Johnson and Johnson sues researchers who linked talc to cancer
reuters.com
reuters.com
The Texas two-step, as it's called.
> In 2021, the company spun off its liabilities into a new entity called LTL Management under a strategy called the “Texas two-step.” That legal but controversial approach allows a solvent parent company to protect its assets by creating a subsidiary to hold its liabilities — and then having the new company declare bankruptcy, as LTL did just days after incorporating. Critics complain it’s an abuse of the bankruptcy system and allows companies facing massive litigation to dodge corporate responsibility.
> The Third Circuit Court of Appeals in Philadelphia dismissed the bankruptcy filing in January, finding LTL was not in financial distress and had “no valid bankruptcy purpose.”
> But hours after that case was formally dismissed in April, LTL filed for bankruptcy protection again, this time with a higher settlement proposal of $8.9 billion.
The fact that this is legal is such a mockery of consumer protection law.
It was not avoiding liability at all.
The court that dismissed the claim in general agreed with J&J's process, but said it was too early.
Some key quote from Levine:
> Juries in the US don’t like it when companies make products that kill people, and they tend to award enormous damages in cases like that. You multiply enormous damages by lots of cases, and you can easily end up with damages that exceed the value of the company. This can lead to unfair results, not for you — who cares about you — but for your victims: If a $1 billion company has killed 100 people, the first 10 who sue might get $100 million each of damages, leaving nothing for the remaining 90.
> one pretty practical approach [to how to solve this problem] is bankruptcy. This, after all, is what bankruptcy is for: It is a system to make sure that creditors are all paid fairly out of the assets of a company, rather than paying some creditors a lot because they are early and others nothing because they are too late.
> Bankruptcy courts are run by judges, who are bankruptcy professionals and who are used to dealing with companies that are, you know, bankrupt. They are used to not having enough money to go around; they are not temperamentally lavish with claims.
> That is, LTL — the box where J&J put its talc claims — could draw at least $61.5 billion from J&J to pay off those claims. The point here, the bankruptcy court concluded, was not to keep J&J from having to pay talc claims; the entire value of J&J’s consumer business was still on the line for those claims.
> But the Third Circuit disagreed, not because it thinks that the bankruptcy court is a bad place to resolve claims, and not because it thinks that J&J is avoiding liability with the Texas two-step, but because LTL isn’t bankrupt enough
> In some ways this is a sensible reading of the bankruptcy code, but it is a little bit of a weird result. The point of doing any of this is to do it early, before you are out of money, so that you have plenty of money to pay all the claimants fairly. The court realizes this awkwardness
> You don’t have to be insolvent to file for bankruptcy, and it is good to file early, but not prematurely. You want to file for bankruptcy while you still have plenty of money to pay claims, but not too much money.
Read the whole article. It's good!
I'm entirely unconvinced that J&J couldn't pay back everything they owe, to everyone they owe it to, without bankruptcy and the fact that they were able to avoid all of those individual lawsuits is already J&J getting off the hook unfairly and avoiding their full liability.
If I'm wrong about that and without bankruptcy J&J would be forced to go out of business before everyone could get paid, then no matter if they use bankruptcy or not, the end result of that bankruptcy should still mean that every penny they have goes to their victims and the families of their victims (evenly distributed or whatever) until J&J actually does go out of business.
If J&J in, any form, survives because of this “Texas two-step" then the “Texas two-step" is an insult to victims and to justice and should be outlawed.
Perhaps bankruptcy is a great way to divide up whatever is owed to everyone, but as long as J&J continues to exist it means that they got off the hook. Honestly, many of J&J's serial killers and mass poisoners should be locked up for the rest of their lives. Murder was extremely profitable for them. They'll do it again if they have the opportunity.
In many jurisdictions, if the Plaintiff chooses to introduce evidence of bills, they can only submit the amount still owed or actually paid to satisfy the bill, and the amount that was written off or contractually adjusted stays out.
Often, Medicaid may pay $700 on a $15,000 bill. Since the size of the bills tend to frame the non-economic damages (pain & suffering) awarded by juries, Plaintiffs’ attorneys don’t want small bill numbers to influence the juries into a minimal award. So, they just don’t introduce evidence of bills and hope that juries assume big bills or base their award on something else.
The amount that can be awarded by a jury is uncapped, there is absolutely no way of knowing whether J&J could pay all claimants.
Once J&J has damages awarded that exceed what they cam pay, thay would the the appropriate time for the company as a whole to declare bankruptcy.
A good first step to make sure J&J can pay all their victims would be to stop paying dividends to shareholders in case they need that money for victims.
How much is this? I thought we don't know yet since so much is still under litigation.
There is a valid point there, but one could argue it sets up unfair precedent for companies to act in bad faith if they can get off easy.
The point of limited liability is so that grandpa can invest in an index fund even if he doesn't understand the inner workings of consumer products manufacturing without having to worry that one of the 500 companies in the index will hire a bad manager and have it wipe out not just that investment but his entire retirement account and his house and every other asset.
The problem comes when corporations use the same mechanism to isolate their subsidiaries. Foo Corp is making phones that burn down your house and providing financing to buy them with and cloud services to use them with and software to run on them, but these are each different subsidiaries. Then Foo Electronics files for bankruptcy while its shareholders get to keep all the profits it made from selling the other services instead of making the victims whole.
The solution should be that limited liability is for natural persons, not corporations. If a corporation screws up you can go after the parent. Which makes sense, because the original rationale for limited liability doesn't apply there. We don't expect a business to be a generic investment fund -- if they're buying something it's because it complements their existing products and services, and they understand its operations. If they were just buying it as an independent investment then they could just as well return the money to shareholders to invest in that themselves.
And if that also makes it less advantageous for corporations to consolidate into huge conglomerates, good.
J&J is liable for the full liabilities of the new child company.
The child exists to make sure a pool of at least its current assets exists to split between all claimants. If they’re found to be liable for more than that, then J&J will be liable for it and, if they can’t service that liability, they will have to declare bankruptancy.
Isn't this still J&J the consumer products division rather than J&J the parent company?
Today’s grandpa might be living off the retirement income from his S&P fund investments which should (IMO) have the same level of limited liability to him as grandpa would have if he invested in a tiny slice of each of 500 different companies directly.
