Johnson & Johnson bankruptcy slammed by cancer prosecutors as ‘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.

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

J&J assures that consumer talc products are safe.

“There was no attempt in this case to shirk responsibility,” LTL wrote in court papers in December.

J&J used a legal maneuver known as “Texas Two Steps,” which allows companies to split in two through a so-called divisional merger, in which one part of the company holds valuable assets while the other is burdened with responsibilities.

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

J&J’s bankruptcy strategy was criticized by some lawmakers during a US Senate hearing on February 8. Sheldon Whitehouse, a Democrat and chair of the Senate Judicial Subcommittee on Federal Courts, expressed concern that other companies might follow in J&J’s footsteps and use the “bankruptcy hoax to shirk responsibility for hurting Americans.”

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

US Bankruptcy Judge Michael Kaplan of New Jersey, who took over the LTL case in November when it was moved from North Carolina, has set a five-day trial date to consider an attempt by the committees representing the plaintiffs to dismiss the bankruptcy case. Kaplan said he plans to decide whether or not to dismiss the bankruptcy case 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.

LTL said in court filings that bankruptcy is a legal and appropriate response to an unpredictable and “potentially financially devastating” wave of lawsuits.

“Putting a lawsuit over the same allegations about an overrun in the tort system is a complete waste,” LTL attorney Greg Gordon told the court.

J&J shares were down 1.8% to $164.66.

Before J&J’s split over LTL, it faced $3.5 billion in judgments and settlements, including one in which 22 women spent more than $2 billion, according to bankruptcy court records.

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.

On February 4, Reuters reported that 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.

A 2018 Reuters investigation found that J&J has known for decades that trace amounts of asbestos are lurking in Johnson’s baby powder and other cosmetic talcum products. Asbestos is a known carcinogen that has been linked to mesothelioma.

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

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

Our criteria: Thomson Reuters Trust Principles.