Johnson & Johnson’s Third Attempt at Bankruptcy to Settle Talcum Powder Lawsuits
Johnson & Johnson’s subsidiary, Red River Talc, has filed for bankruptcy for the third time in an attempt to move forward with an $8 billion proposed settlement that would resolve tens of thousands of lawsuits alleging that the company’s talc products caused cancer. This comes after two previous attempts were rejected by federal courts.
Key Takeaways
- Third Time’s the Charm? Johnson & Johnson is attempting to utilize the "Texas two-step" bankruptcy strategy to settle lawsuits. This involves creating a new subsidiary, placing the liability for talc-related lawsuits on that subsidiary, and then filing for bankruptcy.
- Settlement & Support: The proposed settlement would resolve claims from over 62,000 plaintiffs who allege that Johnson & Johnson’s baby powder and other talc products contained asbestos and caused ovarian and other cancers. The company claims to have obtained support from approximately 83% of current claimants.
- Facing Opposition: Despite this support, Johnson & Johnson’s plan still faces significant opposition from lawyers representing plaintiffs, who argue against the "Texas two-step" strategy, calling it a "fraudulent" tactic to avoid responsibility.
- Legal Hurdles & Supreme Court Ruling: The company’s bankruptcy strategy faces several legal hurdles, including a recent U.S. Supreme Court decision involving Purdue Pharma’s bankruptcy, which made it more challenging to resolve mass tort cases in bankruptcy court.
The "Texas Two-Step" Bankruptcy Maneuver: A Controversial Strategy
The "Texas two-step" bankruptcy strategy, also known as "Chapter 11 Abuse," is a controversial tactic used by financially healthy companies to escape mass tort liability. It involves creating a new subsidiary, transferring the liability to that subsidiary, and then filing for Chapter 11 bankruptcy. This strategy aims to force all plaintiffs into a single settlement, shielding the parent company from further litigation.
Here’s how it works:
- Creation of a Subsidiary: The parent company creates a new subsidiary specifically to hold the assets and liabilities related to the contentious products.
- Transfer of Liability: Liability for the products (in this case, talc) is transferred to the newly created subsidiary.
- Bankruptcy Filing: The subsidiary then files for Chapter 11 bankruptcy, allowing it to restructure its debts and liabilities under court supervision.
- Global Settlement: The proposed settlement aims to resolve all claims through a single, comprehensive agreement, effectively ending all related lawsuits.
Critiques and Challenges:
While the "Texas two-step" offers a seemingly quick and efficient way to resolve mass tort litigation, critics argue that it allows companies to avoid responsibility and accountability for their actions.
- Unfair Advantage & Disincentive: Critics argue that this approach gives companies an unfair advantage by allowing them to use bankruptcy to escape liability that they would otherwise face in a normal civil court setting. It also disincentivizes companies from taking responsibility for their products and puts the burden of proof on individual plaintiffs.
- Impact on Consumers: The use of this strategy potentially harms consumers by creating a system where companies are encouraged to prioritize their own financial interests over the well-being of those affected by their products.
- Fairness Concerns: It raises concerns about the fairness of the justice system, as it allows companies to exploit loopholes to avoid accountability, potentially leaving victims feeling cheated out of justice.
Johnson & Johnson’s History of Talc Lawsuits
Johnson & Johnson has been embroiled in a long-running battle with plaintiffs alleging that its talc products, including baby powder, caused ovarian cancer and other cancers. These lawsuits have spanned decades and have resulted in countless settlements and verdicts against the company.
Allegations and Denials:
The allegations stem from the presence of asbestos in talc products. Asbestos is a known carcinogen, and exposure to it is linked to various cancers. Plaintiffs allege that Johnson & Johnson knew about the presence of asbestos in its products but concealed this information from consumers. Johnson & Johnson has consistently denied these allegations, claiming that its products are safe and do not contain asbestos.
Previous Settlements:
In 2023, Johnson & Johnson reached a $12.5 billion settlement with state attorneys general to resolve claims related to their talc products. This agreement involved creating a new trust that would pay out settlements to claimants.
The Current Bankruptcy Filing and Potential Outcomes
Johnson & Johnson’s decision to file for bankruptcy in 2024 marks a significant shift in its ongoing legal battle. The potential outcomes of this latest filing are numerous and far-reaching:
- Settlement: The most likely outcome is a settlement with all plaintiffs, effectively ending the long-running litigation. The proposed $8 billion settlement would cover all claims related to ovarian and gynecological cancers.
- Rejection: If the bankruptcy court rejects the proposed settlement, Johnson & Johnson would have to face the lawsuits individually, potentially leading to significant financial consequences and reputational damage. This would also set a dangerous precedent, signaling a potential shift in corporate liability and the legal landscape.
- Legal Challenges: The bankruptcy filing itself will likely face legal challenges from lawyers representing plaintiffs, who argue that the company’s "Texas two-step" strategy is an attempt to manipulate the legal system.
- Legislature Action: Congress is currently considering legislation that would make it more difficult for companies to use the "Texas two-step" tactic to escape liability. If these bills are passed, it could significantly impact Johnson & Johnson’s attempt to utilize this strategy.
A Pivotal Moment for Litigation:
The outcome of Johnson & Johnson’s third bankruptcy filing will have significant implications for the legal landscape surrounding mass tort litigation. It will determine the effectiveness of the "Texas two-step" strategy and could influence future legal battles involving corporate responsibility and accountability.
This outcome could have a profound impact on future lawsuits and the legal landscape surrounding corporate responsibility and accountability. Furthermore, it will provide insights into the future of bankruptcy law and the effectiveness of strategies used to resolve complex mass tort cases.
