In April, Johnson & Johnson shareholders voted against a proposal to halt sales of talcum powder in global markets such as Asia and South America — a request sparked by concerns about the company’s legal and reputational problems. Last year, the company faced $1.6 billion in talc-related litigation costs and had $3.9 billion set aside the previous year. Reputation-tracking firms said Johnson & Johnson’s once-pristine name among consumers had been tarnished by allegations surrounding talc.
Talc-based products account for a small portion of Johnson & Johnson’s consumer product sales, including plasters and Listerine mouthwashes, but are responsible for a huge portion of the legal problems. In one talk case, Johnson & Johnson was ordered to pay $4.69 billion to 22 plaintiffs in one of the largest personal injury lawsuits ever.
The company has attempted to limit its legal exposure through an elaborate corporate pirouette known as the Texas Two-Step. In February, a New Jersey bankruptcy judge authorized the company to proceed with the maneuver, which takes its name from a foxtrot-inspired dance style and its intricate structure from a quirk of Texas business law.
The reorganization process, which involves segregating and foreclosure of assets from creditors, has only been attempted a handful of times since its inception in 1989, mostly by companies faced with asbestos exposure claims. If successful, it could protect Johnson & Johnson from billions of dollars in legal claims, while also providing an escape route for other companies inundated with personal injury lawsuits.
Gambit has brought Johnson & Johnson talk lawsuits to a halt and may leave claimants, some of whom are extremely ill, a smaller pot of money for payouts. The plaintiffs’ lawyers have appealed to try and stop the maneuver and said the next hearing is scheduled for September.
“After decades of selling talc-based products that the company knew could cause deadly cancers in unsuspecting women and men, J.&J. finally did the right thing,” said Leigh O’Dell, one of the plaintiffs’ attorneys.