J&J Renews Fight to Halt Baby Powder Suits Using Bankruptcy
(Bloomberg) -- Johnson & Johnson is seeking to revive its strategy for resolving tens of thousands of lawsuits alleging its baby powder caused ovarian cancer and other health problems in women.
The company ended a two-day trial in Charlotte, North Carolina, on Friday to decide whether to temporarily halt 38,000 lawsuits aimed at J&J and about 250 retailers and insurance companies. The judge said he would announce his ruling next week when J&J’s bankrupt unit returns to court.
Stopping the suits is a key part of J&J’s strategy to pay at least $2 billion to end all current and future claims related to baby powder and other talc-based products. To do so, J&J executed a legal strategy known as the Texas Two Step, creating a unit in Texas to hold all of the lawsuits, then transferring that unit to North Carolina and placing it in bankruptcy.
If the lawsuits continue “outside of this court, it will effectively end this reorganization in its infancy,” company attorney Greg Gordon said.
The company decided earlier this year to employ the tactic in order to deal with the lawsuits now, in one place, instead of spending millions every month for decades fighting in courts around the country, said John Kim, the J&J lawyer leading the company’s effort.
One of the main reasons: it often takes many years for some of the diseases caused by asbestos and other harmful substances allegedly in baby powder to develop, he told U.S. Bankruptcy Judge Craig Whitley.
“If litigation continues for the next 60 years,” and victims keep winning huge awards, “no company could survive that,” Kim said.
Day in Court
The move angered lawyers for alleged baby powder victims, who say J&J is trying to block cancer victims from having their day in court. The lawsuits against J&J’s bankrupt unit, LTL Management as well as the operating company that once sold baby powder in the U.S., have already been halted as part of standard Chapter 11 bankruptcy rules.
It also caught the attention of Congress. The House Judiciary Committee voted Wednesday to advance a bill banning the strategy.
Now, Whitley must decide whether to stop the cases against J&J as well. Under certain circumstances, a non-bankrupt parent company can benefit from a bankrupt unit’s lawsuit stay. Last month, Whitley declined to immediately protect J&J from the lawsuits and asked the company to return to present more evidence.
Next week LTL Management will be back in Charlotte for a hearing about whether its case should be moved to a different bankruptcy court. Last month, just days after the Chapter 11 was filed, Whitely said he was considering sending the case to Delaware or New Jersey, in part because he has so many other, big Texas Two Step cases.
At that hearing, Whitely will say if he intends to issue an injunction protecting J&J from the lawsuits while LTL is in bankruptcy.
Whether he moves the case “could have an impact on what we do with the injunction and how long it lasts,” Whitley said.
If Whitley refuses to halt the cases, J&J will lose a key benefit of the Texas Two Step. Under the strategy, which is being employed in Charlotte by several other companies, victims are pressured to negotiate a deal that would set up a trust fund to pay them, instead of allowing any lawsuits to continue.
J&J attorneys argue a bankruptcy trust fund is more fair because it gives all victims a payout, instead of subjecting some victims to court losses that pay nothing, while others win huge jury verdicts. Earlier this year, the company paid $2.5 billion to about 20 women who blamed J&J’s baby powder for their ovarian cancer. And some of the cases against J&J, whose stock is valued at more than $430 billion, are nearing a jury verdict.
A lawsuit halt would be an opening move in what is likely to be a long court fight. Whitely has said he may send the case to New Jersey or Delaware, where the Texas Two Step has never been tried.
The case is LTL Management LLC, 21-30589, U.S. Bankruptcy Court, Western District of North Carolina (Charlotte).
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