J&J can’t use bankruptcy to resolve talc-injury lawsuits, appeals court rules | Hacker News Reader

J&J can’t use bankruptcy to resolve talc-injury lawsuits, appeals court rules

wsj.com

235 pointsDocFeind255 comments

The article does a bad job explaining what exactly J&J is trying to do here and what exactly the appeals court won't let them do.

J&J's plan was to split into two pieces, which I'll call Goodco and Badco. Goodco got the operating assets, Badco got the talc liabilities and more or less immediately filed for bankruptcy. That's a maneuver that has come to be called the Texas Two-Step. However there's a very important missing piece that seems not to be covered by the article: in addition to the talc liabilities, Badco also got a funding agreement with Goodco, which gives Badco the right to be reimbursed by Goodco for any expenses incurred as a result of the talc liabilities, up to ~60 billion USD, or the value of Goodco, whichever is higher.

So J&J's play here was not to outright shield their assets from being used to pay talc liabilities, but rather to force the liabilities to be determined by a single bankruptcy process in the near future, rather than tens of thousands of individual lawsuits that would trickle in over the next 100 years or so.

The appeals court ruled that because of the funding agreement Badco is not in financial distress, and is therefore ineligible to file for bankruptcy. They did not rule either way as to whether the Texas Two-Step is legal.

The fact that the Texas 2 Step is not explicitly illegal is a freaking travesty and the biggest evasion of justice I can think of.

EDIT: There's a TV show me and my wife like call leverage. In the show one of the bad guys who is a powerful CEO says "That's the thing if you or I kill a guy we go to jail. Our company kills a guy we shell out a couple dollars and are on our way."

There needs to be personal consequences for those involved in this, the concept of a corporation and not a person being liable is at the root of the issues. Individuals should be held accountable for what they do, they shouldn't be able to hide behind a legal fiction to protect themselves from the consequences of their actions.

Most of the problems people blame on capitalism aren't a problem with capitalism they are a problem with corporatism. I guarentee there are plenty of CXOs who would be making much different decisions if it involved their asses being thrown in jail, rather than a simple restructuring of their holdings.

Personal liability is still a thing.

If you kill someone as part of your job, you are criminally liable and the corp is civilly liable.

The owners of corporations have limited liability - that's kind of the whole point of a corporation. And it's fundamentally unjust.

It is an absolutely enormous bug in capitalism and the way the corporate charter is used. Our great grandchildren are going to look back on this age as the age where everything was set up perfectly for what to them will likely be known as 'the big crash' or something to that effect. I can't really see a way out resulting in both (1) getting rid of these constructs and (2) not having that crash anyway on account of the economic backlash of (1).

This is a major problem, the question that remains is whether it is the major problem or just one of a whole slew of them that is currently vying for top place.

That's not capitalism. That's 100% purely government with various parties having supposed benefits out of it. And the fact that we have it in our law books and can't change it or have been unable to till now, then you have to concede it's "Democracy".

J&J's executives aren't off the hook for personal liability because of limited liability for owners (J&J is 70% owned by institutional investors, so the owners are more mutual funds than the CXOs), if there was a claim against them then owning some stock wouldn't protect them. They're off the hook because the corporation has vicarious liability for its employees' actions. To punish executives for their actions on behalf of a corporation, I believe you'd want to change agency law rather than corporate law.

Principal liability doesn't, per se, protect the agent. But certain torts can be difficult to pin on an agent personally when the negligence is a byproduct of aggregate decision making of the corporation.

A corporate truck driver who negligently runs someone over--both the driver and their employer are liable. A truck driver who, reasonably relying on his employer's mechanics to maintain the truck, runs someone over when a tire blows because of poor maintenance--not personally liable as he didn't do anything wrong, but their employer would be, as well as possibly one or more of the mechanics, and even possibly one or more executives if they knowingly, negligently cut resources to the mechanics department.

Now if the shareholders need next quarter’s numbers go up to juice the stock price and make it clear to the executive team that if they don’t reduce expenses they will find someone who will. Where should the liability lie if the only way to meet those expectations is to cut resources to the mechanics department?

In principle if you can prove the elements of a tort for one or more shareholders, such as by showing they used their voting control to direct negligent resourcing, then they'd be liable. There is no principal of law categorically protecting them, like a magic talisman. In practice, however, it's difficult to make that case; in particular, it's difficult to prove causation as shareholders are rarely so directly involved in the administration of a company. However, for smaller companies where the shareholder pool is smaller and they're more engaged, or perhaps even for large companies where one of the shareholders has a controlling stake and is very hands-on, then I wouldn't be surprised if there are indeed examples.

The limited liability of shareholders concerns their vicarious liability. Principals are strictly liable for non-intentional torts of their agents, regardless of whether the principal personally did anything wrong. (If they did something wrong, that's another matter.) But in the case of a corporation or similar limited liability entity, this vicarious liability is cut off at a certain point in the ownership chain.[1]

The point of this little subthread is simply that liability extending vicariously to a principal doesn't magically protect the agent. Employees are less often sued simply because it's a waste of time and energy when you can sue the employer; and while an employer could sue an employee to recover, employees rarely have the assets, and in any event it's not very good for employee morale.

So as a software programmer, when you make a commit into repository for Big Corporation, don't think you're magically protected from negligence liability simply because you're an employee. It doesn't work that way. Nobody else is magically protected, either. But by the nature of things, it's the people and entities with the most direct involvement that bare the most risk of a successful claim, along with their principals.

[1] There are proposals to tweak the rules for how and when this vicarious liability is cut-off wrt shareholders. See, e.g., https://repository.law.umich.edu/cgi/viewcontent.cgi?article... But such proposals concern the cut-off for strict, vicarious liability. Generally speaking, there are no hard boundaries when it comes to non-vicarious/direct liability for negligence, notwithstanding the often complex rules implicated when it comes time to determine whether someone was in fact negligent. By contrast, there are legal regimes where liability for negligence only extends to relationships enumerated in statute. Civil Law is in principle like this, though national codes typically contain catch-all provisions that effectively give rise to something much like Common Law Tort.

Thank you for such an interesting, detailed, and in-depth response!

An owner has criminal liability if he performs a criminal act. The owner has limited liability only in so far as he is not part of a criminal act.

That is, if the CEO and subordinates commit a crime without the knowledge of a shareholder, the shareholder is not liable.

Unless you work for the government in which case you claim qualified immunity and the government claims sovereign immunity. Heck, depending on how strong your union is you might even get a paid vacation.

> If you kill someone as part of your job, you are criminally liable and the corp is civilly liable.

the number of police laughing at this comment is immeasurably large.

> If you kill someone as part of your job, you are criminally liable and the corp is civilly liable.

The corp, and people directing it so that killing is part fo your job, may also be criminally liable; for multiple examples of corporate (but not personal) criminal liability for killing people, see the array of felony convictions PG&E has racked up for killing people.

Why should it be illegal? It’s actually beneficial to the people harmed.

What’s the alternative? Hundreds of lawsuits, each individually going to court, no defined chances of restitution, dragging out for decades with eventually the source of funds dismantled.

Instead, the complaints are resolved from a defined source of funds, with the money making assets separated out so that an going concern isn’t destroyed.

And that doesn’t even go into the spurious nature of the asbestos complaints themselves.

It is legally ruled that based on reckless behavior people are owed money. So a corporation takes all of it's money and money making assets and hides it, and then takes a worthless thing be held responsible and to you "this is beneficial to the people harmed"?

> with the money making assets separated out so that an going concern isn’t destroyed.

If this isn't an incredibly deceptive sentence. Essentially we should pay them as long as it doesn't inconvenience us. If it would, we should be shielded from it.

Could you explain how that is good? Do you see that as someone or something being accountable or it's actions? Or dodging accountability?

The top comment does explain that because of this agreement between goodco and badco, goodco isn't actually shielded from the liability, because it still has to reimburse for the liabilities now owned by badco. If that's actually honored it doesn't seem like a bad thing at least (now it might be enabling more legal skulduggery later down the road, so it's reasonable to be suspicious, but the actions so far don't seem as nefarious as the plain texas-two-step where the two wind up completely split).

> It is legally ruled that based on reckless behavior people are owed money.

It is not necessary based on reckless behavior. Businesses often have strict liability, which means they are liable for damages even if they do everything right.

It is a practical solution that simplifies legal cases (as proving regular liability would be harder) and also works as implicit insurance provided to customers. But it is fundamentally unjust and may be contraproductive in cases where it would destroy proper business or where legal costs markedly overwhelm compensation to damaged parties.

Won't they likely pursue a bankruptcy settlement that is less than the current "$60 billion or everything"?

This ruling is apparently saying that the funds are well enough defined that there's no current need for bankruptcy relief, so "instead" probably doesn't apply.

“The complaints are resolved from a defined source of funds, with the money making assets separated out so that an going concern isn’t destroyed.”

