Johnson & Johnson’s plan to file for bankruptcy and avoid asbestos lawsuits hit a snag – thanks to a court ruling Monday.
A U.S. federal appeals court said Johnson & Johnson could not move forward with the bankruptcy plan – which involves creating a subsidiary to absorb all cancer lawsuits related to the company’s controversial talc Baby Powder brand – after months of planning and preparation by the company and people affected by the Baby Powder.
The ruling is a stunning twist in the ongoing saga involving Johnson & Johnson’s Baby Powder and its link to asbestos cancers such as mesothelioma.
Backstory Behind Johnson & Johnson’s Baby Powder
The connection between Johnson & Johnson’s Baby Powder and mesothelioma (plus other asbestos diseases) is proven after years of scientific evidence showing that asbestos and talc. These two naturally forming minerals in the earth often originate in the same areas and can mix together.
Unfortunately, this means asbestos can contaminate products containing talc, which has been a primary ingredient in many healthy and beauty products. Talc was valued for its ability to absorb moisture and keep skin healthy. Asbestos, however, is the only cause of mesothelioma cancer, and it is one of many causes of other deadly diseases.
The cause-and-effect relationship between Johnson & Johnson’s Baby Powder and mesothelioma became more public in recent years. Thousands of people have filed lawsuits claiming Johnson & Johnson’s Baby Powder caused their cancer.
Johnson & Johnson’s Baby Powder is linked to lung cancer, ovarian cancer, and a rare cancer called mesothelioma. This last cancer forms in the mesothelium, which is a set of thin linings that cover the lung cavity and abdominal cavity.
Production of Johnson & Johnson’s Baby Powder Stopped
After a mountain of lawsuits built up over the years, Johnson & Johnson decided in 2020 to stop manufacturing and selling its talc Baby Powder in the United States and Canada. In 2022, the company announced it would stop selling its talc Baby Powder worldwide in 2023.
While the company has continually claimed its product is safe and does not cause cancer, the decision was a historic acknowledgement that health and beauty products should move on from talc as an ingredient.
Johnson & Johnson’s Plan to Avoid Mesothelioma Lawsuits
According to a report from the New York Times, Johnson & Johnson faces an estimated 40,000 lawsuits related to its talc Baby Powder. The company has already paid billions of dollars to cancer victims through asbestos verdicts and settlements. One of the lawsuits led to Johnson & Johnson paying more than $2 billion to a group of victims – a case that led to a historic verdict and was appealed all the way to the U.S. Supreme Court, finally siding with the victims.
The company’s solution was to create a subsidiary company (LTL Management) to absorb all cancer lawsuits regarding its talc Baby Powder. The company would then file a Chapter 11 bankruptcy, which is a reorganization filing. This plan is called the “Texas Two-Step” and it’s a common one for companies facing asbestos lawsuits.
Many companies have created subsidiaries to immediately file for Chapter 11 bankruptcy as a way of avoiding lawsuits and continuing their normal operations. This tactic minimizes the amount the liable company must pay claimants, since the claims go to an asbestos trust fund filing rather than a lawsuit or settlement, which typically have much higher payouts. While the maneuver benefits the company, it negatively affects the victims of corporate wrongdoing.
Johnson & Johnson Moves Forward With Subsidiary
In 2021, the new subsidiary company filed for bankruptcy, beginning Johnson & Johnson’s plan. The bankruptcy filing put on hold all lawsuits involving Johnson & Johnson’s Baby Powder, and prevented any new lawsuits from starting. Essentially, it held up the legal process and frustrated victims and their families.
In early 2022, Judge Michael Kaplan of the U.S. Bankruptcy Court in Trenton, N.J., granted Johnson & Johnson permission to move forward. Everything pointed to Johnson & Johnson getting its way, at the expense of regular Americans.
However, those plans were put to a halt this week.
Why a Judge Blocked Johnson & Johnson’s Bankruptcy Proposal
The U.S. Court of Appeals for the Third Circuit in Philadelphia dismissed LTL Management’s Chapter 11 bankruptcy filing. According to the New York Times and other news outlets, the court read between the lines of Johnson & Johnson’s plans and chose to side with the victims instead. The three-judge court stated Johnson & Johnson is not facing the type of distress that bankruptcy is meant to address.
“Given Chapter 11’s ability to redefine fundamental rights of third parties, only those facing financial distress can call on bankruptcy’s tools to do so,” Thomas Ambro, the circuit judge, wrote in the decision, according to the New York Times.
According to Bloomberg, the three-judge panel stated that only companies threatened with financial troubles can use bankruptcy to avoid lawsuits. Johnson & Johnson never claimed to be in financial danger – and even admitted LTL Management was a “shell” company with no operations.
What This Court Ruling Means for Johnson & Johnson Mesothelioma Lawsuits
The court ruling means Johnson & Johnson may have to face those 40,000 claimants in court, or settle with them. If Johnson & Johnson chooses a mass settlement, legal experts estimate it could be a multi-billion-dollar settlement.
“Good intentions — such as to protect the J&J brand or comprehensively resolve litigation — do not suffice alone,” Judge Thomas Ambro wrote, according to Bloomberg. “What counts to access the Bankruptcy Code’s safe harbor is to meet its intended purposes. Only a putative debtor in financial distress can do so. LTL was not. Thus we dismiss its petition.”
Johnson & Johnson said it will appeal the decision to “effectively resolve the cosmetic talc litigation for the benefit of all parties, including current and future claimants.” That statement is noisy, because resolving the cosmetic talc litigation actually benefits Johnson & Johnson the most.
The Texas Two-Step would significantly reduce compensation for victims of asbestos lung cancer due to Johnson & Johnson’s Baby Powder. It would effectively force their claims into an asbestos trust fund filing and remove power from the consumers affected by Johnson & Johnson’s dangerous product.
Fortunately, the U.S. court system stepped in. The judges in Philadelphia have protected the hardworking and vulnerable American consumers from being cast aside by a corporation that’s only priority is protecting its finances. The ruling sides with the victims of corporate greed.
Hopefully, higher courts uphold this ruling in the face of Johnson & Johnson’s eventual appeal.
Sources & Author
- Johnson & Johnson’s Attempt to Contain Talc-Related Liabilities Is Rebuffed. New York Times. Retrieved from: https://www.nytimes.com/2023/01/30/business/johnson-johnson-talc-baby-powder-lawsuit.html. Accessed: 02/01/2023.
- J&J Can’t Use Bankruptcy to End Cancer Suits Over Baby Powder, Court Says. Bloomberg. Retrieved from: https://www.bloomberg.com/news/articles/2023-01-30/j-j-can-t-use-bankruptcy-to-end-cancer-suits-appeals-court-says. Accessed: 02/01/2023.
Sources & Author