> We don't expect a business to be a generic investment fund
I do expect some businesses to be exactly that.
J&J is not "freed from the shackles of any liability", because it is still liable to its own subsidiary for the talc lawsuit claims, up to the full value of J&J itself (the parent company).
The decision not to cut dividends in the face of an earnings shock is a pretty common one and not generally a sign of an executive team attempting to enrich themselves. It's more of a sign to shareholders that the executive team has faith in the robustness of the business, which helps if the goal is to survive the present difficulties.
So then, what we are left with is a "bad bank" scheme that is devoid of a compelling legitimate justification, which you yourself do not offer. This naturally raises an inference that J+J hopes to cram down tort claims via the maneuver. Perhaps the cram-down is in administrative overhead associated with litigation. Maybe it's some kind of mismatch in claim acceptance or approval criteria. None of the materials explain, and while I adore Matt's writing the bottom line is it looks like a shell game and that's from someone with no "outrage" whatever involved.
It is a reality in some licensed industries (eg banking)in Europe
That's despicable.
What's despicable? That people would operate in their own self-interest, without regard to potential harm that is not in any way their fault coming to people they've never met? Or the "assumption" that people would behave that way?
If acknowledging how people normally behave, especially when there's no moral obligation for them to behave otherwise, seems despicable, a lot of reality will become unacknowledgeable.
Why would a claimant intentionally take a lower settlement to keep funds available for later claimants? They have as much obligation to do so as you do to give up a portion of your paycheck to make sure claimants against J&J are paid out. Why would being the victim of crime specially obligate someone? Isn't that just a second victimization?
We gave a name for that, it's calles psychopathy.
"According to a study conducted by forensic psychologist Nathan Brooks from Bond University, around one in five corporate bosses have clinically significant psychopathic traits. This proportion is similar to that among prisoners. Journalist Jon Ronson found that CEOs are four times more likely to be psychopaths than the average person."
And yet as soon as it was dismissed, within hours J&J had refiled with different numbers.
The court also said that trying to tie this new entity to North Carolina was also trying to maximize a "strained and very limited" connection to the state, and the administrator questioned why this entity had no relationship to the state of New Jersey, where J&J is headquartered and does business out of.
The court far from signed off on J&J's process.
That's a legit argument in favor of bankruptcy of the entire company! There's no good justification for creating a shell company to control the damages on the main company (who did kill people).
> J&J is facing more than 38,000 lawsuits alleging that the company's talc products, including its Baby Powder, were contaminated by asbestos and caused cancers including ovarian cancer and mesothelioma
As other comments have mentioned, Matt Levine has an excellent article describing the logic behind their actions.
$65BN is almost exactly equal to one year's gross profits for the company, on top of which J&J has $24BN in cash and a market valuation of over $400BN.
https://finance.yahoo.com/quote/JNJ/key-statistics/
That $65BN is likely decades worth of claims, not one lump sum being demanded at once. Assuming the claims are spread out over just one decade, the settlement costs would amount to around 10% of their gross profits. Over multiple decades, it starts approaching "rounding error on the balance sheet."
Framing this as "J&J might run out of money to pay people for this" is pretty disingenuous to the point of feeling like corporate apologism.
Johnson & Johnson net income for the twelve months ending March 31, 2023 was $12.724B, a 35.83% decline year-over-year. Johnson & Johnson annual net income for 2022 was $17.941B, a 14.07% decline from 2021. Johnson & Johnson annual net income for 2021 was $20.878B, a 41.89% increase from 2020.
https://www.macrotrends.net/stocks/charts/JNJ/johnson-johnso...
The term for this process is misleading, and the mental image is very much of a company which is getting out of paying their victims. In this case, filing for bankruptcy created fairness among victims, they did not have to be first or fifth to get the right damages, every victim was treated equal.
> That is, LTL — the box where J&J put its talc claims — could draw at least $61.5 billion from J&J to pay off those claims. The point here, the bankruptcy court concluded, was not to keep J&J from having to pay talc claims; the entire value of J&J’s consumer business was still on the line for those claims. The point, rather, was to deal with those claims in an organized and efficient way, to treat all the claimants fairly.
The only reason the court quashed it was because it wanted J&J to fight the individual or class action lawsuits, and it was too early for bankruptcy.
It creates fairness among victims by removing their rights to seek higher damages via their own court cases.
This "fairness" is only needed if the total amount of judgements exceeds what J&J can pay. In which case it is J&J which should be declaring bankruptcy, but that would block their ability to keep paying dividends to shareholders.
> The only reason the court quashed it was because it wanted J&J to fight the individual or class action lawsuits
Exactly. The judge saw through skeezy J&J attempt to use a sham bankruptcy to avoid the large payouts that can come from jury trials.
Edit: Seriously, how can any person believe that J&J are doing this to make sure there is money to "fairly" pay all the victims while J&J is still paying some of the money that might be needed to pay victims as dividends to their shareholders. It is pretty darn extremely clear the J&J's primary goal is to reduce payouts and maximize shareholder value
How is it fair if the first victim gets 10M in damages, but the 100,000th victim does not, given each lawsuit proceeds differently? It's obviously not a race, and getting less/more damages based on the order you filed a lawsuit is surely not the best way. (Damages via settlement or decided by jury). Even in the best case scenario where every victim gets a payout, they should get equal payout for similar damages.
Also, the judge agreed with J&J's idea, but found the filing to be premature. That is even before they fought any lawsuit. Early is encouraged, premature is not. There is a distinction
> We recognize the Code contemplates “the need for early access to bankruptcy relief to allow a debtor to rehabilitate its business before it is faced with a hopeless situation.” A “financially troubled” debtor facing mass tort liability, for example, may require bankruptcy to “enable a continuation of [its] business and to maintain access to the capital markets” even before it is insolvent.
> Still, encouragement of early filing “does not open the door to premature filing.” This may be a fine line in some cases, but our bankruptcy system puts courts, vested with equitable powers, in the best position to draw it.
The problematic part would have been had the money been capped. It's not, evidently.
Then again, if you want to dissolve a company for one product, tell me what happens if tomorrow another product of theirs has some flaw, and now the victims cannot get anything for their damages?
No they didn't.
