Healthcare Giant Seeks New Venue for Talc Lawsuits Resolution

Johnson & Johnson (J&J) is eyeing Texas as the potential venue for its third attempt to resolve billions of dollars in cancer claims related to baby powder through bankruptcy protection. This move comes after two failed attempts in New Jersey courts, highlighting the company’s strategic shift in its ongoing legal battle that spanned several years and multiple jurisdictions.

5 Key Points

  • J&J is considering Texas for its third bankruptcy attempt to resolve talc lawsuits
  • The company has offered a $6.5 billion settlement to claimants
  • Critics accuse J&J of “forum shopping” to find more business-friendly courts
  • Over 75% of claimants have reportedly supported J&J’s latest settlement plan
  • A bipartisan bill aims to crack down on the “Texas Two Step” bankruptcy maneuver

Texas: A New Battleground for J&J Baby Powder Cases

After facing setbacks in New Jersey, J&J is looking to file its third Chapter 11 bid in Texas. The company’s choice of venue is significant, as Texas is widely regarded as having more business-friendly courts. This strategic move, known as “forum shopping,” is a legal tactic companies use to seek an advantage in court proceedings.

Erik Haas, J&J’s worldwide vice president of litigation, stated, “Although Texas is the anticipated venue of any prepackaged Chapter 11 case, a final determination has not and will not be made until the final vote count is certified by the claims administrator.” This cautious approach underscores the importance of the venue selection in J&J’s legal strategy.

The shift to Texas is not unprecedented in corporate legal strategies. For instance, billionaire Elon Musk moved electric car maker Tesla Inc.’s incorporation to Texas earlier this year after a Delaware judge invalidated his record $56 billion compensation plan. This trend highlights the growing importance of venue selection in high-stakes corporate litigation.

The Controversial “Texas Two-Step” Maneuver

J&J’s approach involves a controversial legal strategy called the “Texas Two Step” filing. This maneuver allows the company to confine liability to a unit set up to resolve the thousands of baby powder lawsuits. Last year, J&J moved this unit to Texas in preparation for its third bankruptcy attempt.

The “Texas Two Step” allows a company to split into two entities: one that holds valuable assets and another that assumes liabilities. The liability-holding entity then files for bankruptcy, potentially limiting the payouts to claimants. This strategy has been used by other large corporations facing mass tort litigation, such as Koch Industries and its Bestwall unit, in asbestos-related cases.

Critics argue that this tactic unfairly allows profitable companies to trap mass-tort cases in bankruptcy court, potentially forcing victims to accept lower settlements. A University of Illinois law professor, Robert Lawless, commented on the strategy: “It’s a blatant case of forum shopping. I don’t blame J&J’s lawyers for trying different strategies to advance their client’s interest. It’s up to the judges to resist.”

J&J’s Settlement Offer and Claimant Support

In its latest attempt, J&J has secured support from over 75% of claimants for its $6.5 billion settlement offer. This level of support is crucial under Chapter 11 rules, as it allows a bankruptcy judge to approve the unit’s settlement plan quickly. The plan aims to resolve all current and future ovarian and gynecological cancer suits related to J&J’s baby powder.

The high level of claimant support represents a significant shift in the legal landscape of this case. It suggests that many plaintiffs and their attorneys see the settlement as a viable resolution to the long-running dispute. However, it’s important to note that this support doesn’t guarantee the success of J&J’s bankruptcy strategy.

Despite this support, some legal experts remain skeptical about the chances of success for J&J’s third attempt. Melissa Jacoby, a University of North Carolina law professor and bankruptcy expert, stated earlier this year that the chances of success “should be zero.” This skepticism stems from the previous rejections in New Jersey and the ongoing debate about the appropriateness of using bankruptcy courts to resolve mass tort cases.

Legislative Response to Corporate Bankruptcy Tactics

The controversial nature of J&J’s legal maneuvers has not gone unnoticed by lawmakers. A bipartisan group of U.S. legislators has proposed a bill to crack down on the “Texas Two Step” bankruptcy strategy. The bill limits such tactics unless a company can prove it faces genuine financial distress and has the right to invoke bankruptcy protection.

This legislative response reflects growing concern about using bankruptcy courts to resolve mass tort cases, especially by financially healthy companies. The proposed bill could significantly impact how corporations approach mass litigation in the future, closing what some see as a loophole in the bankruptcy system.

J&J’s Stance on Baby Powder Safety

Throughout the legal proceedings, J&J has maintained that its talc-based powders never caused cancer and that it appropriately marketed its baby powder for over a century. The company has consistently defended the safety of its product, citing various scientific studies and regulatory approvals.

In 2023, J&J discontinued the talc-based version of the product, replacing it with a cornstarch-based alternative. While presented as a business decision, this move came amidst ongoing litigation and growing public concern about the safety of talc-based products. The discontinuation of the talc-based baby powder marks the end of an era for a product that had been a staple in many households for generations.

The Road Ahead

As J&J prepares for its third bankruptcy attempt, the outcome remains uncertain. The case continues to raise important questions about corporate responsibility, the role of bankruptcy courts in mass tort litigation, and the balance between corporate interests and consumer protection.

Samir Parikh, a Wake Forest University law professor who teaches about bankruptcy issues, offered a more optimistic view: “This case has been filled with twists and turns. It seems like the finish line is in sight.” Whether this finish line will bring closure for the thousands of claimants or lead to further legal battles remains to be seen.