According to seven people familiar with the matter, Johnson & Johnson (J&J) is considering a strategy to shift liabilities from the widespread baby powder litigation into a newly formed company that would subsequently seek bankruptcy protection, reports Reuters.
During settlement discussions, one of J&J’s attorneys told the plaintiffs’ lawyers that the company could file for bankruptcy, which could result in smaller payouts for cases that do not settle before the deadline, according to several sources. Plaintiffs’ lawyers would be powerless to prevent J&J from taking such action at first but could pursue legal avenues to do so later.
Some people believed J&J has yet to determine whether to follow the bankruptcy strategy and may eventually abandon it. Reuters was unable to determine whether J&J has hired restructuring lawyers to help in the company’s bankruptcy plan.
Thousands of people have sued J&J, saying that its baby powder and other talc products contained asbestos and caused cancer. Women with ovarian cancer and those with mesothelioma are among the plaintiffs.
Attorneys for thousands of women who developed ovarian cancer after being exposed to Johnson & Johnson baby powder and other talc-based products are criticizing the company for reportedly considering bankruptcy to avoid financial responsibility.
“This is about as contemptible as it gets,” says attorney Leigh O’Dell of Beasley Allen, the co-lead counsel of the plaintiff’s steering committee in federal multidistrict litigation (MDL) in New Jersey. “These women have suffered enough. If this report is true, we believe it’s time for Congress and the Securities and Exchange Commission to investigate and outlaw cash-rich companies from playing corporate shell games and using federal bankruptcy law to avoid paying the victims they’ve hurt and misled.”
Over the last 25 years, dozens of research published in peer-reviewed journals have found a statistically significant link between talc use and ovarian cancer. According to documents shown at trial, the corporation was aware of the potential dangers as early as the 1960s.
“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,” in a statement to Reuters, the J&J subsidiary housing the company’s talc products said. J&J did not respond to a request for additional information.
If the J&J plan goes through, plaintiffs who have not reached a settlement could face protracted bankruptcy proceedings with a much smaller company. Payments to plaintiffs in the future will be determined by J&J’s decision on how to fund the organization that will house its talc liabilities.
J&J is considering using Texas’ “divisive merger” law, which allows a company to break into at least two separate entities. According to some of the people, this may result in J&J forming a new entity to house talc liabilities, which would then declare bankruptcy to stop the lawsuit. J&J could also look into using a different process than the Texas law to complete the bankruptcy filing.
Last year, a Missouri appellate court fined the company $2.1 billion in damages. J&J’s treatment of the asbestos issue in their baby powder was judged to be “significant reprehensibility” by the justices, who ruled that J&J avoided “adopting more accurate measures for detecting asbestos,” while discussing the powder’s asbestos risk in internal documents and refusing until recently to replace talc in its baby powder with corn starch, which is cancer-free.
The award was upheld by the Missouri Supreme Court and the United States Supreme Court. A bankruptcy filing could restrict the amount of money available to surviving claimants and prevent them from having their day in court.
“Solvent corporations should not be able to abuse the bankruptcy process to shield themselves from their responsibilities,” Michelle Parfitt, a senior partner at the law firm Ashcraft & Gerel and co-lead counsel in the federal talc MDL, agrees. “This would be corporate welfare of the worst kind. And who would suffer the most? The women who have already lost so much due to J&J’s behavior. I believe they are attempting to intimidate them by threatening bankruptcy. It won’t work.”
Over 30,000 plaintiffs have filed lawsuits against the blue-chip company, which has a market value of $443 billion. J&J’s appeal of a Missouri court ruling that resulted in $2 billion in damages given to women who claimed the company’s talc caused their ovarian cancer was denied by the United States Supreme Court in June.
The two-step bankruptcy strategy is seen by plaintiffs’ lawyers as a way to avoid potentially costly settlements or judgments. Companies see it as a method to consolidate several claims in one court to facilitate the quick negotiations required under bankruptcy law for asbestos liabilities. Outside of bankruptcy, the company can establish an agreement to fund future settlement payments with the entity undertaking a court restructuring.
The pharmaceutical company Johnson & Johnson announced a recall of five of its six Neutrogena and Aveeno aerosol sunscreens from the U.S. market after finding the carcinogenic chemical benzene in them.
J&J warned its consumers to stop using them and to discard those they have. It also notified distributors and retailers to no longer sell them and to remove stock from shelves while it proceeds to pick them up, according to The Wall Street Journal on July 15.
The company in June agreed to pay $263 million to resolve opioid claims in New York. It has denied wrongdoing related to its opioids.