It’s here I have a problem. Who gets to decide what a defined source of funds is, what arbitrary limitations there should be, and why wouldn’t a going concern be able to continue? To the first point, it certainly shouldn’t be the defendant co., and it certainly shouldn’t find any refuge in bankruptcy that isn’t simultaneously the whole value of the enterprise with any fake splitting veil pierced back to the original pre-split Entity and liability carried by all. Secondly, there is no threat to a going concern, only the ownership of it - the plaintiffs probably want to be paid, even if the company’s own assets and its insurance are exhausted, by receiving equity in the going concern.

The problem is not only is the government okay with it, they are "in on it".

Look at leaded fuel still in use and sprayed everywhere for decades.

How can people be freaking out about talc and not about leaded fuel sprayed everywhere?

Imagine if people tried to do that with their student loan debt.

I imagine that if it worked, nobody would be able to get a student loan after that.

That’s not how anything works.

At the very least, interest rates and selectivity would go way up.

The current situation is basically the government saying "it's a net positive if everyone willing to do so learns something, however unsuitable they are and useless what they learn", by guaranteeing repayments for low income graduates.

That’s an incredibly uncharitable take.

Is it untrue though? Higher education used to be paid by the state for the brightest few, the rest just didn't have an option to pursue it. Some countries tried to forecast how many engineers/doctors they'd need and ensure there are enough state-paid spots in the respective schools, not sure if the US ever did that.

Now it's pretty much available to anyone, you can bet your future income to your Egyptology study and the state still backs your loan in case you can't ever earn a decent wage.

Unlike a medical bankruptcy it's not an accident that your studies aren't making you profit, unlike a home loan your knowledge can't be repossessed.

You post-bankruptcy earnings would still benefit from your education, it's like keeping your collateral through the bankruptcy and then using it to earn money.

Got a point there or just complaints?

Since there is no way to determine what fringe studies will become important it is beneficial to have as many people highly educated in as many disciplines as possible. State guaranteed education loans accomplished this. The same people also refused to address the perverse incentives opting to allow corruption, fraud, and waste to become endemic in higher education. Now I don’t want to be uncharitable, fraud, waste, and corruption are rampant across America and increases the closer one gets to vast hoards of wealth or cash.

Of course it does. Why do you think 20-something’s with no income or assets can get tens of thousands of unsecure debt at low interest rates?

If suddenly it was easy to not pay it back, lenders simply wouldn’t let them borrow to begin with.

So what did they do before 2005?

It's always been difficult to discharge student loan debt in bankruptcy going back to the 1970s, and becoming increasingly strict with time. Before then, tuitions were much lower.

i failed to get student loans because my mother still owed everything she borrowed for her student loans, plus interest. She never paid a cent and died owing that money.

sometimes i am thankful for stupidity in the banking system. there is no way i could have sat still for 4 years at that point in my life. i have my father’s alcoholic rage to thank for not wanting to be at home, and preferring high school. at college the desire to leave home would have been met even if i didn’t attend class.

> She never paid a cent and died owing that money.

and the taxpayer was hit with the liability of that debt, since the lenders are guaranteed by the gov't.

yes, and how is that my fault?

the only taxpayer that was directly affected was me, and I wasn't a taxpayer when the loan was issued.

I don’t think they said it was your fault. And frankly all taxpayers end up having to pay for deadbeats that don’t pay back their student loans, not just you.

Our parents got free/cheap college from the taxpayer, and didn't need loans at all.

I think it's a game of chicken. The nation has a dire need for an educated workforce, but it knows that the workforce can't pay for the education with cash on hand. At the same time, those workers need education to get jobs with living wages. So we have this system of what amounts to a loose form of indentured servitude with onerous, inescapable debt burden.

If that system of debt peonage were stripped away by legislation, I would wager that society would very quickly cobble together some scheme to continue receiving its supply of educated workers.

Tuitions would have to be lowered by a gigantic proportion, which would hit the college administrations / bureaucrats very hard. Their interests are really at the heart of the student loan problem.

Not just administrators - expensive campuses and vanity college football programs (football is a solid money-loser for a firm majority of colleges, according to the NCAA[1]. This is especially apparent when you look at the highest-paid government employees - in nearly every state, it's a college football coach).

[1] https://www.ncaa.org/sports/2019/11/12/finances-of-intercoll...

From the outside that's just weird.

One can argue that attracting scientists and teachers with high wages and expensive toys is beneficial for research and education but it's hard to see how "professional" sports teams factor into that.

AFAIK in any country outside the US university sport teams are little more than hobby clubs for students and make do with little resources. Yet professional sports seem to be fine regardless.

NFL Clubs for example should be able to build up their own youth departments and not outsource it to the public.

Why would a university need a TV-ready football stadium for thousands of spectators with commercial exploitation of players? A "field", a few stands and a hot dog booth seems enough. Go sports team.

Couldn't get that report to run on my phone, but there is an older linked study here that noted 57% of NCAA football programs were profitable: https://christopherlee.com/college-athletics-by-the-number/.

Also, even if the programs themselves aren't profitable that doesn't mean they don't make a net profit to the college through increased admissions. Lots of college students want to go to a school where they can tailgate and watch a football game.

The NCAA also may have an incentive to say that football isn't profitable, historically they have avoided paying athletes.

That doesn’t make sense.

The plan was to pay the claims but to pay them using one bankruptcy court process, which is more streamlined and has no punitive damages, rather than many separate tort processes.

How does that translate to student loans?

I incorporate myself before I become a student loan borrower.

Still makes no sense. You might as well have said “imagine a beowulf cluster of these” or something about Natalie Portman and hot grits.

frist post

Nah man I was frist

Great reply, thanks.

Then the loans would be a much higher interest rate loan, and since the incorporated "student" does not have collateral to secure said loan against, i very much doubt that anyone would lend the money in the first place. Unless the gov't puts in a special guarantee to make the lender whole - aka, the current system.

Aka, you cannot bankrupt yourself out of the loan.

> How does that translate to student loans?

Imagine a world where natural people could get a new alt identity (SSN and name) on demand and transfer some assets/debt to these identifies. I imagine those with student loans they are unwilling/unable to pay off might do transfer the debt to a freshly minted identity and have the doppelganger take the heat while leaving their core identity with a clean credit record and assets (car and house)

If you had read the case, or even just my comment, you’d see that J&J is not trying to get out of paying. They wrote the “badco” subsidiary a $60+ billion funding guarantee. That was the maximum liability of “oldco.”

This analogy is just terrible. I get people want to go to fancy private schools and then not pay, but that’s no reason to shit up entirely unrelated threads.

You've just described synthetic identity fraud.

The decision is quite readable and makes that very clear: https://www2.ca3.uscourts.gov/opinarch/222003p.pdf

Yep, that's how I figured out what the heck was actually going on. I agree it's readable and clear, but it is not concise: 58 pages.

https://www.newyorker.com/magazine/2022/09/19/johnson-johnso...

Very detailed explanation and the history behind it.

> J&J's plan was to split into two pieces, which I'll call Goodco and Badco. Goodco got the operating assets, Badco got the talc liabilities and more or less immediately filed for bankruptcy. That's a maneuver that has come to be called the Texas Two-Step.

Isn't that what Dupont did with spinning off their PFOAS liability into Chemours?

Hell, Lehman even tried to do this with spinning off their bad real estate investments into "SpinCo" but nobody stayed with them to buy them even after they tried to split off their toxic assets.

https://seekingalpha.com/article/94962-lehman-s-dirty-laundr...

This break aparts are usually CEOs deluding themselves, they can outrun the law, by creating a "sacrifice" lamb. And its a reasonable thought, for most mess ups, they could and can. But when so many victims are involved, even politicans do not dare to save them. You are a dead company walking, you just dont know it yet.

Thank you for that wonderful explanation! Knowing a few things about LLC law, I had wondered the details of what was going on. Every article is like "they moved the liabilities to a new company (because Texas), the end". Per your explanation, it actually sounds like a simple application of general concepts, and also a very sensible court decision that shot it down.

FWIW I think a straightforward sanction in these types of cases would be to pierce the corporate veil to claw back the dividends and executive compensation paid out after the company became aware of the dangers of their product. Once the company becomes aware of a large liability, then any such payments are fraudulent transfers.

> Badco also got a funding agreement with Goodco, which gives Badco the right to be reimbursed by Goodco for any expenses incurred as a result of the talc liabilities, up to ~60 billion

From what I can tell from the source documents this is either a misreading or misleading.

Yes Badco can ask Goodco for up to $60B, however that is too cover administrative expenses and payments. However, payments will come from a trust fund decided with Badco in bankruptcy. From what I'm finding online, J&J has proposed to cap that trust fund at $2.5B. Meaning effectively they are trying to decide the max amount they will be held liable for across all cases.

So apparently not $60B, if I'm reading that correctly.

You are correct that if Badco completes the bankruptcy process the payments will come from a trust fund. But J&J doesn't control how much money goes into that trust fund. The 2.5B is their opening bid but it will ultimately be determined by a judge or jury.

