine financial distress. A fundamental requirement for bankruptcy protection.
What Is the Texas Two-Step?
Johnson & Johnson employed a controversial legal maneuver known as the “Texas Two-Step,” which allows corporations to:
- Create a new subsidiary under Texas law through a divisive merger
- Transfer all liability for specific claims to that subsidiary
- Have the subsidiary file for bankruptcy to halt litigation
- Force claimants into bankruptcy court rather than civil trials
The strategy derives its name from Texas’s permissive business formation laws and the two-step process of creating a liability-absorbing entity that then seeks bankruptcy protection.
Critics, including bankruptcy scholars and consumer advocates, have called the maneuver an abuse of bankruptcy law that allows healthy companies to avoid accountability while genuine bankruptcy is designed for businesses facing actual financial hardship.
Timeline of J&J’s Bankruptcy Attempts
October 2021: J&J creates LTL Management LLC and transfers all talc liabilities to this new entity. LTL immediately files for Chapter 11 bankruptcy in North Carolina.
February 2022: The case is transferred to New Jersey bankruptcy court.
January 2023: The Third Circuit Court of Appeals dismisses LTL’s first bankruptcy case, finding it was filed in bad faith because J&J itself was not in financial distress.
April 2023: Within hours of the dismissal, LTL Management files for bankruptcy a second time with a revised $8.9 billion settlement offer.
July 2023: Judge Kaplan dismisses the second bankruptcy, again finding bad faith.
Mesothelioma Claims Excluded
Notably, J&J’s bankruptcy proposal specifically excluded mesothelioma claims. The company had already settled approximately 95% of mesothelioma lawsuits filed against it through individual settlements rather than the mass bankruptcy process.
This distinction matters because mesothelioma cases involve a different exposure pathway. Asbestos contamination in talc. And often result in larger verdicts due to the severity of the disease and clearer causation evidence.
J&J’s bankruptcy proposal excluded mesothelioma claims, which involve different causation evidence (asbestos contamination in talc). The company settled ~95% of mesothelioma lawsuits individually, where verdicts have reached hundreds of millions to over a billion dollars.
What It Means for Claimants
The dismissal meant tens of thousands of talc lawsuits could proceed in state and federal courts rather than being consolidated in bankruptcy proceedings. For many claimants, particularly those with advanced illness, traditional litigation offers the possibility of faster resolution and potentially larger awards than bankruptcy trust payments.
Trial verdicts in individual talc cases have ranged from tens of millions to billions of dollars, though many are reduced on appeal or through post-verdict negotiations.
J&J’s Third Attempt
Johnson & Johnson would later make a third attempt at resolving talc litigation through bankruptcy in 2024, which also failed. The company continued to face thousands of lawsuits alleging its talc products were contaminated with asbestos and caused cancer.
The repeated bankruptcy dismissals established important precedent limiting the ability of financially healthy corporations to use the Texas Two-Step strategy to avoid mass tort litigation.
References
Reuters. J&J loses second bid to resolve talc lawsuits in bankruptcy.
https://www.reuters.com/legal/litigation/jj-loses-second-bid-resolve-talc-lawsuits-bankruptcy-2023-07-28/
Law360. J&J's Talc Unit's Bankr. Bid Fails Again Over Bad Faith.
https://www.law360.com/articles/1703088
Reader Q&A
Frequently Asked Questions
Why was the second bankruptcy dismissed?
Judge Michael Kaplan ruled that despite J&J increasing its settlement offer from $2 billion to $8.9 billion, LTL Management still failed to demonstrate genuine financial distress. A fundamental requirement for bankruptcy protection. The filing was found to be in bad faith.
What happened to mesothelioma claims?
J&J’s bankruptcy proposal excluded mesothelioma claims. The company had already settled approximately 95% of mesothelioma lawsuits through individual settlements rather than the mass bankruptcy process, reflecting the stronger causation evidence and larger verdicts in these cases.
What did this mean for claimants?
The dismissal allowed tens of thousands of talc lawsuits to proceed in state and federal courts rather than being consolidated in bankruptcy. For many claimants, particularly those with advanced illness, traditional litigation offers faster resolution and potentially larger awards than bankruptcy trust payments.
Did J&J try again after this dismissal?
Yes. J&J made a third bankruptcy attempt in 2024, which also failed. The repeated dismissals established important precedent limiting solvent corporations’ ability to use the Texas Two-Step strategy to avoid mass tort litigation.
What is the average payout for a mesothelioma settlement?
Average mesothelioma settlements range from $1 million to $1.4 million for people with mesothelioma filing personal injury or wrongful death claims. Trial verdicts average higher, from $2.4 million to $20.7 million, though fewer than 5% of cases reach trial. Asbestos trust fund payouts average $300,000 to $400,000. Actual amounts vary by case factors like exposure history and defendant liability. These figures come from law firm reports on 2026 cases.
Do you have to pay taxes on a mesothelioma settlement?
Mesothelioma settlements awarded to people with mesothelioma for physical injury, medical expenses, pain and suffering, or lost wages are generally not taxable under IRS Section 104(a)(2). Punitive damages, if awarded in a trial verdict, and any interest accrued on the settlement are taxable as income. Taxable portions must be reported on federal tax returns, while nontaxable compensatory damages typically do not require reporting. Settlement terms and prior tax deductions for medical costs can affect tax treatment.
Are mesothelioma settlements public record?
Most mesothelioma settlements are private due to confidentiality clauses in agreements, keeping payout details out of public record. Trial verdicts, in contrast, become part of public court records and may appear in legal publications or news reports. This distinction allows companies to avoid public acknowledgment of liability through settlements.
What is the largest mesothelioma settlement?
Reported mesothelioma verdicts have reached up to $250 million against a single defendant, as in the 2003 Roby Whittington case versus U.S. Steel, described across multiple sources as the largest in asbestos litigation history. More recent high verdicts include $1.5 billion for Cherie Craft versus Johnson & Johnson in December 2025 and $966 million for Mae K. Moore’s family in a talc-related case. Settlements typically average $1 million to $2 million, with individual amounts varying widely but rarely exceeding $10 million in reported cases. No primary government or peer-reviewed sources confirm a single largest settlement, as data relies on law firm and litigation reports.