Johnson & Johnson talc claims to be resolved via Chapter 11

January 2022 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

January 2022 Issue

In October, US multinational Johnson & Johnson announced that a subsidiary it recently created to manage claims asserting that its talc-based products caused cancer, had filed for Chapter 11 bankruptcy protection.

In a statement, Johnson & Johnson noted that the Chapter 11 filing is intended to resolve all claims related to cosmetic talc in a manner that is equitable to all parties, including any current and future claimants. Johnson & Johnson and its other affiliates did not file for bankruptcy protection and will continue to operate their businesses as usual.

“We are taking these actions to bring certainty to all parties involved in the cosmetic talc cases,” said Michael Ullmann, executive vice president and general counsel at Johnson & Johnson. “While we continue to stand firmly behind the safety of our cosmetic talc products, we believe resolving this matter as quickly and efficiently as possible is in the best interests of the Company and all stakeholders.”

The subsidiary, LTL Management LLC, filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the Western District of North Carolina. As a result of the filing, the determination of an appropriate amount to resolve all current and future claims will be decided by the court in the Chapter 11 proceedings. This process will allow for a more efficient and consistent resolution for all parties, Johnson & Johnson said. While LTL pursues this resolution, all cosmetic talc cases will be stayed pending the outcome of the proceedings.

“With the financial backing of Johnson & Johnson, coupled with a dedicated trust and significant financial resources supporting LTL, we are confident all parties will be treated equitably during this process,” said John Kim, chief legal officer of LTL.

Tens of thousands of plaintiffs have alleged Johnson & Johnson’s baby powder and other talc products contained asbestos and caused cancer, something the company denies. The claimants include women suffering from ovarian cancer and others battling mesothelioma.

The bankruptcy process utilised by Johnson & Johnson has courted controversy, however. Known as a ‘Texas two-step bankruptcy’, the process has also been used by other companies facing asbestos litigation in the past. Koch Industries’ Georgia-Pacific utilised a similar manoeuvre to try to limit its liabilities against asbestos claims. Purdue Pharma sought bankruptcy protection to cap future payouts linked to its involvement in the opioid crisis in the US, and members of the Sackler family who own Purdue were also granted immunity from future opioid lawsuits under a controversial settlement.

Under the process, Johnson & Johnson created a new division under Texas law and ringfenced all its talc liabilities in the new entity. That transaction created LTL. Under the Chapter 11 process, the talc cases will be halted while LTL navigates bankruptcy proceedings. To date, the company’s costs defending nearly 40,000 cases have approached $1bn, according to bankruptcy-court filings. Settlements and verdicts have cost Johnson & Johnson around an additional $3.5bn.

The use of the two-step bankruptcy has attracted criticism from politicians, academics and trial lawyers, and has prompted calls for bankruptcy reform in Congress.

Johnson & Johnson discontinued its North American sales of its baby powder product in 2020, as it faced thousands of lawsuits filed by customers who say its products cause cancer. Johnson & Johnson said that its filing was “not a concession of liability but rather a means to achieve an equitable and efficient resolution of the claims raised in the cosmetic talc litigation”.

To date, the company has had major losses in court over claims related to its talc-based products. In June 2021, a Missouri appeals court ordered the company to pay $2.1bn in damages to women who said the company’s talc products caused their ovarian cancers. Back in 2018, Johnson & Johnson was ordered to pay $4.69bn to 22 women and their families, who said that they developed ovarian cancer from asbestos in the company’s talcum-powder products.

Richard Summerfield