This is the 3rd circuit, which covers Delaware and all of its corporations. This is a really big deal, until and if the Supreme Court is willing to take it up and reverse (but remember J&J went down this path because the Supreme Court refused to hear an appeal of a talc verdict against them).

> ... J&J’s stated goal was to isolate the talc liabilities in a new subsidiary so that entity could file for Chapter 11 without subjecting Old Consumer’s entire operating enterprise to bankruptcy proceedings.

> Two days later, LTL filed a petition for Chapter 11 relief ...

> Talc claimants there moved to dismiss LTL’s bankruptcy case as not filed in good faith ...

> We start, and stay, with good faith. Good intentions — such as to protect the J&J brand or comprehensively resolve litigation—do not suffice alone. What counts to access the Bankruptcy Code’s safe harbor is to meet its intended purposes. Only a putative debtor in financial distress can do so. LTL was not. Thus we dismiss its petition.

Page 49:

> Finally, we cannot help noting that the casualness of the calculations supporting the [Bankruptcy] Court’s projections engenders doubt as to whether they were factual findings at all, but instead back-of-the-envelope forecasts of hypothetical worst-case scenarios.

BURN!

https://www2.ca3.uscourts.gov/opinarch/222003p.pdf

Good! Now hold execs financially and criminally responsible, and you have a chance of saving this wonderful experiment in democracy!

Oh, and reverse the rulings that led to the Sacklers keeping their fortune

Can we go all the way and fine and punish the govt., politicians and regulators that should have been ultimately responsible but were in bed with the companies?

First the executives that likely bought off the regulators and pols need to be held accountable. Then the political class.

Why not both at first? Then we will see how quickly things get good.

I like the idea, but divide & conquer is the best proven way to tackle a systemic issue.

And then also punish everyone who voted for the politicians too, since they also bear responsibility. Or why not just jail everybody - we all have a responsibility somewhere along the line, even if it was just inaction.

Ah, there it is, the sarcastic comment in defense of politicians. FYI, politicians have a duty to the country that voters don’t.

Do voters get money and privilege? And if you don’t know, voting is anonymous.

Not defending politicians. Just pointing out that if you want to regulate against all mistakes or fraud, then you end up over-regulated. If you chop the heads off the people doing things, you soon end up with nobody doing anything. Looking at software startups shows the value of failure (the EU tends to be more conservative, and that hasn’t worked out greatly for them), and it has been interesting watching the software culture spread to hardware (SpaceX).

In the J&J case, there seems to be a paucity of facts showing harm, so punishing up the chain seems particularly egregious.

> Do voters get money and privilege

Are you in the US? Do you work in software? I would suspect a large majority of the world probably considers that you personally have buckets of money and privilege.

I am not a citizen of the US, and I can list many ways that non-citizens (of the USA) are treated poorly, even in allied countries like New Zealand. Not complaining, we get other privileges. I am pointing out that every person’s reality depends on where they are standing in the world.

Addendum: “The optimal amount of fraud is non-zero”, “crime is a policy choice”, “there are still arbitrarily severe options to control crime from where you are, from ‘increase the police budget’ to ‘ban alcohol totally’ to ‘implement an Orwellian dystopia.’.” https://www.bitsaboutmoney.com/archive/optimal-amount-of-fra...

I just noticed this which seemed very relevant: “In classic Soviet style, a number of officials who had little to do with the tragedy were either punished or fired, including the director of U.P.I. and the chairman of its sports club, the local Communist Party secretary, the chairmen of two workers’ unions, and a union inspector.” https://www.newyorker.com/magazine/2021/05/17/has-an-old-sov...

>Now hold execs financially and criminally responsible

... for what? These talc suits are (from my point of view) largely baseless and excellent proof of the proposition that all you need to win a jury decision is a group of sufficiently piteous plaintiffs.

Are you ignorant of the facts of this case? Perhaps you’re pro asbestos? Perhaps you’re just biased against anyone that seeks damages from soulless corporate crime syndicates like j&j?

https://www.nbcnews.com/news/amp/ncna948016

A whole bunch of these cases assert that even pure talc (uncontaminated with asbestos) causes ovarian cancer, for which there is basically no evidence at all. Nor is there much evidence that talc actually ever contained much asbestos; especially bearing in mind that asbestos is naturally occurring at levels consistent with us inhaling several thousand fibers per day.

>Perhaps you’re just biased against anyone that seeks damages from soulless corporate crime syndicates like j&j?

Hmm, yes, I'm definitely the one showing the signs of bias here.

I'd highly suggest reading this then: https://www.newyorker.com/magazine/2022/09/19/johnson-johnso...

They knew of the increased risks and asbestos levels, and even when they finally agreed to stop selling talc in the usa, they continued to just sell it overseas until their supply ran out. This wasn't just a random mixup.

“A whole bunch of these cases” is hand waving that signals you didn’t read about the case at hand. J&J knew of asbestos contamination. That is what the current case asserts.

On the contrary; I have been following this topic for a fairly long time. Have you read any of the other cases?

The big talc litigation started in the early 2010s, and the asbestos contamination theory only really surfaced in the latter part of the decade.

J&J is winning more of these cases than it is losing, and appeal courts are also overturning some of the decisions. Of course, it's all way too late due to the Wisconsin verdict and the loss in the court of public opinion.

> On the contrary; I have been following this topic for a fairly long time. Have you read any of the other cases?

Like the 2018 case where the jury deemed J&J liable for 5 billion? (cut to 2 in appeals).

> The big talc litigation started in the early 2010s, and the asbestos contamination theory only really surfaced in the latter part of the decade.

The length of the litigation doesn't matter. Big Tobacco was litigated into the ground over decades. The claim is that the manufacture of talc baby powder lends itself to contamination with asbestos (a carcinogen) and that J&J knew about it but continued selling. They're losing on THOSE grounds.

> J&J is winning more of these cases than it is losing, and appeal courts are also overturning some of the decisions. Of course, it's all way too late due to the Wisconsin verdict and the loss in the court of public opinion.

The wins v. loses don't matter when the damages of the loses are billions. Unless you think that the loses will converge to zero (which is a pipe dream).

You don't attempt to make a shell corp with a capped funding agreement so that a bankruptcy court has limited room to work with if you think you're going to be vindicated in the long run.

The reason why they're trying to do this is because it's a lost case and they have such wide ranging legal exposure that it's going to be death by 1000 cuts.

>Like the 2018 case where the jury deemed J&J liable for 5 billion? (cut to 2 in appeals).

... that is literally "the Wisconsin case" I mentioned in my post?

Look: I said a whole bunch of these cases don't even involve asbestos. That is true. It's a matter of record and if you want to do some basic research, you will discover that: these are the earlier talc cases from the 2013-2016 timeframe.

>The claim is that the manufacture of talc baby powder lends itself to contamination with asbestos (a carcinogen) and that J&J knew about it but continued selling. They're losing on THOSE grounds.

They're also winning on those grounds, more so than they're losing. Never mind that, even if true, those facts don't establish a good case unless there's actually a causal link between the level of contamination involved and the incidence of ovarian cancer. There is no good quality science (i.e. the cohort studies rather than the case-control ones) available that demonstrates a link between talc usage and ovarian cancer.

>if you think you're going to be vindicated in the long run.

It doesn't matter whether J&J gets vindicated in the long run - by which I assume you mean that we discover there is no causal link between talc and ovarian cancer and that the science promulgated by the plaintiffs attorneys was junk. They're guaranteed to take billions in losses because they've exhausted their appeals in at least one of the big cases. That was actually my point when I said it's too late.

> ... that is literally "the Wisconsin case" I mentioned in my post?

A sorry. I know it as the Missouri case because it was a state ruling in Missouri.

> Look: I said a whole bunch of these cases don't even involve asbestos. That is true. It's a matter of record and if you want to do some basic research, you will discover that: these are the earlier talc cases from the 2013-2016 timeframe.

Can you show me, because I don't see that?

Can someone here clarify: Is today's ruling about the legitimacy of structuring JNJ's talc liabilities into LTL? Or is it saying that LTL can't file for bankruptcy AT THE MOMENT because the firm (LTL) is not yet in financial distress? I don't see this as a loss for JNJ's "Texas Two-Step" strategy, but rather the judges are saying "LTL can't declare bankruptcy preemptively, LTL needs to be under actual financial distress before declaring bankruptcy."

That's a good question. The court opinion I linked in a different comment addresses this.

They are merely saying that LTL can't declare bankruptcy preemptively, because it is in amazing financial health. The "Texas Two-Step" structure they created was enormously friendly to LTL because LTL was intended to immediately go bankrupt.

Does the Texas law used to create this kind of corporate structure require such friendly terms? Is quick bankruptcy the loophole? That is something I don't know.

