J&J Texas Two-Step Fraud Lawsuit Dismissed
A federal judge dismissed a fraud suit by five women with cancer alleging J&J used bankruptcy to shield billions. The 67,000+ talc cases remain pending.
A federal judge dismissed a fraud lawsuit on January 29 filed by five women with cancer who alleged Johnson & Johnson deliberately used a bankruptcy maneuver known as the “Texas two-step” to place billions of dollars beyond their reach and prevent them from having their day in court.
U.S. District Judge Michael Shipp, sitting in New Jersey, ruled that the plaintiffs could not establish they had been harmed by the delays resulting from J&J’s bankruptcy strategy, which stretched from October 2021 to March 2025.
What the Plaintiffs Alleged
The five women accused J&J of fraud, contending the company engineered a corporate restructuring specifically to obstruct their ability to recover damages in civil litigation over talc-containing products.
The plaintiffs alleged J&J’s strategy was designed to “hinder, delay, and defraud these women and prevent them from ever having their day in court.” They argued that nearly four years of bankruptcy-related delays constituted cognizable harm in itself.
J&J executed the Texas two-step by creating a subsidiary called Red River Talc LLC, transferring its talc liabilities to that entity, and then placing the subsidiary into Chapter 11 bankruptcy protection. The tactic has drawn scrutiny from plaintiff attorneys, legal academics, and some members of Congress who argue it allows solvent companies to limit payouts to people injured by their products.
Why the Judge Dismissed the Case
Judge Shipp found that the harm the women described was too speculative to support a fraud claim. He wrote that “their claimed injury is entirely hypothetical, as it is contingent on plaintiffs’ first prevailing in the talc litigation.”
Shipp also held that treating delay alone as an injury would be “fundamentally incompatible with the structure and purposes of the bankruptcy code.” The ruling did not address the underlying merits of the talc claims.
The Texas two-step is a corporate restructuring strategy in which a company splits into two entities, assigns its liabilities to one of them, and then places that liability-holding entity into bankruptcy. Critics argue the tactic allows solvent parent companies to limit compensation for people harmed by their products.
Reactions
Patricia Kipnis, the attorney representing the five women, said they “disagree with the decision and will be reviewing it with our clients to discuss an appeal.” No timeline for a potential appeal was announced.
Erik Haas, J&J’s worldwide vice president of litigation, said the court correctly rejected what he described as “wholly meritless claims.”
J&J has maintained throughout the litigation that its talc products are safe, do not contain asbestos, and do not cause cancer. Tens of thousands of women have alleged the products contained asbestos and caused ovarian cancer and other cancers.
What Comes Next
The dismissal does not affect the underlying talc claims pending in the MDL before Judge Shipp. Those cases, numbering more than 67,000, involve allegations that J&J’s talc-based products caused ovarian cancer and other cancers in women who used them over many years.
The plaintiffs’ attorney indicated the legal team is evaluating an appeal of the fraud ruling. The outcome of any appeal could influence how courts assess similar challenges to the Texas two-step strategy in other mass tort bankruptcies.
References
Reuters. (2026-01-29). US judge tosses lawsuit accusing J&J of fraud over talc bankruptcy strategy.
https://www.reuters.com/sustainability/boards-policy-regulation/us-judge-tosses-lawsuit-accusing-jj-fraud-over-talc-bankruptcy-strategy-2026-01-29/
Reader Q&A
Frequently Asked Questions
What is the Texas two-step bankruptcy strategy?
The Texas two-step is a corporate maneuver in which a company divides into two entities, assigns its litigation liabilities to one of them, and then files that liability-bearing entity for Chapter 11 bankruptcy. In J&J’s case, the company created a subsidiary called Red River Talc LLC to hold its talc-related liabilities before filing for bankruptcy protection.
Why did Judge Shipp dismiss the fraud lawsuit?
Judge Shipp ruled that the five plaintiffs could not show they suffered a concrete injury from the bankruptcy delays. He wrote that any harm was hypothetical because it depended on the plaintiffs first winning their underlying talc litigation. He also said treating delay as injury would conflict with the structure and purposes of the bankruptcy code.
Does this ruling affect the broader talc lawsuits against J&J?
No. The dismissed fraud lawsuit was separate from the underlying talc product liability claims. More than 67,000 talc lawsuits consolidated in multidistrict litigation remain pending before Judge Shipp and were not affected by this ruling.
What has J&J said about its talc products?
Johnson & Johnson has maintained that its talc products are safe, do not contain asbestos, and do not cause cancer. Tens of thousands of women have disputed those claims, alleging the products contained asbestos and caused ovarian cancer and other cancers.
What is bankruptcy litigation?
Bankruptcy litigation encompasses disputes within a bankruptcy case, including adversary proceedings (formal lawsuits like preference recoveries or fraudulent conveyance claims) and contested matters (such as objections to claims or relief from stay motions). These arise in Chapter 11 reorganizations, where the debtor in possession acts as a fiduciary, recovering assets for the estate or defending against creditor challenges. An automatic stay halts most pending external litigation upon filing, though parties may seek court approval to lift it. Common issues involve fiduciary duty breaches, lien challenges, and plan confirmation disputes, often resolved faster than typical civil litigation.
Does bankruptcy stop litigation?
Filing bankruptcy triggers an automatic stay that halts most civil lawsuits against the debtor, including those for debts like medical bills, breach of contract, or negligence. This stay prevents creditors from pursuing judgments, collections, or enforcement actions during the bankruptcy process, though it does not dismiss the lawsuit permanently. Exceptions include criminal cases, divorce, child support, fraud, or willful misconduct claims, and creditors may seek court permission to lift the stay. A successful bankruptcy discharge may eliminate the underlying debt in qualifying cases.
What does it mean if your bank account is in litigation?
A bank account in litigation typically means a creditor has initiated or is pursuing a lawsuit against the account holder to collect an unpaid debt, which may lead to a court-ordered levy freezing and seizing funds. Creditors usually must win a money judgment before obtaining a levy writ, though agencies like the IRS can act without one after notice. Judgment creditors discover accounts via debtor examinations or investigators, then serve the bank to enforce the levy. Certain funds, such as federal benefits or state-protected wages, may be exempt from seizure depending on source and location. People facing this can challenge levies in court over errors, invalid debts, or exemptions within a short window.
What happens to litigation in bankruptcy?
When a debtor files for bankruptcy, an automatic stay immediately halts most pending litigation against them, including personal injury or liability claims, pausing proceedings in other courts until the bankruptcy court addresses the matter. The stay does not dismiss lawsuits but provides breathing room, and parties can petition the bankruptcy court to lift it if the litigation could yield assets for creditors or resolve key issues. If the debtor is the plaintiff, the lawsuit often continues after disclosure to the bankruptcy court, while claims against non-debtors proceed unaffected. In Chapter 11 cases, litigation may consolidate into the bankruptcy proceedings for resolution via a reorganization plan. Bankruptcy cannot discharge debts from fraud or intentional injury.