Johnson & Johnson’s controversial strategy to free itself from talc liabilities by creating a holding company for them and declaring bankruptcy has drawn the attention of Congress.
The business-friendly ploy, known as the Texas Two-Step, has been used by large companies to shield their assets from accountability when faced with a mountain of lawsuits, too costly to litigate individually.
On the Senate floor on Tuesday, Dick Durbin (D-Illinois) lambasted the move, highlighting a mesothelioma victim, who has been denied the ability to take her case to court.
“There’s a justice system for rich people and powerful corporations—and there’s the system for everyone else,” said Durbin. “And many days, it seems that the gulf between those two systems of justice is getting wider and deeper.”
Durbin’s comments come amid a court battle J&J is waging this week to protect its ability to employ the strategy.
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On Tuesday, a lawyer for J&J’s bankrupt subsidiary, LTL Management, said that the parent company was close to a talc settlement last year that would have cost between $4 and $5 billion, which was more than double the figure J&J offered to resolve the liability through the bankruptcy procedure. J&J has already paid $4.5 billion to resolve talc claims over the last five years, the company said in court papers.
The lawyer, John Kim, also said that the creation of LTL was necessitated by the accumulation of mesothelioma and ovarian cancer cases that J&J faced. He said that in 2020, new lawsuits were being presented at a rate of one per hour, every day, reaching a total of 38,000 cases.
When the hearing began on Monday in Trenton, N.J., bankruptcy attorney Laura Davis told the court: “This model of Chapter 11 cannot be what Congress had in mind when it enacted” the federal bankruptcy code.
There are other tentacles to the story. Earlier this month, activist investor platform Tulipshare—which pools shares to promote change in companies—revealed that it wants to leverage a vote to stop J&J from selling its talc-based products overseas. The initiative prompted J&J to ask the SEC to exclude Tulipshare’s proposal from an upcoming proxy filing.
RELATED: J&J, plowing ahead with talc bankruptcy strategy, faces investor push to pull product worldwide
While J&J has stopped selling its talc product in the U.S., it continues to do so abroad, insisting that they are safe.
“For years, Johnson & Johnson denied claims that its products contained asbestos,” Durbin said on Tuesday. “But internal company documents obtained through the discovery process told a different story. They showed that Johnson & Johnson knew about the asbestos in their products while they were actively advertising the use of this product by adults and to use it on our babies.”