Thanks for your input. The main downside I could imagine is if the courts rule that JNJ must provide open-ended financial backing to LTL. JNJ initially provided $2B to LTL to cover liabilities, but made clear they wouldn't be shocked if it were somewhat more than $2B. What's not being judged here is whether LTL can ever declare bankruptcy. In a confusing turn, many comments (here and elsewhere) seem to be taking the next step and claiming that the court's decision today implies the courts will rule the whole Texas Two Step" structure is "in bad faith." As of now, the only "bad faith" move is LTL declaring bankruptcy while they're still solvent. Should there be enough judgments against LTL such that they run out of money, then they might indeed be able to declare bankruptcy and shield JNJ from further costs (though, as I state, there has been previous discussion of adding to the the initial $2B pot).

The court doesn't need to force J&J to provide open-ended backing. LTL already have it:

> The Funding Agreement merits special mention. To recap, under it LTL had the right, outside of bankruptcy, to cause J&J and New Consumer, jointly and severally, to pay it cash up to the value of New Consumer as of the petition date (estimated at $61.5 billion) to satisfy any talc-related costs and normal course expenses. Plus this value would increase as the value of New Consumer’s business and assets increased. App. 4316-17 (Funding Agreement 4-5, § 1 Definition of “JJCI Value”).15 The Agreement provided LTL a right to cash that was very valuable, likely to grow, and minimally conditional. And this right was reliable, as J&J and New Consumer were highly creditworthy counterparties (an understatement) with the capacity to satisfy it.

My question, inspired by yours, is why? Why did J&J provide such a generous funding agreement if it didn't have to? Or did it? The only thing I can think of is that they needed to do so, but it wasn't supposed to matter as LTL filed bankruptcy two days later.

Let's just wait and see whether (should I say, "when"?) LTL mysteriously breaches the terms of, or simply renegotiates, that very funding agreement. Not until after appeals options are exhausted, of course, but soon thereafter.

To shield JNJ leadership and ownership, including shareholders.

If you make an agreement to pay an unlimited amount of money to a spin-off, obviously you're not doing it to save money.

You're doing it to retain control, even when you have to pay extremely large amounts of money.

I feel like the inclusion of the “outside of bankruptcy” clause followed by almost immediately filing for bankruptcy may be more than just a passing coincidence. Promise whatever you have to, as long as you have a get-out-of-jail-free card.

I'm not sure if JNJ liked including that clause, but by embracing this commitment and having the courts approve it with specific limitations to the Consumer Brands business, they may be able to save themselves in the end - or about 85% of themselves. > https://www.geneonline.com/soon-to-be-jj-spinoff-kenvue-file... The upcoming spinoff of Kenvue will be very interesting to say the least. Will JNJ be willing/able to sacrifice their consumer brands business altogether to protect the pharma/devices segments? Even the full $61.5B represents just about 15% of JNJ's current mkt cap; the rest of it basically represents drugs and equipment. If Kenvue takes on the entire commitment to LTL funding, then the real distinction isn't, as many say, Goodco (JNJ) and Badco (LTL). It's Goodco (JNJ), shield (Kenvue), Badco (LTL) - maybe? For JNJ, losing Kenvue would be a momentous, eye-watering loss, but it wouldn't bring down the entire mothership. For a look at how endless legal battles in one corner of a conglomerate can bring down the whole bloody thing, cf. 3M over the last like 10 years; they, too, are attempting a spinoff. >https://www.reuters.com/legal/us-judge-penalizes-3m-bars-it-... > https://investors.3m.com/news/news-details/2022/3M-Announces...

Frankly, I just hope this legal wrangling doesn't somehow lead to even worse supply shortages in basic treatment (Tylenol, Motrin, etc). This winter was the first time I can recall heairng about shortages in cold medicine.

That’s interesting. I hadn’t heard about Kenvue. Their SEC filing says that one of the risk factors for Kenvue is:

> Legal proceedings related to talc or talc-containing products, such as Johnson’s Baby Powder, sold outside the United States and Canada (pursuant to the Separation Agreement, Johnson & Johnson will retain talc-related liabilities for products sold in the United States and Canada), including personal injury claims alleging that talc causes cancer, and other risks and uncertainties related to our historic or current sale of talc or talc-containing products (talc-based Johnson’s Baby Powder will be discontinued globally in 2023).

I wonder if J&J was doing this with the assumption that they had succeeded with LTL! If this ruling isn’t reversed, you have J&J with the US & Canada talc liabilities and Kenvue with the RoW talc liabilities!

https://www.sec.gov/Archives/edgar/data/1944048/000162828023...

Great find, and fascinating given the talc cases I've seen are all US based. Maybe that's just a bias and more a reflection of the sources I read than fact. Going to the source you provided, I see they do undercut the obligation later on: > Johnson & Johnson will indemnify us for certain liabilities, including talc-related liabilities for products sold in the United States and Canada, but such indemnity may not be sufficient to protect us against the full amount of such liabilities or Johnson & Johnson may be unable to satisfy its indemnification obligations.

Also, JNJ is going to maintain voting control of Kenvue such that changes to these obligations might be in JNJ's control anyway...

If they can't use bankruptcy to get around this, what exactly does the future of j and j look like? They're getting things like $400M judgements against them for a single case of a talc-related death. And there surely are tens or hundreds of thousands of similar cases.

Does the entire ownership just switch over to the litigants?

Monsanto is facing something similar with Glysophate. I think their playbook was to make the prospect of appeals so long that most of the plantiffs would never see the money, at which point most agreed to be part of a large comprehensive settlement.

Maybe they don’t have a future. I’m a proponent of the corporate death penalty under certain circumstances for companies found guilty of killing people. I empathize with their shareholders, but corporations have free will and their death will act as a deterrent to other corporations therefore saving many more lives.

> proponent of the corporate death penalty

As an insignificantly-minor J&J shareholder, I would be fine with a corporate death penalty. The company would be disbanded, assets and liabilities together, instead of fines and judgements putting it into actual bankruptcy.

Pretty much every formulation of "corporate death penalty" is fines, but less severe, or fines, with extra steps.

If such a law existed, I think it would also have to have a provision about the shares being destroyed -- not being worth 0.

Shareholders ought to have some skin in the game to incentivize behavior that does not lead down the road of corporate death. If you allow the value to go to zero, shareholders will just turn a blind eye and write the investment off as a loss on their taxes.

I think no company should be allowed limited liability/bankruptcy protection.

If a company can't pay its debts, the shareholders should be required to pay.

> the shareholders should be required to pay

We had this. For millennia. It simply makes equity impossible. Instead, you have proprietors who get loans--all investment is debt.

> It simply makes equity impossible. Instead, you have proprietors who get loans--all investment is debt.

this is not true. investors are merely incentivized to be more careful about who they trust with their money.

> incentivized to be more careful about who they trust with their money

Sure. And they'd be more careful by structuring investments as debt. If you're taking joint liability, you're a proprietor. Limited liability is equity's defining characteristic. Equity with liability is proprietorship. A world without limited liability is one without equity.

it seems as though you are making a semantic claim around the word 'equity' which is fine but you also seem to be simultaneously claiming that people would either make/take loans or operate the business themselves. I almost didn't reply because I don't want to argue but you ought to be informed that this implication I have attributed to you based on your replies is not true [1].

if I've misunderstood the thrust of your replies then I apologize.

[1] https://en.wikipedia.org/wiki/Unlimited_company

Unlimited companies prove my point. They’re rare. And they’re overwhelmingly levered.

The actual counter-example you seek is partnerships. The difference between stock and partnership is limited liability.

> Unlimited companies prove my point. They’re rare. And they’re overwhelmingly levered.

if you say so, but your point is hard to grasp because here are examples of people owning capital without a liability shield. And plenty of liability limited companies are also levered.

> The actual counter-example you seek is partnerships.

https://www.investopedia.com/articles/investing/090214/limit...

> The difference between stock and partnership is limited liability.

https://en.wikipedia.org/wiki/Joint-stock_company

> people owning capital without a liability shield

Yes, kings and lords. (Today: proprietors.) We reformed the system so more than the rich could be capitalists.

To your links: LLPs are not pure partnerships. They’re an equity-like structure with limited liability. If you are arguing against limited liability, limited-liability partnership obviously doesn’t comport.

And: joint-stock companies are not germane to your argument. They join distributed ownership (first, in the Song dynasty) with limited liability (in the West). Without limited liability, they’re analogous to a bond register.

I don’t know literature I can reference to concisely clarify this. English and Delaware law introductory texts may be good starting points. The histories of joint-stock companies, incorporation and indemnification might follow.

If you allow the value to go to zero, shareholders will just turn a blind eye and write the investment off as a loss on their taxes.

Writing off a loss on your taxes does not cancel out that loss, it only lessens it a bit. Shareholders still lose lots of money if the company they hold shares in goes bankrupt.

Perhaps you already understood that, but your comment makes it sound like you think tax writeoffs mean that shares can go to zero and the shareholders won't ultimately lose anything. This is very much not the case.

what happens to the assets of the company? The factory they own surely isn't going to be demolished for no reason.

