© Reuters. FILE PHOTO: Bottles of Johnson & Johnson’s baby powder line a drugstore shelf in New York October 15, 2015. REUTERS/Lucas Jackson/File Photo
By Dietrich Knauth
(Reuters) -A Johnson & Johnson (NYSE:) subsidiary came under attack in court on Monday for attempting to use the bankruptcy process to resolve tens of thousands of claims that its baby powder and other talc-based products caused cancer.
The subsidiary, LTL Management, is fighting to remain in bankruptcy, arguing that is the best way to reach an “equitable, efficient, and consensual resolution” of more than 38,000 claims alleging that J&J’s talc-based products caused cancers including mesothelioma.
“At its core, this case is rotten,” Jeffrey Jonas, a lawyer for one of the plaintiffs’ committees said during Monday’s opening arguments.
J&J maintains that its consumer talc products are safe.
“There has been no attempt in this case to ‘slough off’ liability,” LTL wrote in December court papers.
J&J used a legal maneuver known as the “Texas two-step,” which allows companies to split in two through a so-called divisive merger, with one part of the company keeping valuable assets while the other is saddled with liabilities.
The strategy, while rarely used, could be adopted more widely by big companies facing liability if J&J gets bankruptcy-court approval, according to lawyers for talc plaintiffs, as well as some legal experts.
J&J’s bankruptcy strategy was criticized by some lawmakers during a Feb. 8 U.S. Senate hearing. Sheldon Whitehouse, a Democrat and chair of Senate Judiciary subcommittee on federal courts, expressed concern that other companies might follow in J&J’s footsteps and use “a bankruptcy trick to shirk responsibility for hurting Americans.”
Democratic lawmakers in the House of Representatives in July 2021 proposed a bill that would block the maneuver.
U.S. Bankruptcy Judge Michael Kaplan in New Jersey, who took over the LTL case in November when it was transferred from North Carolina, has scheduled a five-day trial to consider a bid by committees representing the plaintiffs to dismiss the bankruptcy case. Kaplan has said he intends to decide whether or not to dismiss the bankruptcy case before the end of the month.
NO ‘FINANCIAL DISTRESS’
Lawyers for the plaintiffs argue that allowing the LTL bankruptcy to proceed would unfairly cap the payout at the $2 billion that J&J has proposed to make available for people who have been harmed.
Brian Glasser, an attorney who represents mesothelioma claimants, said on Monday that J&J settled 6,846 talc cases for $966 million before deciding to push those legal risks into LTL.
If J&J reached comparable settlements in all of the 38,000 talc cases pending against it, the company would have about $5.5 billion in liability, which would not cause “financial distress” to a company of J&J’s size, Glasser said.
“Just because Johnson & Johnson is both rich, and fearful of reputational harm, does not give it a right to opt out of the jury system,” Glasser said.
LTL has said in court filings that bankruptcy is a legal and appropriate response to an unpredictable and “potentially financially ruinous” wave of lawsuits.
“To litigate the same claims over an over in the tort system is a complete waste,” Greg Gordon, a lawyer for LTL, told the court.
Shares of J&J were down 1.8% at $164.66.
Before J&J split off LTL, it faced $3.5 billion in verdicts and settlements, including one in which 22 women were awarded a judgment of more than $2 billion, according to bankruptcy court records.
The talc lawsuits have been temporarily halted while J&J, which has a market value exceeding $446 billion, awaits the outcome of the LTL bankruptcy proceedings.
On Feb. 4, Reuters reported that J&J secretly launched “Project Plato” last year to shift liability from its pending talc lawsuits to the newly created subsidiary, which was then to be put into bankruptcy.
A 2018 Reuters investigation found that J&J knew for decades that trace amounts of asbestos lurked in its Johnson’s baby powder and other cosmetic talc products. Asbestos is a known carcinogen that has been linked to mesothelioma.
The company stopped selling its baby powder in the United States and Canada in May 2020, in part due to what it called “misinformation” and “unfounded allegations” about the talc-based product.