Judge Moves Johnson & Johnson Closer to Potential Reorganization

Legislation & Litigation

Johnson & Johnson is closer to unloading its talc-related liabilities onto a new subsidiary that could subsequently declare Chapter 11 bankruptcy and dramatically alter the thousands of lawsuits the company is facing.

A U.S. Bankruptcy Court judge in the District of Delaware declined requests last week from a panel of personal injury lawyers to prohibit Johnson & Johnson from exercising that option.

J&J is facing more than 34,000 lawsuits that link its talc-based products to cancer, the majority of which are ovarian cancer. A small fraction of those lawsuits involve malignant mesothelioma.

Most of the lawsuits contend that talc in the products was contaminated with toxic asbestos fibers.

By threatening to move its talc liabilities into a massive bankruptcy proceeding, J&J could better protect itself from pending jury trials, drive settlements and potentially save billions of dollars.

To this point, J&J has continued to litigate cases in court and to defend the safety of its products, citing numerous studies that have shown no evidence of contamination.

Recent J&J Case Worth $26.5 Million

Although Johnson & Johnson has been successful in some cases, it also has lost many high-profile lawsuits.

Earlier this month, a state superior court jury in Alameda County, California, awarded $26.5 million to a woman who said her mesothelioma cancer was caused by a lifetime use of Johnson’s Baby Powder.

Her attorneys cited scientific information detailing how asbestos contamination occurs, along with court records from decades ago showing that company officials knew about the contamination.

In June, the U.S. Supreme Court rejected a J&J request to consider overturning a Missouri court of appeals ruling that awarded $2.1 billion to 22 women.

Although J&J has not said publically if it will create a new corporate entity to lump cases into bankruptcy court, the company has raised the issue in various settlement talks.

Johnson & Johnson Subsidiary Would Cost Plaintiffs

The prospect of plaintiffs receiving considerably less money in bankruptcy court than in negotiated settlements alarmed personal injury attorneys and prompted the emergency motion in the District of Delaware court.

Judge Laurie Selber Silverstein, however, ruled against the motion and refused to bar the company from separating its talc liabilities, a legal maneuver that has been used in the past by several businesses facing large numbers of asbestos legal claims. One of those was Koch Industries Inc.’s Georgia Pacific LLC in 2017.

A committee of attorneys also have filed a similar request to block the maneuver in a Missouri state court, where another talc case is pending.

“The court rightly denied the plaintiff’s motion aimed at preventing J&J from engaging in a legitimate business transaction in the event that it chooses so,” wrote J&J attorney Diane Sullivan in a company statement. “This was yet another frivolous attempt by plaintiff contingency lawyers to try and compel J&J to settle their cases as it continues to defend the safety of its products in the court system.”

Congress Also Wants Answers from J&J

Johnson & Johnson is facing pushback from a U.S. House of Representatives oversight committee, which demanded in August any information regarding the company’s plans to create a subsidiary with intent to declare bankruptcy.

“We’ll carefully consider Judge Silverstein’s ruling and take our next steps,” Andy Birchfield, lead plaintiff attorney in the Delaware restraining order request, told The Wall Street Journal. “For now, this fight moves to a court in Missouri, where a judge will consider our emergency request to stop in its tracks any planned bankruptcy abuse by J&J.”

In the emergency request in Delaware court, attorneys alleged that any new subsidiary created would negatively affect the ongoing reorganization of Imerys Talc America, a former supplier for J&J that declared bankruptcy in 2019.

The Imerys bankruptcy plan involves funding from J&J, which could change if its talc liabilities also go into bankruptcy court.

After losing several cases in court, J&J announced in 2020 that it would end talc-based baby powder sales in the U.S. and Canada, but still insisted it was safe to use. It cited a declining consumer demand and “misinformation” about the product’s safety.

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