Johnson & Johnson’s Bankruptcy Filing

By Dietrich Knauth

(Reuters) – A Johnson & Johnson (NYSE:JNJ) subsidiary has filed for bankruptcy for the third time as the company aims to move forward with a proposed $10 billion settlement. This settlement is intended to resolve tens of thousands of lawsuits alleging that its baby powder and other talc products caused cancer.

J&J faces lawsuits from over 62,000 claimants, who argue that its talc products were contaminated with asbestos and led to ovarian and other cancers. To halt these lawsuits, J&J’s subsidiary Red River Talc filed for bankruptcy protection in a federal court in Houston.

The company has denied the claims and maintains that its products are safe. Erik Haas, J&J’s vice president of litigation, stated that the settlement is “fair and equitable to all parties” and noted that 83% of current talc claimants supported it.

The proposed settlement has caused division among attorneys representing cancer victims. Opponents plan to request the court to dismiss the bankruptcy or shift it to New Jersey, where courts have previously rejected J&J’s attempts to end litigation using a “Texas two-step” bankruptcy strategy.

Attorney Andy Birchfield, who opposes the deal, claims J&J is manipulating the bankruptcy process to undercompensate cancer victims. Conversely, attorney Allen Smith supports the settlement, stating it offers fair compensation and hopes to expedite payments to clients.

J&J’s “two-step” strategy involves transferring liabilities to a newly formed subsidiary that declares Chapter 11 bankruptcy to enforce a global settlement that terminates all related lawsuits. This approach aims to mitigate the risk of facing potentially massive verdicts in court.

In its third bankruptcy effort, J&J is concentrating on ovarian and gynecological cancer claims, building on prior settlements with state attorneys general and lawsuits related to mesothelioma, a rare cancer associated with asbestos.

J&J’s proposed settlement aims to compensate talc claimants approximately $10 billion over 25 years, with a present value of around $8 billion after additional funding and legal fees are accounted.

Despite its efforts, J&J’s bankruptcy strategy faces legal challenges, including a Supreme Court ruling related to Purdue Pharma’s bankruptcy, past court rejections, and proposed federal legislation preventing financially robust companies from exploiting bankruptcy protections.