They get sold off to (partially) pay back the company's creditors.

> the shares being destroyed -- not being worth 0

These are economically equivalent.

And what about all the goods J&J produces? Research? This is a ludicrous proposal for a profitable and productive company. It's obviously bad for society as a whole.

> what about all the goods J&J produces? Research?

Bankruptcy doesn’t mean liquidation.

You said the company should be disbanded - perhaps I took that to mean something different to what you meant.

> the company should be disbanded

Sorry, I meant that if one applies many popular theories of how a "corporate death penalty" should work, the company would be liquidated. With the fines approach, shareholders get wiped, creditors impaired, but the company's operations can keep going under new ownership.

> This is a ludicrous proposal for a profitable and productive company. It's obviously bad for society as a whole.

I agree, and also feel that wealthy and productive people in society should not be subject to laws like murder. They are, after all, wealthy and productive to society. It would be bad to hold them responsible.

There are reasons why laws must be made and held above opinions of how useful someone or something is deemed to be. Otherwise you create obscene moral hazard and enable societally dangerous behavior.

You can liquidate shareholder equity without destroying the company. Public markets can recapitalize it after bankruptcy.

Isn't that exactly what is happening, with just with fewer steps?

Or are you saying that the existing shareholders must take a haircut by forced selling, so that some other buyer can purchase these shares at a discount? Thus, it is a form of financial punishment for the shareholders to workaround the limited liability?

I’d prefer a solution where 141,000 people didn’t lose their jobs.

Why is the number of employees material? If a company of 5 employees engaged in behavior resulting in lawsuits causing it to go bankrupt, should that company not go bankrupt to save those 5 jobs?

Are you asking why 141,000 people losing their job is worse than 5 losing their job?

No I'm not, but allow me to clarify for you anyway. I'll ask you a few questions:

1. If a company of 5 employees engaged in behavior resulting in lawsuits causing it to go bankrupt, should that company not go bankrupt to save those 5 jobs?

2. If a company of 500 employees engaged in behavior resulting in lawsuits causing it to go bankrupt, should that company not go bankrupt to save those 500 jobs?

3. If a company of 141,000 employees engaged in behavior resulting in lawsuits causing it to go bankrupt, should that company not go bankrupt to save those 141,000 jobs?

Really at what point does the size of the company become large enough that you personally feel we should regard it differently because of the number of people working at that company?

Besides 141,000 is maybe 0.1% of the US working population so I assume that many more lose their jobs each month just as normal churn. Is there something worse about people who lose their jobs at the same company than if they are spread out at different companies?

> corporations have free will

disagree. corporations have no will at all. a corporation is a liability-limiting legal structure, it is merely a social convention that is designed to shield ownership from the liability associated with the actions of their employees.

Does the entire ownership just switch over to the litigants?

This should happen more often imho (albeit in a more thoughtful fashion that I have time to address in this HN comment). If you choose to invest in a company that profits from negative externalities and those later catch up with the firm, your cash cow may get confiscated.

You can argue negative externalities for every business though.

You can, but you won't necessarily win in court.

I guess it really boils down to whether you can argue and _prove_ negative externalities with a preponderance of evidence in court.

You can never prove negative externalities though, since there are too many confounding variables.

Justice in this area is challenging, because so many are incentivized to use the law to rob others.

I've always felt it made more sense to just print up a bunch of new shares. Basically all Delaware incorporated businesses have shares (even those not publicly traded) in their charter. Just print up 99x the current number of shares and hand them out appropriately to settle claims. The existing shareholders wind up with around 1% of their value, which seems more than fair enough in all cases.

Why should investors be “punished” for having made a bad investment?

Are the fines (which directly impair financial performance), reputation damage (indirectly impairs) and operational obstacles (directly and indirectly), not sufficient? The value of the investment falls compared to a world where the bad behavior never took place. Investors will be incentivized to move their investment elsewhere. Everyone is disincentivized from said behavior and others are deterred from investing in ventures that seem likely to repeat that behavior.

What if you meticulously invest in the most pro-social / low-externality businesses, but it turns out management were egregiously comically evil and lied about everything? Should you be “punished” (again, beyond the financial damage to your investment) for the bad luck? Or because you had limited time / information for due diligence?

https://archive.is/M5EQc

From the opinion, some encouragement from the judge for others to try a similar approach again:

> That said, we mean not to discourage lawyers from being inventive and management from experimenting with novel solutions. Creative crafting in the law can at times accrue to the benefit of all, or nearly all, stakeholders. Thus we need not lay down a rule that no nontraditional debtor could ever satisfy the Code’s good-faith requirement.

As far as I know, there is still no good evidence that talc usage leads to a significant increase in cancer risks. This is despite the product having been used by many millions of people for decades. There are also plenty of large-scale studies that didn't result in statistically significant signals. If the effect was real, it should really have shown up by now.

Nonetheless, J&J keeps losing trial after trial which results in completely ridiculous fines that are now threatening the existence of the company. I guess this is one of the failure modes of the archaic US legal system. You just have to convince the jury, regardless of what is actually true.

Who says what's true? Juries don't become scientists on issues like this, they listen to expert testimony. Technically you have to convince the experts that are testifying.

It's not perfect, but of all the problems our (largely corrupt) government has this is the least.

Corporate interests run roughshod over our entire democracy, the contemporary "justice" system is basically designed to protect them. I don't think we have to lose any sleep over them not getting a fair shake.

I don't think it is acceptable that the legal system is punishing someone for causing damages that are probably not real, even if that someone is some evil corporation.

My primary point is, who decides they're probably not real, if not a jury informed by expert testimony?

My point is that countries whose legal systems don't rely on juries appear to be less affected by such counterfactual rulings. Maybe it is simply easier to manipulate jurors than professional judges.

in the world of antivaxxers, flat earthers you really trust a jury full of laymen to make judgements? Quoting Blazing Saddles: "These are people of the land, the common clay of the new west.... you know, morons"

The vast majority of people believe what they want to believe and if that's how their roll, no expert in the world will convince them that 2+2=4

Hang on. You've gone from "well, -I- have seen no evidence, and juries are just finding J&J guilty, regardless of evidence" to now your assumption that evidence doesn't exist and that this issue "probably isn't even real".

Law firms make their money on judgments.

I have little concern for their ability to do so.

But it's a pretty big risk for a law firm to take on a $100B/year company with their legal backing with no evidence of a problem that "probably isn't even real", and standing up against their expert testimony and thinking "oh yeah, we got this, payday time".

Is it a big risk? In theory the upside is large (large settlement from company) and the downside small (wasted time on a lost lawsuit). I'm not sure the risk of losing the lawsuit is significant here.

you really think that in a world chock-full of antivaxxers, flat earthers and the climate change deniers it's hard to pad a jury with clueless mouthbreathers and exploit widespread anti-corpo sentiments? Same shit with glyphosate. It's pretty much the least bad pesticide of the bunch, with the alternatives being legitimately, undeniably cancerous, yet it's glyphosate that gets banned left and right, and sued for billions by anti-science twats, because "monstanto hurr durr".

Hell, the damage of covid19 vaccines is actually proven and was noticed a few months in, yet in the case of talc used by millions of people for decades all they have is some weak, inconclusive shit.

The fact that Monsanto lost their case despite their massive legal team and virtually unlimited resources against a school groundskeeper suggests how weak/horrible their case was. They lost because glyphosate is carcinogenic, their counter argument boils down to a bunch of research they directly or indirectly paid for. “Hur dur”, from my perspective, more aptly characterizes the defense of Monsanto/Bayer.

I'm not an expert here, but the working theory I believe is that Talc mines also had asbestos in some of them. Like basically unseen veins of asbestos. So you mine for 100 days and get 100% Talc, then on 101 day you hit an asbestos vein, and contaminate some of the Talc.

That asbestos ends up in a meaningful concentration in a small % of bottles of talc powder. But not reproducible and hard to catch.

Some even smaller % of people use the contaminated powder A LOT, get cancer.

Basically, its complicated and lots of factors.

I know the theory, but again there seems to be no good evidence for it. Some of the studies I found were quite large. If this had happened, they should really have seen it.

You are correct; there is no truly strong case linking J&J's leadership to having specific knowledge that they were selling a product that was likely to cause serious harm.

This is a common problem in the press and the courts; they play fast and loose with the science, and it's not really that hard to influence the public into thinking a corporate executive did something evil for monetary gain. Since this is such an easy narrative to believe, it's fairly straightforward to convince people just by making the suggestion.

There is, see above comment with references, etc.

if you mean the reuters article; no, that doesn't qualify. Analytic chemistry can find things in absurdly small amounts which don't affect human health- if the leadership knew that, I don't care because that's not actionable.

The fact that analytical chemistry can find things in absurdly small amounts is exactly why it's a useful testing tool. So you are arguing that you would believe it if they used a less accurate, less precise and less sensitive testing method?

