Johnson & Johnson’s second attempt to resolve talc lawsuits in bankruptcy should be dismissed as an unprecedented fraud designed to deny plaintiffs just compensation, lawyers representing cancer victims argued in a court filing on Monday.
The attorneys say J&J defied a January appeals court rejection of its first attempt to settle the litigation, noting that a J&J subsidiary refiled for Chapter 11 about two hours after a court dismissed its first bankruptcy. The lawyers called the move the “largest intentional fraudulent transfer in United States history”, reports Reuters.
J&J is offering to settle all claims for $8.9bn, up from its original offer of $2bn.
Monday’s legal broadside challenged the company’s latest gambit as an unlawful abuse of the Chapter 11 system, echoing earlier objections to its first effort to resolve the lawsuits.
In October 2021, J&J executed a controversial legal manoeuvre known as a Texas two-step. The tactic involved dividing its consumer business in two and then offloading tens of thousands of talc lawsuits on to a newly created subsidiary, which almost immediately filed for Chapter 11. The goal was to halt the avalanche of lawsuits and force plaintiffs into a global settlement in bankruptcy court.
The plaintiffs accuse J&J’s Baby Powder and similar cosmetic products of causing ovarian cancer and mesothelioma. The company maintains its talc products are safe.
The plaintiffs’ attorneys filed their brief on the eve of a bankruptcy hearing that kicks off J&J’s attempt to revive the settlement effort after the appeals court rejection.
The Court of Appeals in Philadelphia shot down the two-step tactic on the grounds that J&J’s subsidiary, LTL Management, had no legitimate claim to bankruptcy protection because it was not financially distressed.
The court cited J&J’s promise to give the companies an unlimited amount of money to settle lawsuits.
In response, J&J reworked its agreements to avoid the kind of guaranteed funding it previously provided the subsidiary. But the new arrangements amount to a fraudulent transfer because they put tens of billions of dollars out of plaintiffs’ reach, the cancer victims’ lawyers argued on Monday.
The filing highlights the mounting opposition from some plaintiffs’ lawyers to the new proposed settlement. For J&J, the stiff resistance will add to the difficulty of prevailing against inevitable challenges almost certain to cite issues similar to the ones the appeals court had already cited in rejecting J&J’s first subsidiary bankruptcy.
Erik Haas, J&J’s global vice-president of litigation, said the company remained confident in plaintiffs’ support for the proposed settlement, citing the backing of law firms representing more than 60 000 claimants. J&J has not provided a firm estimate of the total number of talc claims it faces.
J&J has won the vast majority of talc cases that have gone to trial but has also suffered losses, including one major judgment that eclipsed $2bn.
The company has argued that bankruptcy provides the only forum to permanently resolve current and future talc lawsuits, saying bankruptcy serves the greater good for all parties by delivering settlement payouts more fairly and efficiently than trial courts, where some litigants get large awards and others get nothing.
Its new financing arrangements with its subsidiary address the appeals court’s concerns while still providing money to pay claims, it added.
In their filing on Monday, attorneys for cancer victims opposing the agreement said the new financing structure created a new legal problem: J&J had fraudulently transferred $50bn of assets away from LTL Management to dodge the appeals court’s earlier ruling, the lawyers alleged.
They disagreed with the J&J subsidiary’s explanation that the financial rearranging left talc claimants unharmed because the new agreements provided money to compensate them. If so, they argued, LTL Management still lacked financial distress when declaring bankruptcy – the same problem underpinning the appeal's court rejection.
The plaintiffs’ court filing also disputes J&J’s claimed level of support for its proposed settlement. The deal is opposed by more than 100 law firms representing 40 000 claimants, they argued.
The company created the appearance of support by signing agreements with law firms that “have never filed a talc-related lawsuit against J&J”, the opposing cancer victims’ lawyers argued.
Jim Onder, who represents 21 000 talc claimants and supports J&J’s settlement offer, said that it is not unusual for law firms to represent many clients whose cases have not been filed. That’s especially true in J&J’s case, because a bankruptcy judge halted all new talc lawsuits after J&J’s subsidiary filed for Chapter 11 in 2021.
Two plaintiffs’ lawyers supporting J&J’s proposed settlement said their clients had not yet decided whether to approve the agreement. The lawyers, who said they represent 15 000 and 6 000 claimants, respectively, told Reuters they planned to recommend their clients take the deal.
The ultimate level of support will be crucial, as LTL Management must obtain agreement from 75% of talc claimants for a judge to approve its bankruptcy settlement. That threshold is the one required in asbestos-related bankruptcies, a higher bar than in most traditional court restructurings.
Plaintiffs have alleged in some lawsuits that J&J’s talc contained cancer-causing asbestos, which the company denies.
Regardless of how J&J fares in its latest bankruptcy manoeuvre, the company has already succeeded in staving off a legal and financial reckoning for a while longer.
That was the whole point of the Texas two-step, plaintiffs lawyers argued this week. The newly created subsidiaries of J&J and other two-stepping corporations, they wrote, have no operations, no employees and no other business purpose but to shield their parent companies from accountability.
“Creating delay is their only business.”
See more from MedicalBrief archives:
J&J proposes settlement of billions in talc cancer claims
J&J claims fraud in paper linking talc to mesothelioma
J&J receives subpoenas related to asbestos contamination litigation