A subsidiary of Johnson & Johnson has filed for bankruptcy for the third time in pursuit of a proposed $8 billion settlement. This legal manoeuvre aims to resolve tens of thousands of lawsuits alleging that the company’s talc products caused cancer.
The subsidiary, Red River Talc, filed in the U.S. Bankruptcy Court for the Southern District of Texas. This move follows significant support from claimants for the settlement plan.
Bankruptcy Filing Details
A Johnson & Johnson subsidiary, Red River Talc, initiated its third bankruptcy filing on Friday. The strategy aims to push forward an $8 billion settlement designed to conclude the numerous lawsuits accusing the company’s talc products of causing cancer.
The bankruptcy was filed in the U.S. Bankruptcy Court for the Southern District of Texas. This follows two previous rejections by federal courts, illustrating the challenges J&J faces in resolving these claims.
Scale of Litigation and Allegations
Johnson & Johnson is dealing with over 62,000 claimants who allege asbestos contamination in its baby powder and other talc products, leading to ovarian and other cancers. The company vehemently denies these allegations, maintaining that their products are safe.
In an effort to mitigate its legal exposure, J&J employed a ‘Texas two-step’ bankruptcy strategy. This tactic involves creating a new subsidiary to shoulder the talc-related liabilities, which then files for Chapter 11 bankruptcy.
The ‘Texas Two-Step’ Maneuver
The ‘Texas two-step’ is a strategic bankruptcy manoeuvre often used to manage large-scale liabilities.
It entails offloading liabilities to a newly formed subsidiary that subsequently files for bankruptcy, allowing the parent company to avoid direct bankruptcy.
This mechanism aims to consolidate all claims into a single settlement, shielding the parent company from further lawsuits. Bankruptcy judges can enforce settlements globally, thus preventing new lawsuits from emerging.
Pre-Vote on Proposed Settlement
To strengthen its bankruptcy case, J&J sought prior approval from its claimants on the proposed $8 billion settlement.
The aim was to ensure more than 75% claimant approval, which is the required threshold for a bankruptcy judge to impose a global settlement.
According to J&J, the company secured support from about 83% of current claimants, indicating a high level of acceptance for the proposed plan.
Focus on Gynecological Cancer Claims
The current bankruptcy effort specifically targets claims related to ovarian and other gynecological cancers. This approach differs from J&J’s previous attempts, encompassing settlements with state attorneys general and mesothelioma claimants.
The company has been in a protracted legal battle against the lawyers opposing this third attempt to settle through bankruptcy. Legal complexities persist, but J&J aims to streamline the resolution process through this focused strategy.
This narrower focus may enhance the feasibility of the settlement, potentially mitigating the extensive litigation impact on the company.
Legal Hurdles and Supreme Court Considerations
The bankruptcy strategy still faces numerous legal challenges. A recent U.S. Supreme Court decision regarding Purdue Pharma’s bankruptcy could influence the outcome.
Previous court orders have dismissed J&J’s earlier attempts at similar settlements, adding another layer of complexity.
Proposed federal legislation also aims to prevent financially stable companies from leveraging bankruptcy protection, which could further complicate J&J’s efforts.
Future Implications
If successful, this bankruptcy filing could set a precedent for other companies facing large-scale litigation liabilities.
It highlights the evolving landscape of corporate legal strategies in the face of mass tort claims.
The outcome of this case could significantly influence how companies manage extensive product liability in the future.
This third bankruptcy filing by a Johnson & Johnson subsidiary represents a pivotal moment in the protracted legal saga surrounding its talc products.
The proposed $8 billion settlement, if approved, could finally bring closure to thousands of cancer-related lawsuits, while also setting a precedent for future corporate liability cases.
