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!