No, I mean the found amounts that were below thresholds of caring.

I've read through the reuters reports to read the actual letters and documentation they're citing and I still don't see anything convincing that says "J&J knew that their talc was causing cancer in US patients and should have stopped selling the product, or done a better job cleaning it up". My standard of evidence is fairly high after seeing decades of well-meaning but clueless people propose all sorts of ridiculous things for companies to do.

I'm curious, how are you defining amounts that were below thresholds of caring and what scientific basis you have for the selection of those thresholds. Per the mesothelioma folks "no amount of asbestos exposure is considered safe" https://www.asbestos.com/exposure/

It's a statistical thing. It's not like they test every single package of talc that goes out. The fact that asbestos is present in some samples means that asbestos is present in the rock formations from which the talc is mined. That means that one day the mining equipment could scoop up 99.9999% talc and a tiny amount of asbestos and package it. The next day the mining machines could hit a big vein of asbestos and the talc packages going out that day could be a very high percentage. It's random, only having to do with the geology of the area of the earth they were digging up that day. With no testing, with no process control this is certain to have happened.

Generally, things that cause cancer don't cause cancer when people are exposed to extremely small amounts. From our understanding, this is because the body is able to tolerate a certain amount of carcinogenic substances before a statistical threshold is reached. In situations where people are only exposed to tiny amounts of asbestos through fiber inhalation, we don't really have good stats on what happens to people who inhale tiny amounts (and these amounts are parts-per-million, found only in a subset of samples). In epi, what ends up happening is that people down-extrapolate using a linear model, outside the linear regime.

Testing is normally done by pooling multiple samples.

Again, I simply think there's a lack of evidence that anybody did anything crimimal.

Just because we don't have good stats doesn't mean it's safe.

As a former J&J employee I can honestly say I'm not surprised they did something criminal. You are giving them too much credit.

>You just have to convince the jury, regardless of what is actually true.

More people need to understand that truth and fact are two seemingly similar but actually very different things.

Truth is whatever the majority of people agree on.

Fact is whatever the universe declares and understood by us as best we can.

You can factually have two apples on a plate, but if the majority of people say there is only one apple on the plate the truth is there is only one apple on the plate.

That is a very unusual definition. Wikipedia defines truth as "the property of being in accord with fact or reality". In that sense truth exists independently of what people agree on.

We're in civil court, where the balance of probability applies. It's also civil court that is being used to try this farcical "create a company with the intent of filing bankruptcy two days later to ... deflect ... liability". So civil court rules are good enough for the latter, but unacceptable for the former?

That definition comes from someone that’s never been to the gulag or re-education camp.

That isn't true.

The fact of the matter is the Earth orbits around the Sun which orbits around the galactic core of the Milky Way which is hurtling through the universe.

The truth of the matter is we have at various points in time considered: Earth being at the center of the universe as truth. Earth orbiting around the Sun as truth.

The fact remains unchanged, regardless of our ability to understand or observe. The truth changes according to what the majority believes is true at a given point in time.

> The truth changes according to what the majority believes is true at a given point in time.

benchmarking 'truth' to majority opinion is quite problematic. For one thing, you'd be asserting that a minority in possession of accurate facts had failed to grasp the truth of the matter, until their facts became common knowledge, meaning they weren't 'true' until they were believed.

I mean, isn't that precisely how "truth" works? The minority are branded heretics and crazies (especially in this age of division but also throughout history) unless it turns out they were on to something and the common consensus shifts.

Truth might as well be synonymous with common consensus, it has nothing to do with facts.

To use the Earth and Sun example again, when Galileo said "And yet [the Earth] moves."[1] he meant that truths and facts do not care for the other. The Church and the world-at-large might say the truth is the Sun orbits the Earth, but the fact is the Earth orbits the Sun.

[1]: https://en.wikipedia.org/wiki/And_yet_it_moves

> Truth might as well be synonymous with common consensus, it has nothing to do with facts.

this isn't what normal people mean when they say 'truth', usually they mean what you're referring to as 'facts.'

> he meant that truths and facts do not care for the other. The Church and the world-at-large might say the truth is the Sun orbits the Earth, but the fact is the Earth orbits the Sun.

Galileo meant that the truth of the matter doesn't care for public opinion.

>this isn't what normal people mean when they say 'truth', usually they mean what you're referring to as 'facts.'

The specific terms used aren't necessarily contrary to the point I am making.

What people consider as "truths" or "facts" (not actual facts but so-called "facts") have nothing to do with actual facts or reality at large.

>Galileo meant that the truth of the matter doesn't care for public opinion.

That can just as easily be rephrased as: Facts of the matter don't care for truths of the matter.

That is wrong both in truth and fact

It's not talc, it's the asbestos that the talc is contaminated with. We know J&J knew that its talc was contaminated with asbestos since the 1950s. We know J&J have tested their own talc and found it was contaminated with asbestos, but never informed the public and still denies their internal investigation exists.

Could you give a reference for these claims? I couldn't find anything conclusive.

Reuters was able to uncover undisclosed reports in court that J&J failed to disclose finding asbestos in their own talc to the public.

https://www.reuters.com/article/us-johnson-johnson-cancer-sp...

"The earliest mentions of tainted J&J talc that Reuters found come from 1957 and 1958 reports by a consulting lab. They describe contaminants in talc from J&J’s Italian supplier as fibrous and “acicular,” or needle-like, tremolite. That’s one of the six minerals that in their naturally occurring fibrous form are classified as asbestos.

At various times from then into the early 2000s, reports by scientists at J&J, outside labs and J&J’s supplier yielded similar findings. The reports identify contaminants in talc and finished powder products as asbestos or describe them in terms typically applied to asbestos, such as “fiberform” and “rods.”

In 1976, as the U.S. Food and Drug Administration (FDA) was weighing limits on asbestos in cosmetic talc products, J&J assured the regulator that no asbestos was “detected in any sample” of talc produced between December 1972 and October 1973. It didn’t tell the agency that at least three tests by three different labs from 1972 to 1975 had found asbestos in its talc – in one case at levels reported as “rather high.”"

>“rather high.”

... at 2 ppm ... context is king. The EPA limit for safe drinking water is 7 million fibers per liter, as well as being present in measurable quantities in the air, by the way. If truly microscopic amounts of asbestos actually caused cancer, we'd all be dying of mesothelioma.

Remember: "asbestos causes cancer", "there is no know safe limit for asbestos exposure" and "we all breathe in asbestos every day" can simultaneously be true.

The existence of studies that don't show a statistical result does not imply a lack of causation. It's easy to run (and fund) sloppy studies that will produce low confidence interval results. J&J (and others) have a strong financial incentive to muddy the waters regarding talc and cancer. Similar shenanigans played out with tobacco and cancer.

Most studies either show increased risk, or no risk. Apparently, none show a decreased risk, which is what you'd expect if there were a bunch of false positives due to sampling error.

Pure talc is probably a carcinogen.

Interesting, Alex Jones is also currently attempting to use bankruptcy to dodge his responsibilities. Hopefully we see a similar judgement to this.

I'm not a fan of Mr. Jones but it's completely unrelated. Jones is just trying to get a court to establish that he is financially ruined so that anyone with a claim against him has their day in court to settle stuff. He is decently wealthy but I really doubt he has over a billion dollars in liquid or nearly liquid assets to pay the verdict against him.

He doesn’t have to pay a billion dollars, he just needs to be broke for the rest of his life. Screaming “I’m bankrupt” as a way to avoid paying your debt seems a bit hypocritical coming from someone who I’m sure expects people to pay back their student loans in full.

So you're saying this standard only applies to him? Or should your opinion on him change how it works, for the worse, for everybody else?

It’s already bad for everyone in the US with student loans, they’re already basically not dischargeable in bankruptcy.

You seem to think that's a bad thing, yet you would prefer that it should be made worse? I still don't get what you're saying.

What do you think bankruptcy court is? Some magical procedure where the judge says "oh here let me just ignore all these liabilities you have" and you just walk out after a few hours of proceedings?

While that's true, he's also manipulating his legal value to actually zero so that's he's bankrupt prior to taking judgements into account. Legal Eagle has a video on the immense web that he has spun.

B-schools had the J&J Tylenol recall case study as one where corporate communications excelled. I wonder where the J&J talc-gate would appear and what lessons it would teach.

Is there any knowledge on their reasoning regarding the indemnification contract, why did J&J create that part to begin with, it seems to counteract their whole legal book of tricks in creating the house-of-death to begin with.

Great, now do Alex Jones

I, too, wish I could just give my friend all my assets sans my liabilities, jump into a new body, then have them give it back to me and avoid paying for my mortgage and other loans. I am glad to see this ruling and hope it sticks as hard as possible, and new laws are written to prevent this in the future. I've always believed that corporations should be subordinate to humanity and even individual humans in law, or else what are corporations for? They should be serving humans, not vice versa. If a corporation starts to harm people, it should be taken out back and shot.

