A New Jersey state judge refused to preemptively block Johnson & Johnson from engaging in a bankruptcy maneuver, the so-called Texas Two-Step, that cancer patients say would unlawfully shield company assets from claims its talcum powder products caused their illness.

In rejecting their application for a temporary restraining order and preliminary injunction against the pharmaceutical giant, Superior Court Judge John C. Porto said that plaintiffs Brandi Carl and Diana Balderrama want him “to assume the defendants intend to conduct a fraudulent transaction” but that he “cannot make that leap.”

Under the hypothetical scenario derided by Carl, Balderrama and similar plaintiffs around the country, J&J would use the Lone Star State’s “divisive merger” statute to split off its talc liabilities into a separate entity that would then file for bankruptcy, while the bulk of the company’s productive assets would remain in a different entity, court documents state.

The bankruptcy proceeding would likely result in “J&J paying mere pennies on the dollar for the injuries”. 

However, Judge Porto repeatedly stressed that no such transaction had occurred.

Carl and Balderrama failed to show “by clear and convincing evidence there was any actual fraudulent transfer that was consummated or transacted by the defendants or that the plaintiffs would suffer any immediate irreparable harm”. J&J has enough money to cover potential judgments in favor of the women.

As for possible transactions in the future, the women neither offered “any clear and convincing proof” that J&J had decided to move forward on the controversial maneuver nor presented “the terms of an actual transaction that would undermine the present situation or disrupt the status quo”.

LAW360: https://www.law360.com/articles/1423620/nj-court-won-t-stop-j-j-s-texas-two-step-in-talc-suits

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