Johnson & Johnson is trying to revive its strategy to settle tens of thousands of lawsuits alleging that its baby powder caused ovarian cancer and other health problems in women.
The company ended a two-day trial in Charlotte, North Carolina, on Friday to decide whether to temporarily stop 38,000 lawsuits against J&J and about 250 retailers and insurance companies. The judge said he would announce his ruling next week when J & J’s bankrupt unit returns to court.
Join heated discussions with the Moneyweb community and get full access to our market indicators and data tools while supporting quality journalism.
R63/month or R630/year
You can cancel anytime.
Stopping the suits is a key part of J & J’s strategy to pay at least $ 2 billion to end all current and future claims related to baby powder and other talc-based products. To do so, J&J executed a legal strategy known as Texas Two Step, creating a unit in Texas to carry out all the lawsuits, then transferring that unit to North Carolina and placing it bankrupt.
If the lawsuits continue “out of this court, it will effectively end this reorganization in its infancy,” said company attorney Greg Gordon.
The company decided earlier this year to employ the tactic to deal with lawsuits now, in one place, rather than spending millions each month for decades fighting in courts across the country, said John Kim, the J&J attorney who leads the company’s effort.
One of the main reasons: It often takes many years for some of the diseases caused by asbestos and other harmful substances supposed to be found in baby powder to develop, told US bankruptcy judge Craig Whitley.
“If the litigation continues for the next 60 years” and the victims keep winning big prizes, “no company could survive that,” Kim said.
Day in court
The move angered attorneys for the alleged baby powder victims, who say J&J is trying to stop cancer victims from having their day in court. Lawsuits against J & J’s bankrupt unit, LTL Management, as well as the operating company that once sold baby powder in the US, have already been stopped as part of the standard Chapter 11 bankruptcy rules.
It also caught the attention of Congress. The House Judiciary Committee voted Wednesday in favor of a bill banning the strategy.
Now, Whitley must decide whether to stop the cases against J&J as well. In certain circumstances, a parent company that is not bankrupt may benefit from the suspension of the lawsuit of a bankrupt unit. Last month, Whitley refused to immediately protect J&J from the lawsuits and asked the company to return to present more evidence.
Next week LTL Management will return to Charlotte for a hearing on whether your case should be moved to a different bankruptcy court. Last month, just days after Chapter 11 was filed, Whitely said she was considering sending the case to Delaware or New Jersey, in part because she has so many other great Texas Two Step cases.
At that hearing, Whitely will say whether he intends to issue a court order protecting J&J from lawsuits while LTL is bankrupt.
Moving the case “could have an impact on what we do with the court order and how long it lasts,” Whitley said.
If Whitley refuses to stop the cases, J&J will lose a key Texas Two Step benefit. Under the strategy, which is being employed in Charlotte by several other companies, victims are pressured to negotiate a deal that would establish a trust fund to pay them, rather than allow the lawsuits to continue.
J&J attorneys argue that a bankruptcy trust fund is fairer because it gives all victims a payment, rather than subjecting some victims to court losses that pay nothing, while others get huge jury verdicts. Earlier this year, the company paid $ 2.5 billion to about 20 women who blamed J&J baby powder for their ovarian cancer. And some of the cases against J&J, whose shares are valued at more than $ 430 billion, are getting closer to a jury verdict.
The suspension of the lawsuit would be an opening move in what will likely be a lengthy court fight. Whitely has said he can send the case to New Jersey or Delaware, where the Texas Two Step has never been tried.
The case is LTL Management LLC, 21-30589, US Bankruptcy Court, Western District of North Carolina (Charlotte).
© 2021 Bloomberg