J&J Eyes Texas as Venue for Next Round of Baby Powder Fight

Johnson & Johnson was twice blocked in New Jersey from getting bankruptcy protection from one of its units to resolve billions of dollars in cancer claims tied to baby powder use. For its third try, the company is eyeing Texas, home to what are widely considered more business-friendly courts.

The third Chapter 11 bid — including a $6.5 billion settlement offer — will likely land somewhere in the Lone Star State after judges in New Jersey concluded that thousands of cancer lawsuits didn’t pose enough financial distress to justify bankruptcy protection. The company outlined its plans in public disclosures to claimants last month.

By shifting the case outside its home base in New Jersey, critics say J&J is joining the growing list of companies seeking more-favorable venues for an edge in court. The maneuver, known as forum shopping, is legal and can be an effective way to get the case in front of a judge that could be more inclined to side with the company.

Related: J&J Near Disclosing Support for Talc Settlement, Sources Say

“It’s a blatant case of forum shopping,” said Robert Lawless, a University of Illinois law professor who teaches about the US bankruptcy system and its effects on consumers. “I don’t blame J&J’s lawyers for trying different strategies to advance their client’s interest. It’s up to the judges to resist.”

‘Forum Shopping’

Business-friendly Texas has become a popular option for litigants frustrated with courts in other states. Billionaire Elon Musk moved electric-car-maker Tesla Inc.’s incorporation to Texas this year after a Delaware judge threw out his record $56 billion compensation plan.

“Although Texas is the anticipated venue of any prepackaged Chapter 11 case, a final determination has not and will not be made until the final vote count is certified by the claims administrator,” said Erik Haas, J&J’s worldwide vice president of litigation.

Related: J&J Gets Plaintiff Backing for $6.5 Billion Baby Powder Accord

J&J has said its talc-based powders never caused cancer and that it appropriately marketed its baby powder for more than 100 years. Last year, the company discontinued the talc-based version of the product and replaced it with a cornstarch-based substitute.

In July, a federal appeals court rejected the second attempt by a J&J unit to get bankruptcy protection in New Jersey. The court concluded that it failed to prove a realistic possibility of financial distress posed by baby powder litigation because it was backed by J&J. The health-care company reported a revenue of $85.2 billion in 2023.

Texas Two Step

J&J’s efforts to use the bankruptcy system in a place other than where it’s headquartered involve a controversial move, known as the Texas Two Step filing. It allows the company to confine liability to a unit set up specifically to resolve tens of thousands of baby powder lawsuits. Last year, J&J moved the unit to Texas, in preparation for its third attempt to resolve the cases in bankruptcy court.

Related: J&J Loses Latest Legal Bid to Revive Talc Bankruptcy Strategy

Critics say the maneuver unfairly allows profitable companies to trap mass-tort cases in bankruptcy court, forcing victims to accept less-than-robust recoveries.

Koch Industries and its Bestwall unit used it to confine lawsuits blaming the building-supplies maker of selling goods tainted with asbestos, a carcinogen. The US Supreme Court recently declined to hear an appeal by victims who opposed the bankruptcy move.

In 2017, Koch argued it was unfairly facing “70-80% of all lawsuits” tied to mesothelioma caused by asbestos even though its product, a joint compound that contained asbestos sold by Bestwall, amounted to less than 2% of the market for that product.

A bipartisan group of US lawmakers recently proposed a bill to crack down on the Texas Two Step, unless a company can prove it faces true financial distress and has the right to invoke bankruptcy protection.

Third Attempt

The J&J unit’s third attempt in bankruptcy court will have another new feature along with the venue change. The company has secured the support of more than 75% of claimants who blame the company’s former talc-based version of baby powder for causing a variety of cancers although the tally hasn’t yet been announced as certified.

Under Chapter 11 rules, J&J needed to cross that level of support so a bankruptcy judge can quickly approve the unit’s settlement plan, which offers $6.5 billion to resolve all current and future ovarian and gynecological cancer suits related to its baby powder.

Some legal experts argue the support of claimants won’t alter the outcome and that J&J’s third attempt will likely fail. Melissa Jacoby, a University of North Carolina law professor and bankruptcy expert, said earlier this year the chances of success “should be zero.”

J&J’s first attempt with a Chapter 11 filing was in North Carolina, but a bankruptcy judge there found the company and its subsidiary didn’t have enough connection to the state, so he sent it to New Jersey. The same thing could happen in Texas.

But Samir Parikh, a Wake Forest University law professor who teaches about bankruptcy issues, said the process could still create a fair settlement for talc victims. Some have been waiting years on compensation for their injuries or their loved one’s death.

“This case has been filled with twists and turns,” Parikh said. “It seems like the finish line is in sight.”