J&J unit files second bankruptcy to pursue $8.9 billion Talc settlement

  • J&J agrees to pay nearly five times its original offer
  • The deal follows an appeals court condemnation of J&J’s “Texas two-step” bankruptcy.
  • Settlement with cancer victims still faces legal hurdles

April 4 (Reuters) – Johnson & Johnson ( JNJ.N ) has agreed to pay $8.9 billion to settle tens of thousands of lawsuits alleging that talc in its iconic baby powder and other products causes cancer, the company said. The amount dwarfs J&J’s original offer of $2 billion.

The deal put Talc in charge of a subsidiary that promptly filed for Chapter 11 following a January appeals court ruling invalidating J&J’s controversial “Texas two-step” bankruptcy maneuver.

J&J subsidiary LTL Management filed for bankruptcy protection for a second time late Tuesday, with the intention of submitting a restructuring plan containing a proposed settlement to a judge on May 14, the subsidiary filed in court. About 60,000 talc claimants agreed to the proposal, J&J said in a statement.

A J&J subsidiary filed for bankruptcy in New Jersey, the same jurisdiction that faced an appellate court defeat. J&J has designed new financing arrangements with its subsidiary to avoid violating the appeals ruling, the subsidiary said in a court filing. It ruled that LDL management did not have a valid claim for bankruptcy as it was not in financial distress.

The appeals court rejection effectively raised the price tag for J&J to extricate itself from the sprawling Talc case after plaintiffs’ lawyers successfully challenged the company’s tactics. J&J’s board met over the weekend to approve a much larger settlement to current and future plaintiffs suffering from various gynecological cancers and mesothelioma, said Michael Watts, one of the plaintiffs’ attorneys who negotiated the settlement.

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J&J on Tuesday reiterated that its talc products are safe and do not cause cancer. The company’s lawyers said the talc claims lacked scientific merit and the plaintiffs’ lawyers accused them of continuing to advertise in hopes of extracting large sums of money from customers.

The company still faces a significant risk that other plaintiffs will continue to oppose the settlement and re-appeal the case in the same court that already rejected the subsidiary bankruptcy, the 3rd US Circuit Court of Appeals in Philadelphia.

Lawyers representing thousands of plaintiffs issued a statement late Tuesday protesting the settlement. “This fraudulent contract doesn’t even pay for most of the victims’ medical bills,” said Jason Itkin, founding partner of Houston-based personal injury law firm Arnold & Itkin LLP.

A Johnson & Johnson baby powder bottle is pictured in this photo taken on February 24, 2016 in New York. A Missouri jury ruled Wednesday that consumers voiced concerns on social media about Johnson & Johnson’s talc-based baby powder. Company to pay $72 million in damages to family of woman who died of cancer.

Reuters reported earlier on Tuesday that J&J was exploring putting its Talc subsidiary into bankruptcy proceedings for a second time, and that a company lawyer had approached plaintiffs’ lawyers in recent weeks to propose the two sides work out a new settlement agreement. J&J Subsidiary Bankruptcy. Reuters last year described a secretive two-step scheme in Texas by J&J and three major firms.

Under the terms of the newly proposed settlement, plaintiffs diagnosed with cancer before April 1 will have a year from the bankruptcy trust to have the judges approve the creation of a Chapter 11 plan, says Watts, the plaintiffs’ attorney who helped negotiate the deal. Claimants who are later identified will receive money earmarked in the trust for the next 25 years.

The massive settlement comes after J&J’s original Texas two-step bankruptcy filing in October 2021 failed. Texas used state law to split a corporation in two and transfer liability to one of the newly formed corporations. . LTL Management, the new subsidiary that assumed responsibility, declared bankruptcy soon after its formation.

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Plaintiffs’ lawyers portrayed J&J’s two-step bankruptcy as an abuse of the bankruptcy process by a multinational company with a market capitalization of more than $400 billion and a risk of running out of money to pay cancer patients.

J&J and its affiliates argued that bankruptcy is more beneficial to all parties, including plaintiffs: Reorganization can award settlement payments more fairly, efficiently, and equitably than the “lottery” offered by trial courts. Nothing.

An appeals court in late March denied a J&J subsidiary’s bid to delay the ruling from taking effect while it sought a review from the US Supreme Court. On Tuesday, U.S. Bankruptcy Judge Michael Kaplan in New Jersey dismissed LTL’s previous bankruptcy filing, complying with an appeals court ruling that reversed an earlier decision that approved the maneuver.

Watts, the plaintiffs’ attorney, told Reuters he believes enough plaintiffs have agreed to the settlement for the bankruptcy judge to approve. Agreeing number is important. In asbestos-related bankruptcies, a judge requires 75% of the plaintiff-creditors to approve the reorganization plan. This is a higher bar than other types of bankruptcy.

A December 2018 Reuters investigation found that J&J had known for decades about tests showing its talc contained asbestos, a sometimes carcinogenic substance, but kept that information from regulators and the public. J&J claims its baby powder and other talc products are safe, non-carcinogenic and asbestos-free.

The company announced in 2020 that it would stop selling its talc baby powder in the US and Canada due to what it called “misinformation” about the product, and then announced its intention to phase it out worldwide in 2023.

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Reporting by Dietrich Knoth and Mike Spector; Additional reporting by Brendan Pearson and Dan Levin; Editing by Jonathan Otis, Bill Bergrod and Brian Thevenot

Our Standards: Thomson Reuters Trust Principles.

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