J&J talc unit faces bankruptcy judge after tactic rejected
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[February 14, 2023]
By Mike Spector
(Reuters) - Johnson & Johnson's subsidiary shouldering talc-related
lawsuits goes before a bankruptcy judge on Tuesday for the first time
since a U.S. appeals court last month nixed the company's attempt to
offload the litigation into Chapter 11 proceedings.
A three-judge panel of the Philadelphia-based 3rd U.S. Circuit Court of
Appeals on Jan. 30 ruled that the J&J subsidiary's bankruptcy case
should be dismissed, finding it had no legitimate claim to Chapter 11
protection because it did not face financial distress.
Absent a reversal, the decision would force J&J back into trial courts
to battle nearly 40,000 lawsuits alleging the company's Baby Powder and
other cosmetic products containing talc cause cancer.
J&J maintains its talc products are safe.
U.S. Bankruptcy Judge Michael Kaplan was set to preside over the hearing
for the subsidiary, called LTL Management, in Trenton, New Jersey. J&J
had no comment on the looming bankruptcy hearing.
LTL on Monday asked the full 3rd Circuit to reconsider the decision by
the three-judge panel.
LTL's bankruptcy put the deluge of talc cases on hold. At least one
plaintiff has asked the bankruptcy judge to allow his case to proceed in
California in the wake of the 3rd Circuit's decision, a request expected
to be reviewed at Tuesday's hearing. LTL opposes the request.
The 3rd Circuit decision more broadly cast a cloud over J&J's use of a
maneuver known as the Texas two-step, named for a Texas law the company
employed to carve its consumer business into two new subsidiaries.
In October 2021, J&J offloaded the tidal wave of talc lawsuits it faced
onto one of its newly created units, LTL, which then declared
bankruptcy. Reuters last year detailed the secret planning of Texas
two-steps by Johnson & Johnson and other major firms in a series of
reports exploring corporate attempts to evade lawsuits through
bankruptcies.
J&J, with a market capitalization of more than $400 billion, has argued
that the avalanche of lawsuits posed a serious financial threat. The
company's costs of verdicts, settlements and legal fees soared to about
$4.5 billion, with no end in sight, according to bankruptcy-court
filings.
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Bottles of Johnson & Johnson baby powder
line a drugstore shelf in New York October 15, 2015. REUTERS/Lucas
Jackson
The 3rd Circuit's reasoning
underscored what some legal experts call an inherent contradiction:
bankruptcies being executed by multinational firms worth billions of
dollars that were in little danger of running out of money to pay
plaintiff-creditors.
LTL declared bankruptcy while J&J avoided seeking Chapter 11
protection, with all its inherent financial and reputational
wreckage.
J&J said it generously financed LTL to ensure a fair settlement -
better, the company and its subsidiary argued, than trial courts
where some plaintiffs receive outsized payments while others receive
little or nothing.
The 3rd Circuit found that J&J's funding of the subsidiary,
initially $2 billion and perhaps eventually more, undercut any claim
of financial peril. In a petition seeking a rehearing filed Monday,
a lawyer for LTL, Neal Katyal, called that reasoning "upside-down."
A 2018 Reuters investigation found that J&J knew for decades that
asbestos, a known carcinogen, was present in its Baby Powder and
other cosmetic talc products. The company said in May 2020 it would
stop selling talc-based Baby Powder in the United States and Canada,
in part due to what it called "misinformation" and "unfounded
allegations" about the product. The company later decided to stop
selling talc-based Baby Powder globally starting this year. J&J has
denied its talc contains asbestos.
(Reporting by Mike Spector in New York; Editing by Will Dunham)
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