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Illustration: Aïda Amer/Axios

It's official: Johnson & Johnson has invoked a Texas legal loophole in an attempt to protect the bulk of its corporate assets from claims that its baby powder caused ovarian cancer and mesothelioma.

Why it matters: It's the biggest and boldest invocation yet of the so-called Texas two-step defense. But it's still not clear whether it's going to work.

How it works: J&J has now split into two companies, one of which — LTL Management LLC — holds all the baby-powder liabilities. LTL has filed for bankruptcy, which means that all existing cases and trials against the company are halted, pending a bankruptcy settlement.

  • J&J has promised to fund LTL with at least $2 billion to be spread across the 34,600 claimants. That's less than it already owes in just one case with 22 plaintiffs.
  • J&J is attempting to cap its liabilities at the value of its consumer arm, Johnson & Johnson Consumer Inc. (JJCI) — the parent company of such brands as Neutrogena, Band-Aid, Listerine, Splenda, Visine and Tylenol.

The other side: Plaintiffs calculate that while JJCI is certainly very valuable, J&J's total talc-related liabilities could be much larger. So they want to be able to sue J&J itself — a company worth over $400 billion.

Between the lines: J&J seems to have the legal upper hand for the time being. LTL filed for bankruptcy in Charlotte, North Carolina, where the Fourth Circuit places the burden of proof on challengers, rather than on the debtor (which would be the case in Delaware.)

What's next: J&J wants to negotiate a global settlement with all of the plaintiffs — one that guarantees them money and, crucially, that releases J&J itself from any further liability. If the two sides can't find a sum that's mutually acceptable, the bankruptcy could drag on for many years.

  • A previous Texas two-step case involving asbestos claims against BestWall, a subsidiary of Koch Industries, has been sitting in bankruptcy court for about four years.

The bottom line: J&J is happy to see the bankruptcy case drag on indefinitely, especially if the tort cases are stayed while that happens. But unless and until it can persuade the claimants that it's offering a good deal, the parent company won't be formally released from talc-related liability.

Go deeper

Dan Primack, author of Pro Rata
Jan 7, 2022 - Economy & Business

Judge opens door for bankruptcy blame suits

Illustration: Brendan Lynch/Axios

Corporate directors often ask for personal liability releases when deals go bad and debt needs to be restructured. But they may need to become much more careful about what they do next.

Driving the news: A Delaware judge recently refused to dismiss a breach of fiduciary loyalty claim against three partners of private equity firm Wellspring Capital Management, related to their ownership of a gun retailer that went bankrupt in 2019.

Tina Reed, author of Vitals
6 mins ago - Health

The end of the Omicron wave is in sight

Expand chart
Data: Our World in Data; Chart: Baidi Wang/Axios

The Omicron wave is likely beginning to recede in the U.S., experts say.

Why it matters: Omicron is still wreaking havoc in parts of the country, but infectious disease experts are optimistic that relief is around the corner.

NASA estimates Tonga volcano exploded with force of 5-6 megatons

A satellite image of Hunga Tonga Hunga Ha’apai volcano on Dec. 24, before the eruption. Photo: Satellite image ©2022 Maxar Technologies

NASA scientists estimate the power of Tonga's volcanic eruption over the weekend to have been 5-6 Megatons of TNT equivalent.

Threat level: Saturday's eruption of the Hunga Tonga Hunga Haʻapai volcano and subsequent tsunami killed at least three people. Scientists warn an "ash-seawater cocktail" poses a potentially toxic health threat, and drinking water could be contaminated.