Johnson & Johnson bankruptcy maneuver blocks baby powder cancer lawsuits Johnson & Johnson spun off liabilities — including roughly 38,000 lawsuits — linked to claims of asbestos contamination in its baby powder to a new firm, which then declared bankruptcy.

J&J is using a bankruptcy maneuver to block lawsuits over baby powder cancer claims

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ARI SHAPIRO, HOST:

More than 38,000 women have sued Johnson & Johnson, claiming the company sold baby powder contaminated with asbestos. Many women claim that powder caused devastating cancers. J&J has denied any wrongdoing. And now the company is using a controversial bankruptcy maneuver to try to block the lawsuits. NPR's Brian Mann joins us now. Hey, Brian.

BRIAN MANN, BYLINE: Hey, Ari.

SHAPIRO: Johnson & Johnson is one of the richest corporations in the world, valued at more than $400 billion. So explain how it could use bankruptcy court to block these lawsuits from more than 38,000 women.

MANN: Yeah, it sounds kind of crazy. So let me walk you through it, Ari, step by step. So J&J is this super-rich health products company headquartered in New Jersey. And as you say, they're about as far from bankrupt as you can get. So (inaudible) went to Texas, and using a quirk of that state's laws, they created a completely new company called LTL. Then Johnson & Johnson dumped all the liability for these baby powder asbestos lawsuits, you know, tens of billions of dollars of legal risk, all of that got offloaded into this new firm. Then the new company, LTL, quickly filed for bankruptcy. And here's Lindsey Simon, an expert on bankruptcy law at the University of Georgia.

LINDSEY SIMON: Johnson & Johnson doesn't have this liability anymore. They pushed all of it into the company that they created just to file for bankruptcy.

MANN: So J&J isn't off the hook entirely, but Simon says this will make it a lot harder for all those women suing J&J to get their day in court.

SIMON: Consumers can't recover against a big solvent company. They have to recover against this smaller, fictional company that they created.

MANN: It's kind of remarkable, Ari. You know, these women who bought and used Johnson & Johnson's iconic baby powder now find themselves entangled legally with this completely different company. The new firm does say it has assets worth around $2 billion to pay any settlements set by the bankruptcy court, but critics are telling me that damages could run 10 times higher than that.

SHAPIRO: This sounds like a shell game. What does Johnson & Johnson say about it?

MANN: Yeah. Johnson & Johnson has long denied any wrongdoing in all this. They say their baby powder, which they discontinued selling in the U.S. last year, they say it was always safe. They say they stopped selling it just because demand had dropped, though public health groups had urged them to take their talc off the market. The company says they've been persecuted through all this by greedy attorneys pushing all these lawsuits. And in a conference call with investors this week, one of J&J's top executives, Joseph Wolk, defended the use of this bankruptcy maneuver as a way to basically protect the company.

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JOSEPH WOLK: There's an established process that allows companies facing, you know, abusive tort systems to resolve claims in an efficient and equitable manner. It's really the bankruptcy courts that will ultimately decide this.

MANN: And as part of this, Johnson & Johnson has asked a federal judge to freeze all those baby powder lawsuits while the bankruptcy maneuver is reviewed.

SHAPIRO: I know this has made a lot of people angry. What are you hearing?

MANN: Yeah. The idea that this rich company with tons of assets is using a bankruptcy maneuver to shield itself does make people furious. Senator Elizabeth Warren, the Democrat from Massachusetts, tweeted about this, saying - and I'm quoting here - "another giant corporation is abusing our bankruptcy system to shield its assets and evade liability." And I also spoke with Andrew Birchfield. He's an attorney representing some of the women with ovarian cancer who have filed lawsuits against J&J. And he says if this legal strategy works, it will set a dangerous precedent for people harmed by big companies.

ANDREW BIRCHFIELD: Women and families would be devastated. And it would just be a get-out-of-jail-free card for Johnson & Johnson here.

SHAPIRO: Well, Brian, are other companies using this kind of tactic?

MANN: Yeah. A lot of companies are starting to do this, as well as rich individuals. Lawmakers in Congress from both parties say they want to reform the bankruptcy system, but, Ari, that's not likely to happen in time to affect this case involving Johnson & Johnson.

SHAPIRO: NPR's Brian Mann. Thank you.

MANN: Thank you, Ari.

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