> How is it fair if the first victim gets 10M in damages, but the 100,000th victim does not, given each lawsuit proceeds differently? It's obviously not a race, and getting less/more damages based on the order you filed a lawsuit is surely not the best way
I didn't claim that was an optimal procedure. But as of yet there is no risk of J&J not being able to pay future claims. Indeed, J&J are still financially secure enough to be paying out dividends to their shareholders.
> The problematic part would have been had the money been capped. It's not, evidently.
No, the problematic part is J&J's attempt to use a sham bankruptcy to force litigants against it to to settle through a single judge rather than continuing with regular court cases.
As I have said elsewhere, if bankruptcy is actually required here, then J&J should declare it themselves. They won't because then they'd have to stop paying dividends.
There is plenty of room for tort reform to malye things fairer. Sham bankruptcies and a texas two step is not the appropriate method to bring fairness to victims of a financially solvent company.
Hint, when the victims oppose legal maneuver that is supposed to "make things more fair for them" and the perpetrator supports it, then the legal maneuver probably isn't doing what it claims to be doing.
I quoted you the judge's opinion where he states he recognizes "a need for early filing even before it's insolvent." To me, that is agreeing in principle and idea, just that here he called it too early/premature. You can choose to skip that again, or read the whole thing in context, it's available on the internet.
If we are discussing one suboptimal process against another, it's a matter of opinion, especially when we have no concrete proof that J&J has been trying to limit liabilities.
> sham bankruptcy to force litigants against it to to settle through a single judge
It gets everyone same damages, does it faster, and does it more equitably. Moreover, there likely would be reserve for future victims where they would not have to find a lawyer, litigate a suit, etc. to get damages. Sham would be true if they skimped on damages, they claimed on the filing it's fully backed by parent company so they likely won't.
I don't get the concept of nuking the entire company for one product. Why is dividend even an issue? You think the total cost of damages would be more than their yearly revenue? If not, whatever they do with rest of the money (after the worst case estimate should not be an issue.
I think the motivation was to settle claims and pay damages quickly rather than through a longer drawn out trial. Thats not a bad motive in itself.
And when he dismissed the filing, J&J changed some numbers and refiled the very same day. That obviously wasn't the message that they got out of the judge's ruling.
Try on this hypothetical. Imagine that ten people in a giant company called ACME made some decisions that led to 50,000 people getting hurt. ACME also employs 100,000 hard working people, representing perhaps 0.3-0.4 million family members dependent upon that income. Imagine further that ACME's other products have dramatically improved the lives of hundreds of millions of other people.
Given that scenario, does the ethical math really work for ACME to be completely destroyed? It is easy to see how the 10 decision makers should be punished. It is also easy to see how the people who were hurt should be compensated in some way. Destroying ACME entirely will harm lots of other people so it is not clear how to justify that. It is a very frustrating domain because we think of these companies as monoliths, but they are really just a large collection of mostly very decent people.
By not destroying the company, you are giving all sufficiently large future companies carte blanche to break all the consumer protection laws they want, and you are rewarding investors for those companies. The long term moral hazard isn’t worth it; the investors and decision makers absolutely need to be wiped out.
It's like not taking down a criminal mafia because the income of the enterprise goes to take care of at least 10x as many children, wives, dogs and cats than people who were actively committing the crimes. It's like not ordering the the proceeds of a crime be returned to the victims because the house the thief purchased with them is so beautiful, and the thief's daughter so well-behaved.
I employ thousands of men, women and children in my mines, many in the poorest and most conflict-ridden parts of the world. The gemstones we produce are some of the most highly valued products out there - what could produce more happiness than an engagement ring?
And yet despite all the good I do, when I want to hunt and kill one or two human beings for sport, apparently it's still illegal. Even when I offered to use people who were terminally ill anyway, and I offered to compensate their families appropriately.
I can only hope that in the future, our political leadership will be more rational and less emotional about these things
/s
ACME has already been compensated financially for their products, so I don't think we should count them again in the ethical calculus.
It works for the banking industry I guess so why not here too.
Too big to fail implies catastrophic harm worse than the (unpalatable) steps necessary to prop something up.
This argument is really exploring the line between “company did something harmful” and “company did something so harmful they should no longer exist”.
I’m not arguing for either, but TBTF is unrelated.
As we all know capitalism is the most efficient economic system, those 100,000 hard working people will go work for other companies. I'm sure another company that knows its products contain asbestos would love to hire the legal and PR team that has experience in suing scientists who link products to cancer.
The same ethical math tells us we should never imprison parents of young children for smaller crimes, like stealing, because it will harm wellfare of the child. And yet we do it anyway.
> Destroying ACME entirely
By carpet bombing? Sure.
But we do not blow up the factories and we don't neurolise employees. The factories will be bought by a competitor, the employees will work for a competitor or start their own business. Nothing physical is "Destroyed" in the real world
I think I don't care about J&J as long as victims are fairly compensated. For this one, and for any future victims that are affected by this product or any other product created by J&J.
When a serial killer gets the electric chair, most people consider that a fair punishment. No? So tell me, if a judge wanted to apply capital punishment to a company, which is not even a living thing, it's just money and stamped papers. How could it do that, when the company can use this scheme to escape?
> The point here, the bankruptcy court concluded, was not to keep J&J from having to pay talc claims; the entire value of J&J’s consumer business was still on the line for those claims.
The court concluded that the subsidiary was not actually bankrupt and so couldn't justify J&J's attempt to consolidate all the lawsuits against it into a settlements from one bankruptcy judge.
This attempted consolidation is pretty clearly an attempt to limit the judgement sizes that may come out of jury trials. Pretending otherwise is naive at best.
Imagine if the criminal justice system worked like that.
> the entire value of J&J’s consumer business was still on the line for those claims.
BS. So much stinking BS. This is even contradicted by your own quotes.
>> they are not temperamentally lavish with claims.
Which is just admitting that bankrupty courts are likely to awards lower judgements than the juries and judges who would otherwise be awarding damages. That is pretty clearly reducing liability.
If J&J eas really about to run out of money to pay out liabilities due lawsuits and we need to split what money they do have fairly, then J&J itself should declare bankruptcy. What they are doing instead is a sham legal maneuver designed to reduce judgements sizes and remove the legal rights of their victims.
