DOJ Says J&J Talc Bankruptcy Violates Congressional Mass Tort Rules

By Jonathan Randles

The U.S. Justice Department told a federal appeals court that Johnson & Johnson’s strategy for moving talc injury litigation to chapter 11 violates the regime Congress has authorized for litigating mass torts.

The U.S. Trustee Program, a Justice Department unit monitoring bankruptcy courts, said in a Thursday filing with the Third U.S. Circuit Court of Appeals that Johnson & Johnson’s decision to put a newly formed subsidiary into chapter 11 to drive settlements of talc litigation circumvented federal multidistrict litigation procedures which have been prescribed by Congress as the way to deal with mass torts. Johnson & Johnson used an emerging restructuring transaction called a Texas divisive merger to send the talc liability to the subsidiary before it filed bankruptcy, a strategy that will be scrutinized by the appeals court.

The U.S. Trustee and talc injury claimants want the Third Circuit to reverse a bankruptcy judge who authorized the Johnson & Johnson talc subsidiary to stay in chapter 11.

Write to Jonathan Randles at jonathan.randles@wsj.com