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Johnson & Johnson & Drama

Johnson & Johnson has announced a new strategy to resolve ongoing legal disputes by proposing a $6.5 billion settlement to tens of thousands of claimants alleging their talcum powder products caused cancer. This marks the company’s third attempt to leverage the bankruptcy system to settle these claims, despite two previous efforts being dismissed by judges.

The settlement aims to address nearly all current and future claims that its talcum powder products caused ovarian cancer. Previous attempts in 2021 and 2023 to use the bankruptcy court for settlement were rejected on the grounds that this was not the appropriate venue for such claims. Johnson & Johnson has signaled plans to challenge these decisions up to the Supreme Court, although specifics on how this new proposal will circumvent previous legal hurdles remain unclear.

For over a decade, Johnson & Johnson has been embroiled in legal challenges regarding its talc-based products, particularly baby powder, which is alleged to be contaminated with asbestos, contributing to cases of ovarian cancer and mesothelioma. The company has consistently denied these allegations. However, it has ceased the sale of talc-based baby powder globally in recent years in response to the backlash and legal challenges.

The latest proposal follows a failed attempt last year where Johnson & Johnson sought to settle 40,000 lawsuits with an $8.9 billion offer through a specially created subsidiary, LTL Management, later reincorporated in Texas as LLT Management. This subsidiary was intended to file for bankruptcy protection, thus enabling the court to manage and disburse the settlement funds. However, a judge dismissed this request, stating that Johnson & Johnson did not meet the financial distress criteria necessary for such a filing.

The use of bankruptcy court in mass litigation is seen as advantageous for companies like Johnson & Johnson because it potentially allows them to settle disputes en masse, including with claimants who do not agree to the settlement terms. As Lindsey Simon, a bankruptcy professor at Emory University School of Law, explains, this method can forcibly bind a significant percentage of claimants, including future ones, to a settlement, a process she describes as “strong medicine” due to its finality and broad impact.

Under the new settlement proposal, claimants have three months to vote on the plan. Approval by 75 percent of voting claimants would enable Johnson & Johnson to file for a “prepackaged” Chapter 11 bankruptcy. Erik Haas, head of litigation at Johnson & Johnson, argues that this approach minimizes the influence of plaintiff lawyers who might otherwise benefit disproportionately from legal fees outside of a reorganization.

In contrast, Andy Birchfield of the Beasley Allen Law Firm, representing some claimants, has expressed skepticism. Birchfield asserts that any bankruptcy filing resulting from this vote would likely be contested as fraudulent and in bad faith under the Bankruptcy Code.

This ongoing saga not only highlights the complexities of corporate legal strategies in addressing mass litigation but also underscores the significant legal and ethical questions surrounding the use of bankruptcy courts to resolve such extensive public health-related lawsuits. As Johnson & Johnson attempts this new approach, the legal and corporate communities closely watch to see if this settlement strategy will finally bring an end to one of the most contentious chapters in its history.