Trying to couch that as "protecting the victims" is a farce. I wonder how much Matt got paid...
https://www.reuters.com/legal/jjs-ltl-units-bankruptcy-dismi...
Because the bankrupcy basically pauses all litigation (including against the parent company) it means even more delays on an already extremely lengthy process, but the restrictions of bankrupcy only apply to the spin-out, not the parent. So while in theory they may pay out eventually, the process can easily take more time and money than many of the claimants have (literally in the case of those who have cancer).
In general the immense amount of time most court systems take to actually resolve disputes like this is a big contributer to the lack of faith most people have in them, and the capacity to stall for time available to both parties but especially defendents is a big part of that problem.
This "just" is sure doing a lot of work.
First off, if J&J is really on the hook for all the liabilities of the child company, then the child company is not bankrupt since it has plenty of money to pay unless J&J is also bankrupt. This makes it pretty clear that the bankruptcy is a sham legal maneuver.
Second, it is a bit rich that this legal maneuver is framed at "protecting claimants" when it blocks those claimants from pursuing cases that maximizes their damages. It seems pretty clear that J&J are not following this strategy to protect the victims an ensure fairness but to minimize their own costs and damages.
What this basically amounts to is subverting bankruptcy law to force claimants into something more akin to a class action without the consent of the claimants.
If it really is the case that total awarded damages exceed what J&J can pay, then J&J should itself file for bankruptcy.
This is purposefully obtuse. If a few courts award 5 plaintiffs the entire pot of gold, then there's nothing left for all the other claimants. And of course it's in J&J's interest to consolidate the cases. It's also in the plaintiffs' interests, especially those who weren't first.
Bankruptcy is one way around this.
https://www.bloomberg.com/opinion/articles/2023-01-31/matt-l...
The idea here was that a bankruptcy judge could more fairly distribute $61.5 billion dollars among claimants than having them sue J&J one at a time and getting uneven awards and costing everyone more lawyer hours.
Further, if your company produces products that kill or injure people, then why should we show any interest in maintaining that companies existence with odd legal hacks like this? Shouldn't they be disbanded, their assets sold, and new businesses allowed to exist in that space?
What are we, in total, as a society, gaining by allowing this?
The issue is that there might be multiple actions, and compensation might be used up byt the first one (eg, if the company was sent into bankruptcy by the first class action, then subsequent cases would be useless). This is a pretty reasonable argument IMHO.
> Further, if your company produces products that kill or injure people, then why should we show any interest in maintaining that companies existence with odd legal hacks like this?
This seems fairly debatable.
J&J produces a lot of things that aren't talc, and it isn't like they are a cigarette company that knew the health risks. The risks from talc weren't known are are still debated, and it is a thing that has been used for thousands of years without known issues.
Separately there's a good argument that keeping the company alive is better for those affected because it can fun ongoing liabilities.
The talc itself is not believed to be the carcinagen, but the talc is contaminated with asbestos. Interal documents show that J&J knew about the contamination since 1971. Asbestos was known to be carcinegic at this point and the first bans of asbestos use in construction began rolling out in 1972.
They knew and hid the health risks, just like a cigarette company.
There's a better solution: the government pays all the fines and then nationalizes the company until the profits have paid back everything owed plus reasonable interest. Then, it's sold off. The original owners get nothing.
That way, there's also an incentive for current shareholders to pressure their management to behave ethically - clearly, there's a massive lack of such in the current framework.
> This seems fairly debatable.
To be fair, we might not have some of the drugs many of us are prescribed to us if we just cancelled every company that ever hurt anyone with experimental drugs.
They had full knowledge that they were poisoning people, and they actively hid that from the people they were killing, because J&J wanted more of their victim's money before they died, and a continuous supply of new victims to take the place of the old ones.
People died and they knew their product was dangerous. That's akin to murder.
No, those are your words. The discussion I was participating in was talking about medication, not race warfare.
My statement was also generalized, but you apparently applied it to a specific scenario (which I am unfamiliar with) that fits your narrative.
"This baby powder is an experimental drug and may have unknown and lethal side effects" - did it say this on the packaging?
If it did, fair play. Some people would be happy to try experimental and dangerous cure for cancer.
But somehow I have a suspicion that the potential market share for experimental and dangerous baby powder is about 0%.
And I donate to charity, but if I put a poison in coffee before selling it to you, I will be in prison, but JJ gets to limit liability
Maybe the solution is to nationalize J&J.
"You can't bankrupt my company because someone might need to sue me later" is absurd reasoning.
We have a system of private ownership where the owners get to reap the rewards of others' labor, but when they do something wrong they pull the "but think of the employees" bullshit. No. Full ownership, full liability.
Rogue corporations are killing people at a scaled rivalled only by dictators…
This is what's “insane”.
The people who knowingly made this happen are literal monsters, there's just no other words.
I don’t really think that some hypothetical future lawsuit is a valid basis to avoid the consequences arrived at for the current one. If one can simply make a virtual entity that holds all of your liabilities and then set it on fire to avoid paying them, isn’t that just a modern play on the ancient tradition of the scapegoat?
Putting all your sins on someone or something else didn’t absolve you then and it should not be a legal way to get out of paying for your mistakes now.
You (and many other commenters) seem to be under the impression that the bankruptcy procedure was done for the purpose of "avoiding paying out the total amount assessed against it", when that was not at all the case.
My comment was only intended to be a response to the idea posited that some future hypothetical case should have any bearing on present reality. This belief in imaginary cases’ right to be considered in the legal system is turning up in interesting places lately, and I felt compelled to weigh in.
Apologies if I was off topic or confusing.
All I can suggest is to reread Levine’s article.
However, for companies like J&J that aren't actually going bankrupt, this process also allows them to protect their business and to pay less than they would normally. Otherwise, why wouldn't they just file for bankruptcy directly?
Obviously, yes.
> to pay less than they would normally.
Not necessarily.
You missed the part where they have a specialist court divide up the claims in a single go, rather than have ad-hoc juries hand out different awards to different claimants.
> aren't actually going bankrupt
You’re missing the part that this is kind of allowed in Texas courts. It’s not unrestricted - the court kicked back the first attempt.
What gives you that impression?
> You’re missing the part that this is kind of allowed in Texas courts.
It would seem that what they did was not allowed, given that they lost their case.
“We can’t pay out for these deaths because then we will be out of money to pay out for the other deaths.”
