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Court Deals Blow to Johnson & Johnson Bankruptcy Plan for Talc Cases

Legislation & Litigation

Written by Tim Povtak

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Reading Time: 4 mins

Publication Date: 11/12/2021

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A federal judge in North Carolina delivered a major setback to Johnson & Johnson and its controversial plan to unload all talc-related litigation in bankruptcy court through a recently-created subsidiary.

Bankruptcy Judge Craig Whitley said he was “obligated” to move the case from North Carolina to New Jersey, where Johnson & Johnson is headquartered and thousands of the talc-related lawsuits are already pending.

The move from North Carolina to New Jersey takes J&J from a jurisdiction considered favorable to its bankruptcy strategy to one that is unfavorable, based upon past cases.

Johnson & Johnson is facing a multitude of lawsuits – more than 36,000 – linked to claims that its asbestos-contaminated baby powder has caused a variety of malignancies, including ovarian and mesothelioma cancer.

Settled claims and jury verdicts have already cost the company an estimated $3.5 billion, along with another $1 billion in defense costs. Its Chapter 11 bankruptcy plan could save billions in the future by creating a shield that would stop all future litigation.

Johnson & Johnson is considered one of America’s most profitable companies, with a market share of more than $450 billion.

New Subsidiary Meant to Shoulder Talc Liabilities

J&J had steered the federal bankruptcy case to Charlotte, North Carolina, through its newly created subsidiary, LTL Management LLC. It created the subsidiary earlier this year in Texas, a state that allows splitting corporate assets from liabilities. It then moved the subsidiary to North Carolina and quickly filed for bankruptcy.

According to court documents from its bankruptcy petition, LTL Management listed its worth at $10 billion, along with $10 billion in liabilities.

“Thankfully, Judge Whitley saw through what J&J was trying to do. I believe their [bankruptcy] petition will be rejected in New Jersey,” Daniel Wasserberg, a New York City attorney who specializes in asbestos litigation, told The Mesothelioma Center at Asbestos.com. “J&J will return to the tort system where they belong, and they will be forced to face the music for their deadly talcum powder. This was an extremely expensive miscalculation by J&J.”

Other companies have used similar tactics in the past to avoid liabilities. This attracted the attention of Congress, which is considering legislation to change the rules governing Chapter 11 bankruptcy filings.

In July, a U.S. House of Representatives oversight committee sent a letter to Johnson & Johnson urging it to drop the bankruptcy maneuver and requesting answers about its strategy.

Talc Lawsuits Temporarily Suspended

During the court hearing on Wednesday, Whitley agreed to a 60-day halt on all talc-related lawsuits against J&J, pending the federal bankruptcy court ruling that will now come from New Jersey.

Attorneys throughout the country representing plaintiffs in cases against J&J applauded the move to New Jersey, where the petition for bankruptcy protection is expected to be denied.

LTL Management issued a statement in response to the order that moved the case from North Carolina to New Jersey.

“Although we believe this case was properly venued in North Carolina, we will continue to work with all parties to seek an efficient and equitable resolution,” the statement said.

Under bankruptcy protection, all legal proceedings in state and federal courts would be halted and eventually would come before a single bankruptcy judge. It would allow J&J to separate its immense profitability from all potential liabilities, which would be considerably smaller under bankruptcy protection. The court would determine the amount to be put into a trust fund, from which current and future claimants would be compensated.

The first case brought against J&J involving talc came in 2014. Until 2020, J&J had litigated many of the cases in court and defended the safety of its products. Although J&J won many of the cases, it also lost some very big ones.

Earlier this year, the U.S. Supreme Court rejected a request by J&J to overturn an earlier $2.1 billion judgement in Missouri involving 22 women with ovarian cancer.