Bankruptcy Is Used by Wealthy Companies to Avoid Legal Liability

Approximately 38,000 consumer lawsuits have been filed against Johnson & Johnson for allegedly including asbestos in their baby powder, which allegedly caused ovarian cancer and mesothelioma. Executives at Johnson & Johnson allegedly knew about the risks of asbestos for decades and still included it in their baby powder. Those same executives deny the allegations that their product is contaminated or that it caused anyone to get sick.

The company finally pulled its baby powder off the shelves in 2020, but only because bad publicity had hurt sales, according to the giant pharmaceutical company.

The results of the lawsuits against Johnson & Johnson have been a mixed bag. The company has emerged victorious in some of those lawsuits but has been ordered to pay billions of dollars to plaintiffs in other lawsuits.

People with ovarian cancer or mesothelioma are too sick to work and need caregivers to tend to their basic needs, which means either a family member can’t work, or they need to hire a full-time caregiver. Those expenses could be covered by a settlement in the lawsuit against Johnson & Johnson, but the company, which is valued at $400 billion, has found a legal loophole to avoid facing those lawsuits.

The loophole works like this: Johnson & Johnson created a subsidiary company in Texas, which they called LTL. Thanks to a Texas state law, they were able to transfer all the potential legal liability for the contaminated baby powder to LTL, while keeping their valuable assets separate from the new subsidiary. Then LTL filed for bankruptcy in North Carolina, which put all the baby powder lawsuits against Johnson & Johnson on hold for months or even years. At least one of the patients who sued Johnson & Johnson has died while waiting for her day in court, and many more plaintiffs will likely not live to see their lawsuits make it to court against the pharmaceutical giant … and that’s the point.

Johnson & Johnson is far from the only one to employ this tactic to delay or even permanently block lawsuits against it. Other wealthy companies, and even individuals, have taken advantage of these legal loopholes to create shell companies that take all the legal responsibility without the high costs normally associated with filing for bankruptcy.

Because it is the laws that allow for this evasion from wealthy companies, it is up to the lawmakers to get rid of these legal loopholes. There is already talk in Congress of bipartisan support for legislation that would severely limit, if not outright ban these bankruptcy loopholes.

There is also talk among legal experts that there is already a realistic chance that bankruptcy courts will recognize that companies are using bankruptcy to avoid legal liability, and that they’ll refuse to allow bankruptcies to go forward if it looks like it’s being used to avoid liability for alleged wrongdoing.

The phrase “let the buyer beware” is well known, but our key phrase at Lubin Austermuehle is “let the victimized and defrauded be aware there is a trusted resource in the area ready to protect and defend their rights.” We are available throughout the area, from Oak Park to Park Ridge and beyond. Act now. Take advantage of our FREE consultation where we can discuss your legal issues and needs, as well as our ability to meet (and exceed) your expectations. Call 630-333-0333 or contact us via our website by clicking here. We look forward to speaking with you.

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