This is only a compelling argument if J&J agrees to dissolve their entire company and work with the courts to distribute 100% of their wealth to aggrieved parties. Let’s see how much they cooperate with that.
Your follow up points don’t address my point at all.
"I am sorry, we cant imprison this murderer for life, what if he killed someone else and they need to sue him too, we can't i prison him for life twice!"
The Texas Two-Step isn't a concept borne from bankruptcy courts.
Would that it were so.
You talk about charitability, but here's a question for Matt, you and others:
"Is this strategy called the Texas Two-Step because:
1) it assists claimants and plaintiffs (your adversaries) to bond together and present one solid unified case against you, or...
2) because it assists you to elegantly dance around your liabilities?"
The Texas two-step allows solvent companies to shield their assets from litigants using protections that are normally reserved for bankrupt companies. The goal of a Texas two-step is for the parent company to gain a third-party release of all liabilities it assigned to its spinoff, thus preventing litigants from pursuing those claims against the parent.
And yet here we have multiple people trying to spin things as "Oh, J&J just want what is fair for the litigants!"
Fun fact: the majority of large corporations who utilize the Texas Two Step somehow manage to avoid paying out anything more than a token sum, either through the "new" entity that holds the liabilities, or the "old" entity which promised it'd fully fund the liability holding entity.
Georgia Pacific did this. Pledged $1B, ended up funding $175M. The entity went bankrupt three months later with 62,000 claims fighting over those scraps for mesothelioma (i.e. an average claimant getting less than $3,000 - before legal costs).
Saint-Gobain did the same thing. More building products liabilities. Less than $100M in assets and no operations to fund more than 6,000 asbestos claims per year.
> Gross testified that Saint-Gobain repeatedly misrepresented its intent in creating the subsidiary that eventually filed for bankruptcy, calling executives’ testimony and other statements “misleading” and “not truthful.” U.S. Bankruptcy Judge Craig Whitley followed Gross’s testimony last August with factual findings that included his own blistering critique of the executives’ statements as “contrary to the evidence,” saying the company’s story “strains credibility.”
Trane Technologies. Same deal.
And yet you and Matt talk about how the whole concept is "designed to be more fair for the claimants".
"Facts and analysis" in the three companies who have done this before J&J would disagree with you. Strongly.
>Georgia Pacific did this. Pledged $1B, ended up funding $175M. The entity went bankrupt three months later with 62,000 claims fighting over those scraps for mesothelioma (i.e. an average claimant getting less than $3,000 - before legal costs).
A source would be helpful here too. Is it because the judge ultimately only found them liable for a total of $175M? Or did the judge find them liable for more but was only able to find $175M in actual money to pay out with?
Bankruptcy law is hundreds of years old and is designed to protect creditors actually. That’s why there is a separate court to handle things and involved independent outsiders and judges that oversee things. It works and is used every time there is a financial crisis and thousands of times per day at the individual level.
This sort of thing is specifically prevented and handled by a principle called fraudulent conveyance. This principle causes the court to look back in time to what the assets and liabilities were closer to the time of the start of the financial difficulties of the debtor.
Not sure why you are treating it as an absurd concept.
Is this strategy called the Texas Two-Step because:
1) it assists claimants and plaintiffs (your adversaries) to bond together and present one solid unified case against you, or...
2) because it assists you to elegantly dance around your liabilities?
It's basically a way of forcing everyone suing you into something akin to a class action, but one where you lose most of the legal rights you would have in a class actions.
Must be nice, being able to say "Well, we'll give LTL $X and that can be used for settlements" while still throwing off nearly $X a year in profits, and 25% of X in shareholder dividends alone.
Why should a company be allowed to set and determine how much liability it needs to pay?
Georgia Pacific, faced with several billions in claims, formed a subsidiary, and "pledged" to fund it to the full amount, starting with an initial $1B funding...
Actually only funded it to the value of $175M. Less than $3,000 per claimant for mesothelioma.
Less than $3,000... before claimant legal fees.
Sure, it's a higher number than J&J asked for, but it's still a number!
The entire purpose of bankruptcy is to resolve debt you can't afford to pay.
If you think he’s wrong, please explain why. I genuinely would love to hear a well-reasoned critique of his analysis.
It seems more fair to allow any and all claimants to sue J&J, or join together for a class action lawsuit. If the liabilities outstrip the company's total worth they can then go for bankruptcy of the entire J&J business and split assets proportionately across all liabilities.
This is not what they did.
To quote Levine's piece:
> the box where J&J put its talc claims — could draw at least $61.5 billion from J&J to pay off those claims. The point here, the bankruptcy court concluded, was not to keep J&J from having to pay talc claims; the entire value of J&J’s consumer business was still on the line for those claims.
For emphasis: the entire value of J&J’s consumer business was still on the line for those claims
Which is why the judge dismissed the bankruptcy proceedings.
There's more nuance though than that.
> Moreover, New JJCI has agreed to fund the Debtor LLC’s Chapter 11 case and contribute $2 billion into a settlement trust for the benefit of the talc claimants as part of a Chapter 11 reorganization plan.
$2B = a lot less than $61.5B. And you can guarantee that J&J (who refiled the bankruptcy proceeding within 3 hours of it being dismissed) will fight that vehemently.
I like Matt Levine's reporting, but you'll forgive people for taking Bloomberg taking a pro-business position with more than a little grain of salt.
Isn't the alternative of directly attacking j&js resources made fantastically harder and more uncertain? The net effect of which is to make claimants more likely to choose the safe path of accepting the figure chosen by the guilty party rather than letting judge or jury directly decide.
Except that's not what they did. As the article explains, under the J&J agreement the "maximum liability" of the parent to the subsidiary was defined as the entire cash value of the parent.
For example, by avoiding bankruptcy any existing liabilities aren't pooled and paid out proportionately along with the lawsuit proceedings. There is also nothing stopping the parent company from moving around funds to limit its "entire cash value".
It would different if the court themselves attempted to limit liabilities. If I could limit the cost of my liabilities, you could sure that I’d discount them to the detriment of those that owned the liabilities.
There's nothing wrong with it being legal to shuffle assets among subsidiaries, as long as the veil is trivial to pierce when needed.
The rich get richer.