I feel like we need to back off the shareholders are immune from liability by a quarter turn. In particular fine the shareholders with voting rights not the company. And not the ones that currently own the stock, the ones that did when the company did something bad.

Shouldn't the current shareholders be responsible for looking into potential liabilites?

If I buy stock in a game company and the next day it releases a new game that tanks I didn't own stock when the game was developed.

If you don't limit the liability, you will see the stock market die.

This would be more a case of you buying stock on the game company, and the next day somebody discovering that the previous dividends were fraudulent and only happened because the company stole 100 times more than its market value, and then you being on the hook for paying 100 times more than the stock price as restitution.

I do agree that the liability limitation is currently too strict. But it can't just be removed.

But that's new information. The talc issue has been known for years. How serious or what the monetary outcome would be was not known but should have been a calculated risk for those purchasing stock

If I was short the company at the time of the bad behavior, presumably I should get a pro-rated share of the fine paid directly to me (because there are more long shareholders who would each owe a portion of the fine).

that's not how fines are supposed to work. Fines aren't monies owed. Fines are monies as deterrent. Since a corporation's purpose is to acquire monies. I'm for fining the voting shareholders in proportion to their holdings but to pay the shorters is not something I would get behind. Those that are shorting are betting against the company and so fines/bad pr/etc are already movements in their favor.

But the shorts have created additional shares (and therefore additional proportions of fines). If there are 100 shares of a company outstanding and the company is fined $1M, each shareholder owes $10K to cover the fine.

Now, in a world where someone has shorted 10 shares, there are now 110 shares held long, meaning the total fines paid would be $1.1M, leaving $0.1M available to pay to the shorts.

My point about proportion of holdings is that if a company is fined $1M to the shareholders and there are 1,000 voting shares held, not every holder is holding 1. Some are holding more than 1. Some are holding 400 or more. So the formula would be:

owed = ($1M / total_voting_shares) * (holding_shares / total_voting_shares)

Shorts do not create shares that way; they're shares that have been borrowed, which means they've temporarily changed hands. Consider for voting. If you've borrowed shares from someone else over the time period that determines voting rights, only one of you gets to actually vote - you haven't magically created new votes in the process.

The shares are borrowed, but not always with the knowledge of the original shareholder. So should one owner get excluded from the fine just because their broker happened to loan out their shares and not the shares of another equally eligible holder? Opposite thing happens with dividends and the original holder is still entitled to those.

(And the original holder is due the dividends because the short is required to pay the dividends.)

As an investor, how am I supposed to know about various pieces of malfeasance by a company? Is it in their quarterly earnings announcements? Are they required to give me tours of their factories to whatever extent I feel?

I agree with your concern and aims, but there really isn't a window between when normal investors find out, and when the general public does. The board, executives, etc. are a different story.

I think if you have enough influence to vote in policies the company performs, you should have some responsibility if it can be proven you're benefiting from illegal behavior from the company. Potentially in the form of having those returns taken back from you, because they're effectively stolen from society, in the same way that I shouldn't get to keep a stolen TV because someone I loaned money to regularly decided to pay me back via this cool new TV that I didn't inquire the source of.

All corporate structures that I’m aware of give voting rights to all shareholders, in proportion to the number of shares they have. Some companies like Google and Meta give more votes to different types of shares.

With the popularity of ETFs and mutual funds, any American with a retirement fund has voting rights in the 500, and probably more public companies.

The proper way to do things is properly penalizing the company sufficiently to affect the share price.

> With the popularity of ETFs and mutual funds, any American with a retirement fund has voting rights in the 500, and probably more public companies.

You do not receive voting rights when you hold index funds, ETF or otherwise. You only get to cast your own votes if you are an individual shareholder. Your index fund votes get voted by the fund runner.

Ahh, fair point.

Still, I'm skeptical that most shareholders have the ability to affect whether or not a company decides to commit criminal actions.

I agree, particularly in the case of companies where institutions own a majority of the shares (which is more than you’d expect, TWTR had something like 70-80% institutional ownership before going private)

That's why I said voting rights. If the if index fund managers find themselves on the hook for stocks they used to hold they'll take a much bigger interest in the CEO and Boards shenanigans.

as an investor, it is your responsibility to be informed as to what people are doing with your money. the entire purpose of liability limitations is to make it so people don't need to do that because all they have risked is money.

Yes, limited liability is an unfair subsidy to corporations over individuals.

Well that's an incentive/reward for private people taking on risky ventures to accomplish the objectives of the state. Too bad they took out the work requirement and it just became welfare.

> fine the shareholders with voting rights not the company

This would turn every fine into a Madoff-trustee clusterfuck. Instead of collecting a fraction of the fine at a multiple of the cost, just fine the company more. Practically every creative solution to corporate malfeasance (apart from fraud) is inefficient in comparison to bigger fines.

well you can do that, you should have had the LLC before you accumulated assets and debts in your personal name. then you can get the same privilege, to an extent.

LLCs are more of a deterrent to an effective judgement than an absolute shield. But there is still tons you can do with a few thousand dollars, instead of imagining this is the playground for multimillion/billion dollar corporations.

As far as I understand, LLC’s shield from contractual obligations, not from things like negligence or fraud.

they shield the shareholders from criminal and civil liability for the actions of their employees. if the shareholder committed a liable act personally then the existence of an LLC would not shield them. The LLC/corporation shields them from liability for the actions of the (agents of the) corporation that they own.

That doesnt work in practice though. Personal guarantees are virtually always required for small business debt. It's not until you reach a certain size that you can push back on that requirement.

When the state you formed your LLC in lets you register it to a PO box nearby, and the state your PO box and the plaintiff is in doesn't let them serve a PO box then it costs them more to get around that

all for them to find out its own by a trust, or a retirement plan, or something they’ll need further help in leveraging a judgement against

Its a deterrent, like I wrote

If they’re dedicated you may have liens against your personal assets

Its lightyears better than someone showing up at your doorstep and serving you personally and everything immediately being vulnerable

That's not how an LLC works. If you buy a house in an LLC and stop paying the mortgage, the bank still takes the house away.

That wasn't the argument but probably helpful for someone

This why you need to do this with 100 houses or 1000 perhaps. The Too Big to Fail gambit.

Great to hear. Stuff like this degrades basically belief that we presently have rule of law in America.

Imagine trying to pull this shit as an individual. You burn down some apartment complex and then just create an empty company and assign all of your liabilities to that company and say "you've got to sue them, I've got no liability here". You'd get laughed out of the courtroom. But this came pretty close to working for J & J.

When I see looters lighting businesses on fire or breaking windows, I tend to think back to stuff like this or civil forfeiture and say "seems fair". I think the establishment underestimates the extent to which normal people hold this doctrine and feel ok with an all means are justified attitude because they've heard too many stories like this where the law doesn't apply to powerful interests.

If J&J ultimately wins this, maybe I should form an LLC to take ownership of my car and house just in case I do something in the future where I have massive liability just so I can pull this stunt.

FYI landlords routinely put their apartments into single-purpose LLCs precisely to cordon-off the liability, while allowing profits to flow back.

I was actually just wondering what is stopping companies from forming separate LLCs for every product line or even product? I mean at some point the administrative overhead is not worth it but 100-1000 individual LLCs seems pretty trivial to manage for a fortune 500 company and that cuts your liability massively if you are able to effectively distribute assets.

I’ve worked in environments where legal entities were kept in a database because there were enough of them to make it worthwhile.

This is effectively how all real estate works. I'm not quite sure why this doesn't work for things like software, but from my understanding owning actual property makes it significantly more possible / legal.

For a corporation with thousands of employees and R&D labs, etc, the administrative overhead has to be massive. Like working for Alphabet times 100. An employee would be switching their legal employer every few months, every time they switch teams, all the time; new payroll, new health plan enrollment, etc. People would just Nope the F out of that place.

Surely you'd just be employed by the internal HR company and on the books each product company would be contracting your services according to timesheets.

Yeah, but then the internal HR company has all the money and also has all the liability. So you've gained nothing for all that administrative headache.

Real estate is a special situation with lots of subcontracting. They can make it work. In big multi-unit residential cities like NYC and Chicago, the doorman in that high-rise is in a union that provides all his benefits and has a set pay scale. The building ownership just contracts all that stuff out to the union. But that doorman can go work in some other building owned by some other owner too. You don't want that happening with your corporate employees developing and managing your consumer products.

It's pretty easy to pierce the corporate veil for these separate but not really separate LLCs. They have to be bona fide separate companies to enjoy the LLC protection.

Sounds like you’ve made a valid prediction for a future consisting of high frequency individual tax loopholes to me.

This is essentially what movie studios do: a separate, new company produces each film. (Here though the main goal isn’t liability, it’s to insulate the BigCo from losses, and avoid paying those that made the film that don’t have star contracts.)

