Exclusive: J&J plans to bankrupt talc liabilities, sources say

(Reuters) – Johnson & Johnson are investigating a plan to offload responsibility for the widespread baby powder litigation at a newly formed company that would then seek bankruptcy protection, according to seven people familiar with the matter.

During settlement discussions, one of the healthcare conglomerate’s attorneys told plaintiffs’ attorneys that J&J could pursue the bankruptcy plan, which could result in lower payments for cases that go unresolved in the past. prior, some people said. Lawyers for the plaintiffs would initially be unable to prevent J&J from taking such a step, but could pursue legal avenues to challenge it later.

J&J is yet to decide whether or not to pursue its bankruptcy plan and may ultimately drop the idea, some people have said. Reuters could not determine whether J&J had hired restructuring lawyers to help the company explore the bankruptcy plan.

J&J is facing lawsuits from tens of thousands of plaintiffs alleging that its baby powder and other talc-based products contained asbestos and caused cancer. The plaintiffs include women with ovarian cancer and others battling mesothelioma.

“Johnson & Johnson Consumer Inc. has not decided on any particular action in this litigation other than to continue to defend the safety of talc and to litigate these cases in the tort system, as evidenced by the ongoing lawsuits,” the J&J subsidiary housing the company’s talc products said in a statement provided to Reuters. J&J declined to comment further.

If J&J goes ahead, plaintiffs who have not addressed the issue could end up in protracted bankruptcy proceedings with a likely much smaller business. Future payments to claimants would depend on how J&J decides to finance the entity housing its talc liabilities.

J&J is now considering using Texas “Mergers That Divide” law, which allows a company to split into at least two entities. For J&J, this could create a new entity housing talc-related liabilities that would then file for bankruptcy to end the litigation, some people said.

The maneuver is known to legal experts as a two-stage bankruptcy in Texas, a strategy that other companies facing asbestos-related litigation have used in recent years.

J&J could also consider using another mechanism to file for bankruptcy in addition to Texas law, some people said.

A Reuters investigation in 2018 found that J&J had known for decades that asbestos, a known carcinogen, was lurking in its baby powder and other talc-based cosmetics. The company stopped selling baby powder in the United States and Canada in May 2020, in part because of what it called “misinformation” and “unfounded claims” about the product. talc. J&J maintains that its talcum-based consumer products are safe and confirmed by thousands of tests to be asbestos-free.

The blue-chip company, which claims a market value of around $ 443 billion, faces lawsuits from more than 30,000 plaintiffs alleging that its talc products were unsafe. In June, the United States Supreme Court refused to hear J&J’s appeal against a Missouri court ruling that resulted in $ 2 billion in damages awarded to women alleging that the company’s talcum powder had caused their ovarian cancer.

Lawyers for plaintiffs view the two-step bankruptcy strategy as a strategy that circumvents potentially costly settlements or judgments. Businesses see it as a way to consolidate many lawsuits in a single court for effective negotiations that bankruptcy law dictates for asbestos liabilities. The business outside of bankruptcy may enter into a financing agreement with the entity navigating a judicial restructuring to cover future settlement payments.

In 2017, paper towel maker Brawny Georgia-Pacific used Texas law to shift asbestos-related responsibilities to an entity that then filed for bankruptcy in North Carolina.

Bankruptcy cases filed to resolve disputes, including those related to asbestos, often take years and almost never fully reimburse creditors. OxyContin maker Purdue Pharma LP, for example, is set to resolve thousands of opioid-related lawsuits after two years of bankruptcy negotiations with a plan valued at more than $ 10 billion to process trillions of dollars. dollars in claims.

Another company, DBMP LLC, filed for bankruptcy last year to resolve asbestos-related liabilities and said the case could take up to eight years, according to a press release from the company.

J&J is also facing litigation alleging that it contributed to the opioid epidemic in the United States and recently recalled certain spray sunscreen products after discovering that some of them contained low levels of benzene. , another carcinogen.

The company agreed in June to pay $ 263 million to resolve opioid claims in New York City. He has denied any wrongdoing related to his opioids.