A federal judge in New Jersey granted approval to Johnson & Johnson (J&J) to implement its controversial bankruptcy plan to handle thousands of talc-related lawsuits. Approval to create a new entity called LTL Management LLC (LTL), which will absorb nearly 38,000 claims and file for Chapter 11 bankruptcy protection, enables J&J to isolate its liabilities and potentially avoid thousands of individual lawsuits. The court’s decision may signal a willingness to allow companies to avoid liability through corporate maneuvering. If J&J is successful, other corporations could view creating a subsidiary for bankruptcy protection as a method for avoiding jury trials involving defective products, potentially circumventing massive, crippling jury verdicts.
J&J Talc Products Linked to Ovarian Cancer and Mesothelioma
J&J is currently facing over 38,000 lawsuits based on claims that talc caused ovarian cancer and mesothelioma in users of talc-based products. Studies dating back to the 1970’s demonstrated a link between ovarian cancer and talc powder, which contains trace amounts of asbestos, a known carcinogen. An investigation of J&J records revealed that the company was aware that its talc products could contribute to mesothelioma and ovarian cancer. Nevertheless, for years, J&J continued to insist that its products are safe and sold its products throughout the United States. In 2019, the U.S. Food and Drug Administration found trace amounts of asbestos in J&J baby powder that was purchased online and required the company to issue a recall. In May, 2020, J&J stopped selling talc-based baby powder in the U.S. and Canada due to “allegations” about the product’s safety.
Verdicts Against J&J
J&J has suffered significant losses in litigation concerning its talc products. In June 2021, the Supreme Court rejected J&J’s appeal to overturn a $2.1 billion verdict awarded to 22 female plaintiffs who claimed that use of J&J’s talc-based products caused ovarian cancer. J&J had already set aside $3.9 billion in 2021 for payments toward future talc litigation as indicated by filings with the Securities and Exchange Commission.
Court Approves J&J Proposed Bankruptcy Plan
On February 25, 2022, U.S. Bankruptcy Judge Michael B. Kaplan approved J&J’s proposed bankruptcy plan, claiming that this route would lead to more accountability and a speedy resolution. LTL, the newly created subsidiary, has stated that it will seek to resolve litigation through a reorganization plan that would bar potential plaintiffs from bringing their claims to court. The claims would be set aside in a trust that would distribute payouts through a bankruptcy court-approved process. Lawsuits in different courts in the U.S. would all be diverted to the U.S. Bankruptcy Court, where a single judge would determine the awards. LTL listed its value as $10 billion along with $10 billion in liabilities.
J&J lawyers admitted that the company pursued this plan in response to a barrage of litigation that had the potential for massive jury awards. The court’s decision was surprising to plaintiff’s attorneys who expected the plan to be rejected when the case was moved to New Jersey, a jurisdiction normally regarded as less favorable to bankruptcy filings.