Legislation and litigation
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As expected, Johnson & Johnson offloaded its increased talc-related liabilities on a new subsidiary that filed for Chapter 11 bankruptcy protection on October 14.
The controversial move, which has confirmed the concerns of many personal injury attorneys, is J&J’s attempt to resolve thousands of current and future lawsuits alleging that talc products have caused serious medical problems, including ovarian cancer and mesothelioma.
Most claims assert that talc in products is contaminated with toxic asbestos fibres.
The filing of the lawsuit, in the U.S. Bankruptcy Court for the Western District of North Carolina, will immediately stop all legal proceedings in the state and federal courts, and eventually will move all unresolved talc lawsuits before a single bankruptcy judge.
LTL Management LLC is a newly created subsidiary that inherits issues, allowing J&J to separate its massive profitability from its potential liabilities, which would be much smaller given bankruptcy protection. Johnson & Johnson is expected to save billions of dollars in the long run.
Expect low settlements after a J&J procedure.
A panel of lawyers representing the talc claimants tried, unsuccessfully, to prevent the company’s restructuring. A US bankruptcy court in Delaware County refused to issue a restraining order against J&J in August.
The filing is expected to pressure claimants to accept lower settlements than they would have previously received, halt jury rulings and avoid any overpayments.
“This is crazy. What’s happening here is an institutional crime, the like of which we’ve never seen before,” attorney Daniel Wasserberg, a New York City litigant who specializes in talc plaintiff cases, told Asbestos.com’s Mesothelioma Center. “I love the USA, but it’s a sad day in this country when a giant company like Johnson & Johnson can take responsibility for thousands of cancers and deaths, install it in a brand new ‘new show’ in Texas, and then go bankrupt a few weeks later, simply because Litigation upsets their hundreds of billions of dollars in profits each year.”
The bankruptcy court will now determine the amount to be placed in a trust so that the LTL management can compensate current and future claimants. In the latest court filing, J&J said it had already set up a $2 billion fund.
There are more than 34,000 cases pending today relating to Johnson & Johnson’s talc-based products, including Johnson’s Baby Powder. The first talc case against J&J was in 2014.
“We are taking these actions to provide certainty for all parties involved in cosmetic talc issues,” Michael Ullman, J&J’s executive vice president and general counsel, said in a statement. “As we continue to stand firmly behind the safety of cosmetic talc products, we believe that resolving this matter as quickly and efficiently as possible is in the best interests of the company and all its stakeholders.”
To date, J&J has continued to litigate numerous cases in court and defend the safety of its products while citing numerous studies that showed no evidence of contamination. Other studies have shown traces of asbestos contamination.
Although it has defended its products, J&J announced in 2020 that it would stop selling talc-based baby powder in the United States and Canada, citing reduced customer demand based on safety concerns.
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Bankruptcy is likely to reduce the settlement of talc
While J&J has won many lawsuits, it has also lost several high-profile cases. In August, a California Supreme Court awarded $26.5 million to a woman who said her mesothelioma cancer resulted from lifelong use of Johnson’s Baby Powder.
In June, the US Supreme Court rejected a request from J&J to consider overturning a previous $2.1 billion ruling in Missouri that involved 22 women diagnosed with ovarian cancer.
According to court documents, settlements and judgments over the past five years for J&J have reached $3.5 billion. Defense costs were estimated at $1 billion.
J&J isn’t the first company to use this reorganization strategy, which includes a business-friendly law that allows assets to be separated from company liabilities.
Lumber giant Georgia-Pacific used its subsidiary Bestwall in 2017 to reduce its asbestos liabilities. Trane Technologies and Saint-Gobain are in the midst of similar bankruptcy restructuring efforts.
Johnson & Johnson also still faces scrutiny from the US House of Representatives Oversight Committee, which in August requested any information regarding the company’s future bankruptcy plans.
“This is a foul odor,” Attorney Andy Birchfield, the Alabama-based plaintiff who represents plaintiffs in talc, said in a statement. They claim that their product is safe and then try to hide behind bankruptcy. J&J can run, but it can’t hide.”
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