Johnson & Johnson has a problem. For decades, it sold talc baby powder, a product that made Johnson & Johnson a household name and earned the business billions. But as those babies grew up, they started getting cancer. And then they began suing. Last June, twenty-two plaintiffs cemented a $2.12 billion judgment against Johnson & Johnson for cancer caused by its baby powder.1Lawrence Hurley, U.S. Supreme Court Rebuffs J&J Appeal over Billion Baby Powder Judgment, Reuters (June 1, 2021, 6:17 PM), https://www.reuters.com/legal/government/us-supreme-court-declines-hear-jj-appeal-over-2-billion-baby-powder-judgment-2021-06-01 [perma.cc/R3SP-CD7R]. For a thorough account of the development of talc powder and the asbestos-based cancer concerns, see Lisa Girion, Johnson & Johnson Knew for Decades That Asbestos Lurked in Its Baby Powder, Reuters (Dec. 14, 2018, 2:00 PM), https://www.reuters.com/investigates/special-report/johnsonandjohnson-cancer [perma.cc/WED6-LKXY]. Another 38,000 cases (and counting) remain in progress, each with the potential for a similar verdict.2Vince Sullivan, Resistance to J&J’s Bankruptcy Gambit May Be Futile, Law360 (Oct. 15, 2021, 6:10 PM), https://www.law360.com/articles/1431485/resistance-to-j-j-s-bankruptcy-gambit-may-be-futile [perma.cc/7L3X-MB4T].
To handle these mass tort liabilities, Johnson & Johnson has followed the lead of many businesses and turned to the bankruptcy courts. But it has done so with a twist. Unlike the businesses that pioneered using bankruptcy for mass torts, Johnson & Johnson is not filing for bankruptcy. Instead, it is dividing itself using an obscure Texas law, moving its assets into one business and its talc liabilities into another, and having the liability-laden business file for bankruptcy.3 Id. This maneuver, known as the “Texas Two-Step,” threatens the tort recovery of tens of thousands of talc claimants.