Reasons include, but are not limited to:
a) compounding
b) the right to bequeath your assets to your children
c) if you're financially savvy you're more likely to educate your children about long-term wealth
d) uneven effects of monetary policy (e.g. interest rates)
etc.
I hope this is not as bad in medicine and health related research. But just thinking that some paper can be used against you in court to claim billions of dollars in damages makes me uneasy. Peer reviewed paper != science. Peer review is a crude filter on research that can both accept bad work and reject good work. There must be a higher bar for something that can be used in the court of law. Some sort of scientific consensus must be needed at least.
It's easy to dismiss this because screw J&J. But I think we are all paying for these lawsuits through our insurances and taxes and higher drug prices.
Not saying these lawsuits don't have merits, but I think there must be a higher bar for what is presented as evidence.
Let me be clear - the largest proportion of those are the pointless ones ( the reader already knew what's in the paper ).
Some of this is because research is hard, a lot of it is because of the immense pressure to publish and the strong bias for positive messages ( this approach is better, we discovered X ) to be published, rather than stuff that says - we tried this but it didn't work etc.
> I hope this is not as bad in medicine and health related research.
Same pressure, same human factors.
There is of course an additional factor in cases like this - if your research hints at a link between talc and cancer - is it ethical not to publish while you wait another 5 years for a longer study?
As with social media and society in general, only the most inflated of headlines gets attention causing the gold rush of hyped up results. Nothing can be published without the hype and hyperbole, which then sets the benchmark for the next round of hype.
Publication in this journal would be used as evidence against lawsuits.
Cigarette companies paid for studies designed to produce no conclusive evidence.
I don't see this as a route to progress. What if all you did wrong was follow the wrong process? The bacteria grows better at 10C than 30C. This journal would be full of results by fools and charlatans. The inclusion criteria would have to be much more complex for it to be useful.
This would basically be the same as caching the results of a brute-force attack; except instead of trying to break the entropy of encryption, we are trying to unravel the entropy of chemistry and physics.
I have friends and family working with medicine and health related research, and I don't think it is bad. In fact I'm a bit amazed at how good the Medicine academia is at science, and as comparison how bad computer-science (CSc) is at science.
With very few exceptions, CSc papers don't have any actual science, they don't have a hypothesis and a method to test it, instead most papers in CSc can be summarized as "I did this new thing and I find it cool", the peers simply don't expect you to do actual science. In comparison, in Medicine papers you are expected to follow the scientific method to a T, they have a hypothesis and test it (often heavily relying on statistics), and yes some Medicine papers are bad (with bad methodology, bad sampling, or bad statistics like p-hacking) but even the bad ones try (and fail) to follow the scientific method (or at least pretend to try in case of malicious papers), because the standard is that high.
There's also a case related with cloning (which includes stem cell research) and massive fraud in South Korea 20 or so years ago.[2]
It's a complicated matter: research is a beacon of light on top of a mountain of failed experiments. And not even the government will fund a mountain of failures if your shining discovery at the end can't bring returns to society (or shareholders) in greater value than what you took.
And the pharmaceutical industry never settled for small results. And, unlike ML, it's much harder to test things as an outsider (you can hate the hype, but openAI, hugging face and all these "open" language models makes it much easier to learn, test, tweak and improve things without a master's degree in data engineering.).
It's a grimy area to research even as a pastime. There's a lot of recorded practices both in research and production that makes you question how low can a person go for money
1: https://www.science.org/content/article/potential-fabricatio...
1) You think these lawsuits have a bigger effect on insurance premiums than an increase in the incidence of ovarian cancer?
2) This is a choice we make as a society, and has little to do with lawsuits. J&J is not the victim of how we finance health care, it is the beneficiary.
Maybe you need your moderate your claiming before publishing something that could cause several damage to someone (That is why most news websites use potential words when publishing something: reported/may/thought/potentially/etc...).
Health related research is in a much worse state than ML unfortunately. ML suffers from metrics gaming and overfitting but there's probably not much outright fraud? Common estimates are that half of all medical papers are making false claims. This blog post of mine from a few years ago has some quotes from editors of well known medical journals where they express disbelief in their own published research base, and some examples of blatant fraud [0]. And this interview with Marc Andreessen indicates why VCs don't invest into biotech startups much [1]:
I had a conversation with the long-time head of one of the big federal funding agencies for healthcare research who is also a very accomplished entrepreneur, and I said, “do you really think it’s true that 50-70% of biomedical research is fake?” This is a guy who has spent his life in this world. And he said “oh no, that’s not true at all. It’s 90%.” [Richard laughs]. I was like “holy shit,” I was flabbergasted that it could be 90%.
[...]
I said “good God, why does the other 90% continue to get funded if you know this?” And he said, “well, there are all these universities and professors who have tenure, there are all these journals, there are all these systems and people have been promised lifetime employment.” Anyway, a longwinded way of saying that we have pretty serious structural and incentive problems in the research complex.
In the same interview Andreessen references a study [2] that implies most medical/drug research stopped working overnight in the year 2000. The reason being that in that year the US govt started requiring drug trials to pre-register their hypothesis and then evaluate their results relative to that hypothesis i.e. they tried to prevent P-hacking.
We identified all large NHLBI supported RCTs between 1970 and 2012 evaluating drugs or dietary supplements for the treatment or prevention of cardiovascular disease [...] 17 of 30 studies (57%) published prior to 2000 showed a significant benefit of intervention on the primary outcome in comparison to only 2 among the 25 (8%) trials published after 2000
[0] https://blog.plan99.net/fake-science-part-i-7e9764571422
[1] https://www.richardhanania.com/p/flying-x-wings-into-the-dea...
[2] https://journals.plos.org/plosone/article?id=10.1371/journal...
Odd that tenure is singled out as the core of the problem. I'd say the undermining of tenure is a large part of the problem.
Research is hard - very hard - you are being asked to discover stuff nobody else has - to push the boundaries of knowledge. I would argue that the idea that one failed research project, and you are out on your ear because of a gap in publishing - is a core part of the problem.
In terms of medical doctors doing research - I'd argue that's a special dangerous mix - medical doctors need to have an element of self-belief just to be able to do their job ( life and death decisions ). Instilling it is part of the training.
That self-belief, plus a lack ( in most cases ) of any in depth scientific research training is a dangerous mix.
