TRENTON, N.J. (Legal Newsline) - Saying it is trying to avoid a “value-destructive, complex, expensive bankruptcy” of its $61 billion consumer-products division, Johnson & Johnson urged the Third Circuit Court of Appeals to reconsider a panel decision rejecting the reorganization of a smaller unit the company established to handle tens of thousands of lawsuits claiming its Johnson’s Baby Powder contains deadly asbestos.
Johnson & Johnson Consumer Inc. - maker of brands including Band-Aid, Tylenol, Neutrogena, Listerine and Rogaine - could legally file for bankruptcy under a provision of federal law designed for companies to process asbestos claims, the company said in a filing with the Third Circuit. But it chose to set up LTL Management to hold talc liabilities, in a procedure known as the “Texas Two-Step,” to avoid disrupting employees, creditors, vendors and business partners of its broader consumer business.
The Third Circuit decision “creates a perverse incentive to leave subsidiaries to crash into bankruptcy, ultimately harming claimants,” J&J said in a Feb. 13 filing requesting an en banc rehearing before the full Third Circuit of the ruling dismissing the LTL bankruptcy.
Late last month a three-judge panel Third Circuit rejected LTL’s attempt to resolve talc claims in bankruptcy, saying the unit wasn’t in imminent danger of financial collapse since J&J had extended a financial guarantee at least equal to the $61 billion value of its consumer-products business.
By filing an appeal, J&J stayed the dismissal of the LTL bankruptcy until its plea is resolved. At a hearing before U.S. Bankruptcy Judge Michael Kaplan in New Jersey on Tuesday, the company said it is considering other measures, including appealing to the U.S. Supreme Court, if it fails to obtain an en banc rehearing.
At the same time, the company is preparing to resume fighting talc cases in court, said J&J attorney Greg Gordon of Jones Day at the bankruptcy hearing.
“It is a Herculean effort to get a defense team in place to handle cases around the country,” Gordon told Judge Kaplan.
Johnson & Johnson formed LTL as a Texas corporation in 2021, handing it the talc liabilities as well as rights to insurance policies. J&J also pledged the assets of its entire consumer business to cover liabilities, as required under Texas law. It then placed LTL in bankruptcy with plans to negotiate a global settlement of talc claims.
Johnson & Johnson denies the validity of those claims and says its cosmetic talc doesn’t contain asbestos. But it said it was spending $10-20 million a month on legal defense and with more than 38,000 lawsuits pending, would spend hundreds of years and more than $190 billion to resolve all the cases in court.
In its filing seeking rehearing, the company said the Third Circuit panel misapplied bankruptcy law by failing to examine “the totality of facts and circumstances.” In the Fourth Circuit, where LTL filed for bankruptcy before the case was transferred to New Jersey, courts require a higher standard to prove a company filed in bad faith, J&J said. Even the Third Circuit has urged companies to seek bankruptcy protection early, “before they face a financially hopeless situation,” the company said.
“Blockbuster judgments for early claimants will threaten recovery for later ones,” the company said. “Unlike other contexts, the number of later claimants here is massive given the disease’s 50-year latency period.”
Plaintiff lawyers began pursuing talc litigation at the same time as traditional asbestos claimants with proven industrial exposures were dwindling. After a few large jury verdicts in 2017 and 2018, which were ultimately overturned on appeal, lawyers filed more than 38,000 asbestos lawsuits, with 10,000 or more a year expected for the next 50 years, J&J said.
After the U.S. Supreme Court declined to review the $4.1 billion Ingham verdict in Missouri (reduced to $2.25 billion on appeal), “plaintiffs began demanding billion-dollar payouts,” the company said.