J&J Mulls Third Talc Bankruptcy

J&J Mulls Third Talc Bankruptcy

Introduction

Johnson & Johnson (J&J) is considering initiating bankruptcy proceedings for its talc unit for the third time as part of an effort to advance an $8.9 billion settlement for thousands of claims alleging that J&J's baby powder caused cancer and mesothelioma.

The company made this announcement during an earnings call. During the third-quarter call, J&J's worldwide vice president of litigation mentioned that the company is actively seeking a consensual resolution for the talc-related claims through yet another bankruptcy filing. This approach aligns with a recommendation from the U.S. Bankruptcy Court for the District of New Jersey, which had rejected J&J unit LTL Management's second Chapter 11 case in July, citing a lack of the required financial distress for bankruptcy.

The vice president referred to the bankruptcy filing as the "second prong" of J&J's strategy to resolve the talc litigation. In addition to this, the company is also attempting to appeal the July dismissal by the New Jersey bankruptcy court to the U.S. Supreme Court.

The potential bankruptcy filing is following a similar path to LTL's first Chapter 11 filing, with a vote expected within the next six months to determine if the necessary supermajority of claimants supports the plan.

LTL was established in October 2021, shortly before the company's initial Chapter 11 filing in North Carolina bankruptcy court to address numerous claims stemming from exposure to J&J's cosmetic talc products, such as Johnson's Baby Powder and Shower to Shower body powder. Claimants allege that these products contain asbestos, which can lead to ovarian cancer, mesothelioma, and other severe health issues. J&J maintains that its products are safe, asbestos-free, and do not cause cancer or other illnesses.

A series of corporate transactions, known as the "Texas two-step" strategy, resulted in a division of assets and liabilities between J&J's consumer products business (Johnson & Johnson Consumer Inc.) and LTL (which holds the talc injury liability).

The first case was transferred to New Jersey bankruptcy court, where a U.S. Bankruptcy Judge rejected a motion from the official committee of talc claimants who sought dismissal on the grounds of bad faith. The judge believed that bankruptcy was the most efficient way to address the company's talc-related liability.

In January, the Third Circuit overturned the Chapter 11 case, stating that LTL was not in financial distress and lacked the necessary good faith to initiate bankruptcy proceedings. Shortly after the case was dismissed in April, LTL initiated a second bankruptcy, this time with an $8.9 billion settlement trust agreement involving numerous plaintiff firms representing nearly 60,000 talc claimants.

The talc claimants committee in the new case, along with the Office of the U.S. Trustee and a few other plaintiff firms, sought dismissal of the bankruptcy filing, resulting in a five-day dismissal trial in late June, which also led to the second case being thrown out.