It's pretty common in the financial world. The US government doesn't offer zero-coupon bonds, so the big banks create special purpose vehicles that buy US government bonds, split the cash flows into the strips and the zero-coupon bonds, and sell them separately. If some pork belly futures trader wipes out the bank, at least in theory, the special purpose vehicle outlives the rest of the bank and keeps paying out those cash flows, and the pork belly creditors don't get those zero-coupon bonds you bought.

At least, I think that's the way it's supposed to work. I used to work at Goldman, and at some point, someone told me that the number of legal entities was roughly the number of employees. I'm not sure how true that was, but I'd believe it.

There are some good reasons to allow these separate legal entities, to allow orderly partial collapses of businesses to reduce the risk of cascading systemic failures. There's also something to be said about either keeping businesses small enough that failure of a handful of them won't collapse markets, or else single-purpose enough that they have less direct effects on multiple markets. The flip side is that diversification across markets should tend to stabilize firms, and larger firms are also more able to effectively diversify.

this is different, the actual underlying asset is at stake for liabilities it causes. This is the whole point of corporations.

The analogy would be if a landlord created a shell company, and then only gave that company it's legal liabilities without any assets. That's what J&J did here and why this case is so obviously egregious.

If you could do that, it would be a get out of jail free card for all legal liability in all cases. It's essentially renouncing rule of law

The top comment on the whole thread explains that my above explanation is slightly off. For a better explanation see

https://www.investopedia.com/texas-two-step-bankruptcy-defin...

That exact strategy is very common for owners of small general aviation aircraft. From what I understand it is primarily for liability reasons just like you propose.

There's a secrecy reason as well for some (the FAA registry will show "N1234, LLC" as the owner) as well as a sales tax avoidance reason for others. ("I didn't buy an airplane for which I'd owe sales tax on; I bought a company for which no sales tax is due.")

In the case of liability avoidance, it's hard to do if the (real-world human) owner of the airplane is also the pilot at the time of any accident. They might not be able to sue you as the owner, but they can still sue you/your estate as the pilot, or the person who oversaw the maintenance, etc.

Many people where I am own GA aircraft as a syndicate - everyone is a shareholder in a company and you get x hours per year of flight time per share, and have to pay your share of the costs.

I imagine that the limited liability helps if there are say 20 people in the syndicate and you own a share of it. One of the other members can crash the aircraft into something expensive, and as long as it had nothing to do with you or your negligence, you shouldn't be liable beyond your share value going to 0 (or having to pay up any unpaid capital to the book value of your share)

An unincorporated partnership would make this much riskier.

>When I see looters lighting businesses on fire or breaking windows, I tend to think back to stuff like this or civil forfeiture and say "seems fair"

It seems "fair" that some random business owner has their place of business burned down because of the shenanigans that Johnson & Johnson is up to? The only way this can remotely be considered "fair" is if looters only set Johnson & Johnson buildings on fire, and somehow the employees working in those buildings aren't affected.

No, but it seems "fair" that the looters and criminals don't get punished. If we choose to not enforce the law for some, we're choosing not to enforce the law period.

If society wants the laws to not apply to corporations beyond some market capitalization, we'll have to explicitly write that into the laws.

Sure, then it should seem fair that when I sit in my bagel shop and shoot people who break out my windows that the law does not punish me.

Come on this is a downward spiral that we don't want to get started on right?

That's the point. We don't want to abandon the law, therefore we must not allow corporation to get away with obvious law-breaking.

> No, but it seems "fair" that the looters and criminals don't get punished. If we choose to not enforce the law for some, we're choosing not to enforce the law period.

What's your line of reasoning here? Because we're not properly enforcing civil judgements on J&J, it's therefore "fair" for unrelated people to suffer losses, and for criminals to commit property crimes with impunity? If I pulled a gun on you right now and demanded that you hand me your phone and laptop, would you also consider that fair for the same reason?

> If I pulled a gun on you right now and demanded that you hand me your phone and laptop, would you also consider that fair for the same reason?

Pretty sure threatening to shoot and shooting someone is not merely a property crime. Especially not one against a business, which seems to be critical to the context here.

A better comparison that would related to what we likely do around here would be something like "I 'hack' into your Git server and copy your source code and ransom it off." This is also criminal.

Indeed, if you want to change the scope and context, then one could argue that companies are already out there killing people, and by participating and supporting the system that upholds the companies doing that, you are therefore contributing to that killing. Meaning you are not innocent. But I wouldn't want to do that, so let's not.

>Pretty sure threatening to shoot and shooting someone is not merely a property crime. Especially not one against a business, which seems to be critical to the context here.

Fair point. How about I burgle your house instead?

If the law doesn't protect regular folks, regular folks won't (and shouldn't) respect the law. Living in the Wild West is unfair in many ways, but living in a kleptocracy is even more so.

There has to be some limitation to this principle when you live in a country of 350 million plus individuals.

No, I don't think that's fair. I'm talking when it's large businesses. Keep in mind, I'm not espousing a legal doctrine here. I'm just saying that's what my gut reaction is.

So I feel bad for a small business owner who get's affected and just see them as collateral damage in the other issue

> No, I don't think that's fair. I'm talking when it's large businesses.

That seems like a pretty important point to omit, don't you think? Moreover, I addressed this point in my original comment. Sure, the business loses a few million dollars in damages, but what about all the previous employees that were displaced? Were they acceptable collateral damage? What about "large businesses" that won't engage in such behavior? Do you think they're acceptable collateral damage as well and/or that all "large businesses" would engage in such behavior?

>Keep in mind, I'm not espousing a legal doctrine here. I'm just saying that's what my gut reaction is.

Don't you think, we as a society should expect that whatever people are espousing something publicly, that they should have given thought/consideration that's above "gut reaction"?

It’s a rhetorical example.

The absurdity of the looting example illustrates the absurdity of modern jurists channeling the original intent of people who died 200 years ago or selectively granting the rights of citizenship (without responsibility) to fictitious legal entities. Or in this case, playing a shell game with assets.

J&J’s officers chose to continue to sell a product that was known to be harming people. They could have stopped or limited the sale of the product and replaced it with a less hazardous version. But they chose not to. Why would the failure of the company’s board and management to manage risk be rewarded?

They probably figured they would get away with it is a similar strategy to how Phillip Morris bought Kraft Foods years ahead of litigation and spun out Altria to own the tobacco business.

>The absurdity of the looting example illustrates the absurdity of modern jurists channeling the original intent of people who died 200 years ago or selectively granting the rights of citizenship (without responsibility) to fictitious legal entities.

1. Contrary to all the "corporations are people too" memes you see everywhere, corporations definitely do not have "the rights of citizenship".

2. If you're talking about "Citizens United v. FEC", the reason behind the ruling isn't that "corporation are people too", it's that "corporations and unions are composed of people, and the federal government can't limit speech of people just because they're in an organization".

>Or in this case, playing a shell game with assets.

In what sense is this a constitutional matter? AFAIK the reason why J&J can pull this off is due to a loophole in texas corporation law. I'm not sure whether "the original intent of people who died 200 years ago " is relevant here.

>J&J’s officers chose to continue to sell a product that was known to be harming people. They could have stopped or limited the sale of the product and replaced it with a less hazardous version. But they chose not to. Why would the failure of the company’s board and management to manage risk be rewarded?

How does this have anything to do with whether it's "fair" for "looters lighting businesses on fire or breaking windows"?

One egregious example of this are the mining companies which create a toxic mess and then let the shell company go bankrupt. I can't imagine going into any community downstream of that and saying that the law protects them knowing that not a single penny of the extracted value will be recovered.

yeah, great example

This one isn't quite like that. The evidence for a link between talc and cancer is mixed. Some have found a link but the best quality study did not:

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4200058/

Honestly, I don't really see the relevance. It's mixed, but that being said, J&J (sorry, LTL) have been found in multiple civil courts to be, by the rules of those courts, to be liable.

It's a cake-and-eat-it. "Oh, we are more than happy to use the letter of the law to create a shell company with the intent to bankrupt it for liability sake", but "oh, just because we went to trial and lost, repeatedly, doesn't mean that we're actuaaaaally liable".

Yeah, I'm not saying there's a 1:1 correspondence in the level of harm but rather that the corporate structure to shirk legal responsibility seems very similar. They had the opportunity to make the case that the scientific evidence was weak repeatedly and were unsuccessful, so it seems like they should be expected to honor the rules of the court or stop doing business in the United States.

Our entire legal system is based on the idea that both parties respect the court's decision (or appeal it, of course) and it seems really dangerous to allow the party with the most power to unilaterally opt out of that when it'll save them money.

In Australia, it's fairly common for builders to incorporate a company for the sole purpose of putting up a shitty building, then have it file bankruptcy once the repair bills and lawsuits start flying, leaving property owners holding the bag. Rinse and repeat.

Hmmm, concern about rule of law while saying burning down (many minority owned) businesses ‘seems fair’…

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