Bankruptcy as a business strategy doesn't always work

JNJ used a pretty sketchy strategy to offload it’s talc liability: use a Texas state law, even though JNJ is not domiciled in Texas, to offload it’s liability to a fake company, set up in a different state, that had no products, no revenue, and no assets. As planned, the fake company declared BK the day it was set up and the liability assigned to it.

Today, a court said “no”, according to the WSJ.

This is the second time I have seen courts toss a corporate plan to dump liability. The other was Honeywell spinning off it’s Garrett turbocharger until, and sticking Garrett with paying Honeywell’s asbestos liability, even though Garrett never made a product that used asbestos. Garrett went BK, as planned. The BK court tossed HON’s plan to saddle Garrett with the liability.


This is a common strategy. WR Grace did this over asbestos. John’s Manville, the major asbestos miner got turned into a trust for those with claims. Monsanto did it with the Solutia spin off to deal with PCB liabilities.

Companies use this to protect their assets and limit the damage. Lawyers argue that they should have access to those assets anyway and sometimes succeed.

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The “JCs” are continually pushing the envelope regarding what is legitimate, and what is abusive. From what I have read, J&J broke new ground in a very profitable company setting up an entirely fake company, that had no hope of ever paying any liability, to shoulder the claims, using a state law, where neither the company, nor the fake company it created, are domiciled.

I suspect this is why J&J started working on the spin-off of it’s consumer products division. Should their “Texas two-step” fail, as it did in this court, they can simply pass the liability on to the consumer products company, when it is spun off. The difference between doing this and Honeywell’s approach, is that the J&J consumer production division would be the appropriate home for the liability, vs the Honeywell spinoff having nothing to do with that company’s asbestos liability.


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Monsanto put enough assets in Solutia to cover their liabilities they thought. But funds proved insufficient. So more got added later.

And no doubt the lawyers on all three sides got plenty of billable hours.

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It isn’t just JCs. In Michigan people filed enough signatures to get a public initiative on the ballot. The legislature said “Good idea, we’ll take up the matter ourselves, no more need for a ballot question.” Then after the election the legislature decided to revisit the new law, voted it down, signed by the Governor.

The Michigan Supreme Court said “perfectly legal.”

Had the ballot initiative gone forward it would have taken 75% of the legislature to countermand it, but since it was just regular legislation it only took 50%.

This is decidedly anti-democratic, in the same way that Monsanto and now J&J are trying to do, a clear violation of the sense of the law. I’m glad they were stopped, but their lawyers and execs should be sanctioned, and if there isn’t still an asphalt and chicken shortage, tarred and feathered.

Above site display link disabled because it contains a dreaded horrible word.


You are talking about the minimum wage increase, that the (L&Ses) co-opted, then amended to sharply reduce the wage rates? Yes, it’s “undemocratic”, the work of the faction that says Shiny-land “is not a Democracy”. That gerrymandered 40 year control of the legislature is over now.



JnJ has been spending hundreds of millions fighting those talc class actions and will continue to do everything they can to get it off their books. A problem - regardless of whether baby powder actually contains enough talc that contains asbestos to be harmful or not - is that there are many shady law firms out there that will keep finding (some would say “inventing”) new angles of attack to bring new litigation regardless of the settlements. It’s a relatively new and very fun feature of product liability law. Repeat serial false witnesses, re-interpreting old case wordings, making companies prove the negative, finding sympathetic courts… and their defense law firms bill just as much fighting the claims, doing painful discovery, investigating who’s getting paid off to be serial “expert” witnesses, yada yada yada.

Billions of dollars a year spent in knife fighting exercises where only the law firms (and the insurance companies, at least the ceding ones) get rich, and we all pay for it.


The flipside of that Flying would be JnJ is guilty and can hold off the claims victims till they die and their heirs die. In the mean time if the law in any way can be changed by JnJ the claims would be over, finished with no payout.

Worse the lawyers you call ambulance chasers wont hold out long enough to make the claims stick.


In a related note, 3M’s attempt to assign it’s earplug liability to the division that made them, then declare that division bankrupt, even though it is a consolidated part of 3M, has also been rejected by a court.


That’s disappointing to me, because I also had good regard for 3M. American company, thrives on innovation, multifaceted, but now also home to legal shyster tricks to avoid liabilities (or at least trying to.)

I’m sure you can also relate to the equivalent JNJ, who are in the same ballpark. They also once had a pretty pristine cloak of armor. Remember the Tylenol scare back in the early 80’s?

→ 3M and JNJ management must have gone to the same school

Those two, and Honeywell (fobbing cost of asbestos liability off on a spinoff that was set up to fail) are the current troika of Shiny business practices.


Yes, we used to own a bunch of JNJ too, and their management was an exemplar of “doing right.” Not so much anymore, apparently.

Shiny “professional management” is all about “creating shareholder value”, and if shafting customers is seen as the easy way to do it, that is what they do. I have held, for years, that, when a company is under stress, the first things to be tossed are quality control and customer service. Of course, the Shiny ethic has gone beyond that to hollowing out a company: no equity, no R&D, don’t give a hoot about anything but puffing up the numbers for one more quarter.


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