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 During settlement discussions, one of the healthcare conglomerate’s
attorneys has told plaintiffs’ lawyers that J&J could pursue the
bankruptcy plan, which could result in lower payouts for cases that
do not settle beforehand, some of the people said. Plaintiffs’
lawyers would initially be unable to stop J&J from taking such a
step, though could pursue legal avenues to challenge it later.
J&J has not yet decided whether to pursue the bankruptcy plan and
could ultimately abandon the idea, some of the people said. Reuters
could not determine whether J&J has retained restructuring lawyers
to help the company explore the bankruptcy plan.
J&J faces legal actions from tens of thousands of plaintiffs
alleging its Baby Powder and other talc products contained asbestos
and caused cancer. The plaintiffs include women suffering from
ovarian cancer and others battling mesothelioma.
“Johnson & Johnson Consumer Inc. has not decided on any particular
course of action in this litigation other than to continue to defend
the safety of talc and litigate these cases in the tort system, as
the pending trials demonstrate,” the J&J subsidiary housing the
company’s talc products said in a statement provided to Reuters. J&J
declined further comment.
Should J&J proceed, plaintiffs who have not settled could find
themselves in protracted bankruptcy proceedings with a likely much
smaller company. Future payouts to plaintiffs would be dependent on
how J&J decides to fund the entity housing its talc liabilities.
J&J is now considering using Texas's “divisive merger” law, which
allows a company to split into at least two entities. For J&J, that
could create a new entity housing talc liabilities that would then
file for bankruptcy to halt litigation, some of the people said.
The maneuver is known among legal experts as a Texas two-step
bankruptcy, a strategy other companies facing asbestos litigation
have used in recent years.
J&J could also explore using another mechanism to effectuate the
bankruptcy filing besides the Texas law, some of the people said.
A 2018 Reuters investigation
https://www.reuters.com/
investigates/special-report/johnsonandjohnson-cancer found J&J knew
for decades that asbestos, a known carcinogen, lurked in its Baby
Powder and other cosmetic talc products. The company stopped selling
Baby Powder in the U.S. and Canada in May 2020, in part due to what
it called “misinformation” and “unfounded allegations” about the
talc-based product. J&J maintains its consumer talc products are
safe and confirmed through thousands of tests to be asbestos-free.
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 The blue-chip company, which
boasts a roughly $443 billion market value,
faces legal actions from more than 30,000
plaintiffs alleging its talc products were
unsafe. In June, the U.S. Supreme Court declined
to hear J&J’s appeal of a Missouri court ruling
that resulted in $2 billion of damages awarded
to women alleging the company’s talc caused
their ovarian cancer.
Plaintiffs’ lawyers view the two-step bankruptcy strategy as one
that skirts potentially expensive settlements or judgments.
Companies view it as a way to corral numerous lawsuits in one court
for efficient negotiations that bankruptcy law dictates for asbestos
liabilities. The company outside bankruptcy can reach a funding
agreement with the entity navigating a court restructuring to cover
future settlement payments.
In 2017, Brawny paper towels manufacturer Georgia-Pacific used the
Texas law to move asbestos liabilities to an entity that later filed
for bankruptcy in North Carolina.
Bankruptcy cases filed to resolve litigation, including those
related to asbestos, often take years, and almost never fully repay
creditors. OxyContin maker Purdue Pharma LP, for instance, is near
resolving thousands of opioid lawsuits after two years of bankruptcy
negotiations with a plan valued at more than $10 billion to address
trillions of dollars in claims.
Another company, DBMP LLC, filed for bankruptcy last year to resolve
asbestos liabilities and said the case could take up to eight years,
according to a company press release.
J&J also faces litigation alleging it contributed to the U.S. opioid
epidemic and recently recalled certain spray sunscreen products
after discovering some of them contained low levels of benzene,
another carcinogen.
The company in June agreed to pay $263 million to resolve opioid
claims in New York. It has denied wrongdoing related to its opioids.
(Additional reporting by Nate Raymond; editing by Vanessa O'Connell
and Edward Tobin)
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