A Johnson & Johnson subsidiary filed for bankruptcy for the third time on Friday as the healthcare giant pushes forward with a proposed $10 billion settlement aimed at resolving tens of thousands of lawsuits accusing its baby powder and other talc products of causing cancer.
More than 62,000 claimants have sued J&J, alleging that its talc products, including baby powder, were contaminated with asbestos, leading to ovarian and other cancers. To halt these lawsuits, J&J’s subsidiary, Red River Talc, sought bankruptcy protection in a Houston federal bankruptcy court.
J&J has consistently denied the allegations, maintaining that its products are safe. Erik Haas, J&J’s worldwide vice president of litigation, stated on Friday that the settlement is “fair and equitable to all parties,” noting that 83% of current talc claimants voted in favor of it.
Attorneys representing cancer victims remain divided over the settlement proposal. Opponents plan to quickly petition the court to dismiss the bankruptcy or transfer the case to New Jersey, where courts have twice rejected J&J’s previous attempts to end the litigation through a “Texas two-step” bankruptcy.
Andy Birchfield, an attorney challenging the deal, accused J&J of exploiting the bankruptcy system to underpay cancer victims. “We see this so-called vote as another fraudulent attempt by J&J to manipulate the bankruptcy process and diminish the legitimate claims of ovarian cancer victims,” Birchfield said.
Meanwhile, other attorneys, such as Allen Smith, who had previously partnered with Birchfield’s firm to represent 11,000 claimants, supported the settlement. Smith stated that the settlement “finally offers my clients reasonable and fair compensation. Now it’s time to move forward and get them compensated as quickly as possible.”
J&J’s “two-step” strategy involves transferring liabilities to a newly created subsidiary that then files for Chapter 11 bankruptcy. This maneuver aims to consolidate all plaintiffs into a single settlement without requiring J&J itself to declare bankruptcy. Bankruptcy judges can enforce global settlements that halt all related lawsuits and prevent new ones from being filed.
Outside of bankruptcy, any settlement J&J reached with some claimants would leave other plaintiffs, including future ones, with the right to sue. This exposure to potential multibillion-dollar verdicts prompted J&J to employ the two-step strategy. To bolster its third bankruptcy effort, J&J asked plaintiffs to vote on the proposed deal in advance, securing the more than 75% approval needed for a bankruptcy judge to impose the settlement on all claimants.
J&J’s third bankruptcy attempt differs from previous efforts, focusing solely on ovarian and other gynecological cancer claims. It builds on J&J’s earlier settlements with state attorneys general and mesothelioma claimants, who had sued after developing the rare cancer linked to asbestos exposure.
The proposed settlement would distribute approximately $10 billion to talc claimants over 25 years. The present value of the settlement stands at around $8 billion after J&J agreed to add $1.1 billion to the settlement fund and pay $650 million in legal fees to attorneys who had previously opposed the offer.
Despite J&J’s efforts, the bankruptcy strategy still faces legal obstacles, including a June U.S. Supreme Court decision regarding Purdue Pharma’s bankruptcy, court rulings dismissing J&J’s earlier attempts, and proposed federal legislation designed to prevent financially healthy companies from exploiting bankruptcy protections.
