Cancer victims sue Johnson & Johnson over 'fraudulent' bankruptcies

[May 23, 2024]  By Dietrich Knauth

NEW YORK (Reuters) - A group of cancer victims sued Johnson & Johnson on Wednesday, accusing the healthcare company of committing fraud through repeated and continued efforts to use a shell company's bankruptcy to resolve tens of thousands of lawsuits alleging its talc products contained asbestos and caused cancer.

Five plaintiffs who seek to represent over 50,000 people who have sued J&J over its talc products filed the proposed class action in New Jersey federal court. They allege that J&J's bankruptcy strategy put billions of dollars out of the reach of plaintiffs in an attempt to "hinder, delay, and defraud these women and prevent them from ever having their day in court."

"Johnson & Johnson is playing a dark game of chess with this country's financial and judicial systems," said Mike Papantonio, an attorney for the cancer plaintiffs.

J&J's worldwide vice president of litigation, Erik Haas, said the lawsuit was a "Hail Mary pass" by plaintiffs' lawyers who don't want their clients to vote on the company's latest proposed bankruptcy settlement.

"Why are they so desperate to stop the vote?" Haas said. "Our focus has been and will remain reaching a full, fair and final resolution of this litigation, and allowing the claimants to speak for themselves."

Most of the talc lawsuits have been brought by women with ovarian cancer, while other cases involve people with mesothelioma, a deadly cancer linked to asbestos exposure.

J&J has said that its baby powder and other talc products are safe, do not contain asbestos, and do not cause cancer.

J&J first used a corporate maneuver called the "Texas two-step" to place its talc liabilities into a new subsidiary that then filed for bankruptcy in 2021. The bankruptcy stopped the lawsuits from moving ahead against J&J, although it did not file for bankruptcy itself.

Bottles of Johnson & Johnson baby powder line a drugstore shelf in New York October 15, 2015. REUTERS/Lucas Jackson/File Photo

That and a second similar attempt to resolve the litigation failed as courts ruled that J&J and its subsidiary was not in financial distress so not eligible for bankruptcy. The company said on May 1 that it plans to pursue a third bankruptcy once it gets enough votes to support a $6.48 billion talc settlement.

Wednesday's lawsuit seeks a ruling that the Texas two-step transaction was fraudulent, because it was undertaken solely to shelter J&J's assets from the talc litigation.

Subsequent transactions, including J&J's spinoff of its consumer health business Kenvue, were also fraudulent, according to the lawsuit, which also seeks compensatory and punitive damages.

J&J says the planned third bankruptcy for its unit will be different because it will have support from over 75% of the people with talc-related claims.

The company has streamlined the proposed third bankruptcy by reaching separate settlements with law firms representing people with mesothelioma, as well as U.S. states that alleged the company failed to warn consumers about the dangers of its talc products.

Litigation against J&J resumed after its second bankruptcy was dismissed. In recent trials, J&J was ordered to pay $45 million in a mesothelioma case while winning an ovarian cancer case.

(Reporting by Dietrich Knauth, Editing by Alexia Garamfalvi and Bill Berkrot)

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