Johnson & Johnson defends talc bankruptcy strategy that cancer prosecutors call ‘corrupt’

Feb 14 (Reuters) – Johnson & Johnson (JNJ.N) Its subsidiary was attacked in court Monday for trying to use the bankruptcy process to resolve tens of thousands of allegations that baby powder and other talc-based products caused cancer.

The subsidiary, LTL Management, is fighting to stay in bankruptcy, arguing that this is the best way to reach a “fair, effective and consensual solution” to more than 38,000 claims alleging that J&J’s talc-based products have caused cancer, including mesothelioma. J&J assures that consumer talc products are safe.

J&J used a legal maneuver known as “Texas Two Steps,” which allows companies to separate valuable assets from liabilities through a so-called split merger.

Lawyers representing cancer patients say the bankruptcy case is intended to delay and frustrate lawsuits that would have gone to jury trial directly against J&J.

“This case is corrupt at its core,” Jeffrey Jonas, an attorney for one of the plaintiffs’ panels, said during opening arguments Monday.

Robert Westhoff, president of LTL Management, testified that it would be impossible to refer all cases to trial. Before the formation of the LTL, Wuesthoff said, J&J had completed about 10 talc trials per year.

He added that most cancer plaintiffs would be better off settling their claims in a bankruptcy settlement rather than hoping to join the “chosen few” who won “lottery-sized prizes” in jury trials.

As Reuters reported, J&J secretly launched “Project Plato” last year to shift liability from the pending talc lawsuits to the newly formed subsidiary, which was then set to declare bankruptcy.

If J&J gets approval in bankruptcy court, such a strategy, though rarely used, could be more widely adopted by larger companies facing liability, according to the plaintiffs’ attorneys at talc, as well as some legal experts.

House Democratic lawmakers in July 2021 proposed a bill that would block the maneuvering.

U.S. Bankruptcy Judge Michael Kaplan in New Jersey has scheduled a five-day trial to consider an effort by panels representing plaintiffs to dismiss the bankruptcy case. Kaplan said he plans to rule before the end of the month.

no ‘financial crisis’

Lawyers for the plaintiffs argue that allowing LTL bankruptcy proceedings to continue would put an unfair limit on the payment at the $2 billion that J&J proposed making available to people who have been harmed.

Brian Glaser, an attorney representing the mesothelioma claimants, said Monday that J&J settled 6,846 of those cases for $966 million before deciding to pay those legal risks to LTL.

Glaser said that if J&J reached similar settlements in all of the 38,000 talc cases pending against it, the company would have about $5.5 billion in liability, which would not cause “financial hardship” for a company of the size of J&J.

“Just because J&J is rich and fears reputational damage doesn’t give it the right to opt out of the jury system,” Glaser said.

J&J shares closed 1.3% lower at $165.60.

Talc lawsuits are on hold while J&J, which has a market capitalization of more than $446 billion, awaits the outcome of LTL’s bankruptcy proceedings.

A 2018 Reuters investigation found that J&J has known for decades that trace amounts of asbestos, which is linked to mesothelioma, are lurking in baby powder and other cosmetic talcum products.

The company stopped selling baby powder in the US and Canada in May 2020, due in part to what it called “misinformation” and “unfounded claims” about the talc-based product.

Reporting by Dietrich Knuth; Additional reporting by Tom Hales in Wilmington, Del. Editing by Bill Bercrot and Stephen Coates

Our criteria: Thomson Reuters Trust Principles.