Nearly 40 thousand individuals have filed suits against Johnson & Johnson (NYSE: JNJ) alleging that the company's talc-based baby powder caused their cancer. Dozens have already received judgments with awards ranging into the tens of millions. Now, in an effort to avoid paying out, J&J has created a new company and dumped all of its liabilities on that company. Then the new company declared bankruptcy.
"Johnson & Johnson doesn't have this liability anymore. They pushed all of it into the company they created just to file for bankruptcy," bankruptcy expert at the University of Georgia School of Law, Lindsey Simon, told NPR. "Consumers can't recover [damages] against a big solvent company. They have to recover against this smaller fictional company."
Investigations by Reuters and The New York Times in 2018 revealed that J&J had known since 1971 that small amounts of asbestos were present in its products. According to the investigations, company executives, doctors, and lawyers were all worried about the potential problem, but none told regulators or the public. J&J has consistently denied these claims.
"Johnson & Johnson filed in court last week to split its Baby Powder from the rest of the company. Why? J&J knew asbestos laced some bottles but kept it a secret for decades," Representative Katie Porter, D-CA, tweeted. "Tens of thousands of women with ovarian cancer are suing, and the company wants to shield its assets."
J&J itself, with more than $25 billion in cash in reserve, has not filed for bankruptcy and is still one of the wealthiest corporations in the world. Company executives defended the decision to separate the cancer claims on a call with investors, saying that, because it's now-discontinued baby powder is safe, the suits against it are invalid.
"There's an established process that allows companies facing abusive tort systems to resolve claims in an efficient and equitable manner," J&J CFO Joseph Wolk said. "It's really the bankruptcy courts that will ultimately decide this. It's not plaintiff attorneys. It's not Johnson & Johnson."
The J&J-created company, LTL, said in a statement that J&J had agreed to provide a $2 billion cancer claim fund.
This summer, the Supreme court ruled that J&J would have to pay out $2 billion for a single case involving 22 women. There are roughly 38,000 individuals claiming J&J's products caused their cancer.
"We are confident all parties will be treated equitably during this process," John Kim, chief legal officer of LTL, is quoted in the statement.
According to finance experts, J&J's tactic is part of a larger trend of the wealthy avoiding liability by declaring bankruptcy.
"Here we go again," Senator Elizabeth Warren, D-MA, tweeted. "Another giant corporation is abusing our bankruptcy system to shield its assets and evade liability for the harm it has caused people across the country."