J&J Faces Fresh Legal Headwinds as Bankruptcy Strategy Unravels Again

Johnson & Johnson’s latest attempt to circumvent talc litigation through bankruptcy is crumbling on multiple fronts, with both the federal judiciary and Congress moving decisively to block what has become the company’s signature legal maneuver.

Court Ruling Dismantles Third Bankruptcy Bid

On Thursday, the U.S. Court of Appeals for the 3rd Circuit doubled down on its rejection of J&J’s strategy to isolate talc-related liabilities in a shell company and shield them through bankruptcy proceedings. The court determined that LTL Management, LLC—the subsidiary created to hold decades-old asbestos and cancer claims—was artificially engineered rather than organically distressed, rendering the bankruptcy filing fundamentally improper.

This marks the latest judicial setback for the half-trillion-dollar pharmaceutical giant. The methodology, colloquially known as the Texas Two-Step, has been attempted twice before and rejected each time. Opponents characterize it as a calculated effort to suppress the claims of cancer victims who assert that J&J’s talc-based products caused ovarian cancer and mesothelioma.

Congressional Push to Legislate Against the Tactic

Recognizing the limits of case-by-case court challenges, lawmakers are moving to make the Texas Two-Step illegal entirely. A bipartisan coalition led by Senator Josh Hawley (R-MO) and Senator Sheldon Whitehouse (D-RI) introduced the Ending Corporate Bankruptcy Abuse Act (ECBA) of 2024 this week—a bill explicitly designed to presumptively classify such transactions as bad faith bankruptcy filings.

The legislative momentum reflects growing frustration with the company’s persistence. As Andy Birchfield, a leading attorney in the talc litigation and head of the Mass Torts Litigation Section at Beasley Allen Law Firm, put it, “The third time will not be the charm for J&J.” He added that the company’s approach amounts to “a war of attrition against cancer victims.”

The Vote and What Comes Next

By July 26, talc claimants will vote on whether to accept J&J’s proposed settlement framework for a third bankruptcy filing. The plan requires 75% approval—a threshold critics argue J&J manipulates through control of the voting process itself.

If the vote passes, J&J plans to file bankruptcy in Texas under yet another iteration of its strategy. However, Andy Birchfield and other counsel have questioned the legitimacy of the process, noting that the company controls ballot eligibility, voting procedures, and ballot counting—all without judicial oversight.

The irony is stark: even if J&J secures the vote percentage it seeks, success in a courtroom remains far from guaranteed. Federal judges have already signaled skepticism, and the ECBA would essentially preclude such strategies from receiving judicial approval going forward.

Why This Matters

The J&J saga has become a bellwether for how U.S. courts and legislators will police corporate bankruptcy tactics. Victims and their families—many of whom have endured illness or death over the past decade—view each rejection as validation that the legal system, despite corporate resources and procedural complexity, ultimately cannot be bent entirely to corporate will.