Medical training != science training.
In this specific case I have no idea about the rights and wrongs.
Why does having job security motivate you to make stuff up - incidentally, the only way you might actually lose your job?
I guess that's why in medicine (and some other sciences), meta-reviews are so important: they read dozens or hundreds of papers on the same topic, compare methodologies, and try to deduce more realistic confidence intervals to limit statistical noise. That's how we now know that smoking definitely leads to higher probability of cancer, and most likely that's the case with red meat (and even more likely with smoked or otherwise preserved meat). The risk increases are small enough that a single study can never have the statistical power to prove it. Otherwise, when the famously wrong paper linking vaccines and autism came out, all families of poor autistic children could sue a lot (it was later proved that that one paper was fabricated with malice, but that doesn't change anything, if it were a random error the effect would be the same)
This is why I share your concern for the billions of $ in sues due to this one paper. I have no idea who is abstractly "right" - it might be there was asbestos, or maybe not, and it might be that these talc products increased cancer likelihood, or maybe not. But health, and particularly cancer, is tricky: we all develop multiple cancers, sooner or later, unless we die before. Trying to pinpoint a specific cancer to a source is like fining the proverbial last straw that broke the camel's back - except that in this case it's not the sum of the straws that kill the camel, but rather one random straw across all its load.
That said, I don't want to use this argument to wave company responsibilities away - of course companies who knowingly neglected safety measures, or endangered patient safety, should be punished with large fines (and possibly forced to shut down, in particularly extreme cases). As a European, I'm just uncomfortable with the idea of settling this in spectacular "patient vs. company" trials, where everything is dictated by the ability of lawyers and the will of judges, with results rather randomly ranging from nothing to literally making you rich (and again, your particular cancer might or might not be caused by that... and you can't really know, in any way). With the small additional caveat that you must have survived that in the first place, in order for the company to actually be significantly punished.
"Better" is not a single axis. By your logic, all I need to do is jump higher and higher, and sooner or later I will be able to fly!
You aren't alone in this line of thinking. This fallacy has been written all over "AI" since we started calling it "AI"! That was the biggest mistake of all: by calling any arbitrary project "an Artificial Intelligence", we declare it an instance of the end goal! Now it just needs to be a "better", never "different".
And that's what it means for a company to fail: it doesn't just need to be better, it needs to be different. If we don't allow failure to happen, we can never explore "different".
These researchers have gained materially from the output of their research (expert witnesses do not testify for free). Of course if the lawsuit is baseless then it is an evil distraction but the mere act of suing researchers is not, on its face, a problem.
It depends. Were the subjects actually exposed in a meaningful way to another source of asbestos, or did the corporate lawyers go fishing through past address history, purchases, etc. and will argue things like "Subject A visited Australia ten years before the study and was in a city where some older structures were made using asbestos-infused concrete. Did the researchers think to ask their subjects if they'd traveled to Australia?"
One of the subjects previously filed a workers comp claim for asbestos exposure at a textile plant where she worked, despite being considered to have had no asbestos exposure other than from cosmetic talc for the purposes of the quoted study.
https://retractionwatch.com/2023/01/24/jj-subsidiary-alleges...
Ideally that should be part of the research paper if done diligently, refuting them even before people doubt them.
> The present study has several limitations. It is both retrospective and uncontrolled, and the cases were submitted in medico‐legal consultation, all of which potentially introduce bias.
I think the researchers were quite open about what they did.
Cancer.org has a page on talc[0] and from it:
> Studies of personal use of talcum powder have had mixed results, although there is some suggestion of a possible increase in ovarian cancer risk. There is very little evidence at this time that any other forms of cancer are linked with consumer use of talcum powder.
> Until more information is available, people who are concerned about possible links between talcum powder and cancer may choose to avoid or limit their use of consumer products that contain it.
Seems like more studies are needed for the consumer level.
[0] https://www.cancer.org/cancer/risk-prevention/chemicals/talc...
This blurb on Wikipedia [0] indicates that asbestos levels might have started being controlled as of 1976.
>...Stringent quality control since 1976, including separating cosmetic- and food-grade talc from "industrial"-grade talc, has largely eliminated this issue, but it remains a potential hazard requiring mitigation in the mining and processing of talc.[39] A 2010 US FDA survey failed to find asbestos in a variety of talc-containing products.[40] A 2018 Reuters investigation asserted that pharmaceuticals company Johnson & Johnson knew for decades that there was asbestos in its baby powder,[41] and in 2020 the company stopped selling its baby powder in the US and Canada.
[0] https://en.m.wikipedia.org/wiki/Talc#Association_with_asbest...
The FDA did test randomly test a bunch of talc products and the "FDA found “sub-trace” levels, or no greater than 0.00002%, of chrysotile asbestos contamination in a bottle purchased from an online retailer."
That's 0.2 parts per million, or 200 nanograms in a gram, or 200 micrograms in a kilogram of powder in one sample.
Add on top:
- the FDA tested a number of products and most had zero asbestos (it's a trace contaminant not usually found in talc used for humans)
- the amount of talc that might be suspended in the air when using the products is measured in milligrams (so now we're getting into picograms of asbestos)
- J&J was sued for causing ovarian cancer, there isn't even a scientific link to ovarian cancer for asbestos.
The link to cancer is tenuous as best, but the lawyers smelled blood and could piece together enough of a story to get jury to find J&J guilty based on a "more likely than not" threshold.
In the end the winners in all this are the lawyers.
Look at the studies that were used as evidence, here is a link to the full paper.
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC9847157/pdf/129...
"Exposure data was obtained by sworn testimony of the mesothelioma patients in all cases, and/or from family members who had direct knowledge of the individual’s use of cosmetic talc and, if present, other sources of asbestos exposure."
That's it. The patient's and family member's word. No testing of samples for asbestos contamination, no review of their home to see if there was asbestos. Just a sworn statement.
I just looked at the two studies referenced in the article - Moline 2019 and Emory, Kradin, and Maddox 2020.
