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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

Nov 12, 2021 - Health

Johnson & Johnson says it will split into two companies

Photo: Mark Ralston/AFP via Getty Images

Johnson & Johnson announced Friday it will split off its $15-billion-a-year consumer health division to form two independent companies in 2022.

Why it matters: The move will create a slower-growing health care vendor that sells consumer brands like Band-Aid bandages, Tylenol medicines and Johnson’s Baby Powder and a high-margin but riskier advanced research pharmaceutical and medical device company.

Updated 11 mins ago - Politics & Policy

Omicron dashboard

Illustration: Shoshana Gordon/Axios

  1. Health: Coronavirus variant surveillance varies widely by state — Omicron cases confirmed in 5 U.S. states America probably won't lead the effort to understand Omicron.
  2. Vaccines: Omicron adds urgency to vaccinating world — Omicron fuels the case for COVID boosters — Moderna loses patent battles tied to COVID vaccine — Pfizer could have vaccine data for children under five by end of 2021, CEO says.
  3. Politics: Nevada to impose insurance surcharge on unvaccinated state workers — New Jersey GOP lawmakers defy statehouse COVID policy — Oklahoma sues Biden administration over Pentagon vaccine mandate — Omicron travel bans are sign of what's to come.
  4. World: WHO: Delta health measures help fight Omicron — COVID cases surge in South Africa in sign Omicron wave is coming — Germany approves new restrictions for unvaccinated people.
  5. Variant tracker: Where different strains are spreading.
Updated 5 hours ago - Politics & Policy

Prosecutors charge parents of Michigan school shooting suspect

Photo: Scott Olson/Getty Images

The parents of a 15-year-old accused of killing four students and wounding seven other people at a Michigan high school have been charged with four counts of involuntary manslaughter, according to court documents.

The latest: Lawyers for James and Jennifer Crumbley told the Detroit News they are "returning to the area to be arraigned," after law enforcement officials announced a search for the Crumbleys had been initiated.