Johnson & Johnson (J&J) has been embroiled in legal battles for years over allegations that its talc-based products, including its iconic baby powder, caused cancer due to contamination with asbestos. On Friday, a J&J subsidiary, Red River Talc, filed for bankruptcy for the third time, marking the latest development in the company’s ongoing effort to resolve tens of thousands of lawsuits through a proposed settlement of approximately $10 billion.

History of J&J’s Legal Battles Over Talc Products

The legal saga surrounding J&J’s talc products dates back over a decade, as claimants alleged that the company’s talc-based products were linked to ovarian cancer and mesothelioma. More than 62,000 lawsuits have been filed, with plaintiffs asserting that the talc was contaminated with asbestos, a known carcinogen. J&J has consistently denied these allegations, maintaining that its products are safe.

As the lawsuits mounted, J&J faced increasing legal and financial pressure. The company has been hit with several significant jury verdicts in recent years, including multi-billion-dollar awards in cases where juries found that J&J’s talc products were responsible for causing cancer. These rulings have pushed J&J to seek a global resolution to the litigation, which culminated in its controversial “Texas two-step” bankruptcy strategy.

The Texas Two-Step: A Controversial Maneuver

J&J’s bankruptcy strategy, often referred to as the “Texas two-step,” involves creating a subsidiary—Red River Talc in this instance—to which it offloads its talc liabilities. This subsidiary then files for Chapter 11 bankruptcy, allowing J&J to avoid filing for bankruptcy itself. The goal of this maneuver is to use bankruptcy proceedings to consolidate all claims into a single settlement, while protecting J&J from additional lawsuits and potentially crippling jury verdicts.

This strategy has been met with significant opposition from plaintiffs’ attorneys, who argue that J&J is exploiting bankruptcy laws to shield itself from liability. Critics, like attorney Andy Birchfield, have accused the company of “gaming the bankruptcy system” in an attempt to minimize payouts to cancer victims. Birchfield contends that J&J’s approach is an effort to underpay victims who have legitimate claims.

However, not all attorneys share this view. Allen Smith, who previously represented 11,000 claimants, supports the settlement, stating that it offers “reasonable and fair compensation” to the plaintiffs. According to J&J, 83% of talc claimants have voted in favor of the settlement, which is a key factor in the company’s latest bankruptcy filing.

The Implications of a $10 Billion Settlement

If successful, J&J’s proposed $10 billion settlement would resolve the tens of thousands of claims related to its talc products over a 25-year period. The present value of the settlement is estimated to be around $8 billion, as J&J has recently agreed to contribute an additional $1.1 billion to the fund and cover $650 million in legal fees. The settlement focuses specifically on claims related to ovarian and other gynecological cancers, building on J&J’s earlier agreements with state attorneys general and mesothelioma claimants.

For J&J, the settlement represents a way to finally put the talc litigation behind it, avoiding the ongoing risk of massive jury awards and the uncertainty of continued litigation. The company aims to consolidate all claims and prevent future lawsuits, effectively drawing a line under this chapter of its legal troubles. However, this outcome is far from guaranteed.

Future Challenges and Legal Hurdles

Despite J&J’s efforts, significant legal challenges remain. The company’s previous two attempts to settle the talc litigation in bankruptcy court were dismissed, and there is still strong opposition to the current settlement proposal. Furthermore, a U.S. Supreme Court ruling in June involving Purdue Pharma’s bankruptcy has added complexity to J&J’s strategy. The ruling may influence the court’s willingness to allow financially healthy companies like J&J to benefit from bankruptcy protections.

Additionally, proposed federal legislation aims to close loopholes that have allowed companies to use bankruptcy as a shield from liability while remaining financially solvent. If enacted, such legislation could further complicate J&J’s efforts to finalize its settlement through bankruptcy proceedings.

Looking Ahead: What’s at Stake for J&J

For J&J, the stakes are high. Resolving the talc litigation through bankruptcy would allow the company to focus on its core businesses without the overhang of massive legal liabilities. However, if the bankruptcy strategy fails, the company could face years of continued litigation, with the potential for more multi-billion-dollar verdicts.

As the legal battle continues, J&J’s future remains uncertain. The outcome of the third bankruptcy filing will determine whether the company can finally close the chapter on its talc-related woes or if it will remain entangled in costly legal disputes for years to come.

(Adapted from WestLaw.com)