One might assume that they looked at large samples of people with and without talc exposure and with and without a mesothelioma diagnosis to find a correlation. That assumption would be incorrect. Sample sizes were small, n=33 and n=75, respectively. In both studies, all subjects had a mesothelioma diagnosis. As you said, they relied on patient and family member statements that they had no asbestos exposure other than from cosmetic talc (something we now know to be false). They asked subjects when they started using talc, how long they used it, and to what degree they used it, and then calculated average latency to onset from that. They also looked at tissue biopsies in a subset of the subjects (e.g., 11 of the 75 in the later study) and confirmed the presence of asbestos fibers and made an attempt at calculating the fiber concentration in 9 of the 11. It is unclear exactly what these studies purport to demonstrate. There's really no conclusion to draw other than "these people all have mesothelioma, some of them have asbestos fibers in their lungs, they all claim to never have had any exposure to asbestos, and oh by the way they all also used cosmetic talc to varying degrees over the years".
PS: Pool hand chalk is compressed, low-grade talc powder likely to contain asbestos. Climbing chalk is usually made from MgCO3 so it's probably safe.
Did they confirm the link? Did they find asbestos in ovarian tumors?
Is it possible Johnson and Johnson have been maligned? I'm not an advocate, I'd be interested in seeing significant evidence that their product causes cancer. However, I'd like to see a firm distinction between talc and talc contaminated with asbestos. The link with asbestos and cancer is clear. I'm not convinced of the problem with talc powder.
https://www.reuters.com/investigates/special-report/johnsona...
https://www.documentcloud.org/documents/5017565-1972-through...
The original study had a very small sample size (33 people), which one could argue would be small enough to dismiss. Are there any larger follow up studies?
> Moline published an article in 2019 studying 33 patients who said their only exposure to asbestos came from talc products, and Emory, Kradin and Maddox followed up with a 2020 study of 75 similar patients.
> All four doctors have provided expert testimony in lawsuits against J&J, and their research has been cited in lawsuits where they have not testified, according to the complaints.
> LTL said the researchers concealed the fact that some or all of the patients involved in their studies had been exposed to asbestos from other sources.
If the only thing they used to exclude non-talc exposures was asking the study participants, that seems pretty weak science. And their income depended on not digging too deeply for other exposures.
Scientists = personal liabilities.
Even the threat of losing one's credibility and career for daring to publish science which might possibly harm corporate profits is a horrible thing.
If the scientists formed their own spin-off limited liability company, declared bankruptcy days later, then gave ~$350 to J&J; that would make the playing field a bit more even.
"Junk science" is a charitable description of what was perpetrated in those studies.
- J&J made useful products that may have been problematic according to cutting edge research. Now they are broke and fighting tons of litigation. And they are acting shady in court (thx to their lawyers/management, not their researchers no doubt).
- Researchers did cutting edge work on a relevant topic. Now they are getting sued.
- a load of people are suing J&J after choosing to buy their products. I’m sure some of the plaintiffs have real tough situations and some are motivated by greed/pushy lawyers. These people might get paid.
- the lawyers who did no cutting edge work and made no useful products are getting paid
- regular folk might have to pay more for j&j products
Few winners, and not the winners I would have wanted
I don't really want to think about the mechanism by which talc induces weight loss along with the active ingredient.
And I took a rough survey, based on Googling "what happens if I eat talc" and some poison control centers say it's safe and harmless, while others have drunk the asbestos-laced Kool-Aid and say that it will probably cause cancer. This mostly in terms of talcum-based baby powder, which is harder to find than hen's teeth at this point.
Since you’re referring to my parallel comment, I figured I’d let you know that your comment seemed to imply that talc was an active ingredient used for weight loss.
I did not name Orlistat, I named the medication alli®. alli® contains talc. You can't obtain alli® without talc, AFAIK. Orlistat does not contain talc, but Orlistat is not alli®.
Orlistat (tetrahydrolipstatin) is not talc.
My assumption is they determined this first $65 billion will be enough to make the problem go away. Claimants will get a big check, but not big enough to launch further litigation to get more out of the company.
IMO, this is solving a problem that does not exist. If one or two initial claimants were to clean out the whole company then subsequent claimants could sue them for their share, or the courts could step in and enforce a class-action.
1. We need a federal anti-SLAPP law.
2. Discovery is a bitch, J&J.
They're one of the "wow! Maybe we should use the corporate death penalty" companies
When talc is mined, it is hard to ensure that it is sufficiently pure and not mixed with other minerals that are found together with it, like asbestos.
When very pure talc is desired, it is made artificially, by chemical synthesis, using pure magnesium carbonate and pure silicon dioxide. This is much more expensive than natural mined talc.
> When very pure talc is desired, it is made artificially, by chemical synthesis, using pure magnesium carbonate and pure silicon dioxide. This is much more expensive than natural mined talc.
Is there a way to find out what kind of talc was used in a product?
https://en.wikipedia.org/wiki/Talc#Association_with_asbestos
An overview is at
No; not at all. It's extremely dubious indeed, in fact.
Were they found in ovarian cancers? What's the clear link?
Asbestos is clearly linked to cancer > asbestos was found in talc and known to form with talc naturally > risk of using talc that isn’t pure.
The problem is whether talc is pure. At that point it becomes a question of how much you trust J&J to verify that. My guess is that different mined sources varied in asbestos composition and there likely was some contamination that went undetected. But who knows.
0: https://www.plasticsurgery.org/patient-safety/breast-implant...
1: https://www.nytimes.com/2022/09/08/health/breast-implants-ca...
> However, the benefit of implants to women's subjective well-being is less easily quantified. As Angell astutely points out, the FDA assumed that the benefits of breast implants were minimal—especially in women who desired implants for aesthetic reasons—and therefore demanded that implant manufacturers demonstrate virtually absolute safety.
I thought Johnson & Johnson was one of the good corporations and would accept and honour its obligations.
And that science has the truth to tell us what right or wrong, not a court.
And that the law system would deliver justice.
I'm just so amazed.
Overall Where there's money to be made there usually is shenanigans. That's goes for both sides.
Plus they’ll be costs involved that will come from that 300,000 too
> LTL's lawsuits allege that the doctors' research allowed them to collect millions of dollars from plaintiffs' lawyers to push a "false narrative" about J&J. The complaint against Moline, for example, said she had made a "small fortune" testifying as a paid expert in lawsuits, receiving over $3 million from her work on asbestos lawsuits. LTL alleged that Kradin also made more than $3 million testifying as a plaintiffs' expert.