On Monday, a subsidiary of Johnson & Johnson will ask a judge to allow it to use the bankruptcy process to settle tens of thousands of cancer claims related to the company’s baby powder and other talc-based goods.
More than 38,000 people have sued the firm. Thereby, alleging that its talc products caused ovarian cancer and mesothelioma, an illness linked to asbestos exposure. J&J claims that their consumer talc products are safe and have proved to be asbestos-free via thousands of tests.
The talc claims were shifted to a newly formed company named LTL Management LLC. They filed for bankruptcy protection in North Carolina in October.
J&J employed a legal trick known as the “Texas two-step”. It permits firms to split in half through a so-called “divisive merger,” with one side of the company maintaining prized assets and the other owing liabilities.
Michael Kaplan, US Bankruptcy Judge, New Jersey, took over the LTL case in November when it had relocated from North Carolina. He has scheduled a five-day trial to consider a motion by plaintiffs’ committees to dismiss the bankruptcy case.
Goal of the case
Allowing the LTL bankruptcy to proceed, the plaintiffs contend, would unfairly cap the amount of money available to consumers who have been damaged.
According to the plaintiffs’ lawyers, the bankruptcy case “makes dying cancer victims, even those with a judgment, scratch, claw, and fight, potentially for years, to be compensated from funds that would have been available” before LTL split off.
In court filings, LTL argued that bankruptcy is a lawful and acceptable response to a swarm of lawsuits that is unpredictable and “potentially financially ruinous.”
J&J wants to give the subsidiary $2 billion. It will then be put into a trust fund to compensate the 38,000 existing and potential litigants. LTL could potentially tap a source of royalty revenue worth more than $350 million at the time of the bankruptcy filing, according to court documents and public remarks.
“There has been no attempt, in this case, to ‘slough off’ liability,” LTL wrote in December court papers. The “goal of this case is to reach an equitable, efficient, and consensual resolution.”
Project Plato
As per bankruptcy court records, J&J faced $3.5 billion in verdicts and settlements before splitting up LTL including one in which 22 women got a judgment of more than $2 billion.
The talc lawsuits are on hold while J&J awaits the outcome of the LTL bankruptcy processes. J&J has a market value of more than $446 billion.
Kaplan has stated that he plans to decide on whether to dismiss the bankruptcy case by the month-end.
J&J secretly began “Project Plato” last year, according to Reuters. It was to shift liability from approximately 38,000 ongoing talc claims to a newly created business. It will then forcefully go bankrupt.
J&J knew for decades that trace levels of asbestos lurked in its Johnson’s baby powder and other cosmetic talc products, according to a 2018 Reuters investigation.
In May 2020, the firm discontinued marketing its talc-based baby powder in the United States and Canada. Thus, citing “misinformation” and “unfounded allegations” about the product.
