If the experts who testify for plaintiffs suing Johnson & Johnson over talcum powder are to believed, the ubiquitous product is a slow-acting toxin that even in tiny doses can cause ovarian and other cancers.
That’s a problem for lawyers on both sides of J&J’s plan to settle all talc litigation by funding an $8.9 billion bankruptcy trust – one of the largest settlements in history -- to pay present and future claims. In filings with the U.S. Bankruptcy Court in New Jersey this week, J&J’s LTL Management Unit said it has an agreement with lawyers representing some 60,000 plaintiffs that will “fully, equitably and permanently resolve all current and future talc-related claims.”
To get this done, J&J and plaintiff lawyers not only must convince 75% of current claimants to agree to the bankruptcy plan, but also convince a judge enough money will remain in the pot to pay all future claimants. That’s going to be a tall order if plaintiff experts are correct, since there are hardly any Americans alive today who weren’t exposed to Johnson’s Baby Powder or other talc products at some point in their lives.
J&J only removed talc from the market in 2020. The two most common cancers in talc litigation, ovarian cancer and mesothelioma - an asbestos-linked cancer of the chest lining - both take decades to develop, so there are tens of thousands of potential claimants who haven’t yet manifested a disease they can blame on talc exposure.
“The ability to bind claimants we don’t even know about yet, this is an unbelievable force you can only find in bankruptcy court,” said Lindsey Simon, an expert on mass-tort bankruptcies who teaches at the University of Georgia Law School. “This doesn’t exist in any other place in the court system.”
The template for settling tort claims in bankruptcy was established by asbestos manufacturers after they became swamped with lawsuits and used Chapter 11 reorganization to put an end to the litigation. In exchange for funding a trust to pay claims, the bankrupt companies got a “channeling injunction,” or court order requiring all future plaintiffs to file their claims with the bankruptcy trust instead of fighting in court.
To protect those as-yet-unknown claimants, the bankruptcy court appoints a future claims representative, who is supposed to estimate how much money needs to be set aside to pay all the claims of people who lost their right to sue in the reorganization.
“It’s a core feature of any mass-tort bankruptcy,” Simon said.
Johnson & Johnson created LTL Management to avail itself of this process, setting up the Texas subsidiary to hold its talc-related liabilities, insurance policies and other assets and then putting it in bankruptcy under Section 524(g) of the Bankruptcy Code, which Congress established specifically for asbestos bankruptcies.
The first attempt failed when the Third Circuit Court of Appeals ruled LTL wasn’t actually insolvent, since J&J agreed to backstop any claims with the $61 billion value of its consumer-products business. J&J said it fixed that problem by agreeing to fund LTL up front with a limited cash contribution and put it back into bankruptcy.
Tension has already emerged in the LTL Management case between present and future claimants. In an April 5 court filing, lawyers with Maune Raichle Hartley French & Mudd objected to the fees attorney Randi Ellis charged as future claims representative, saying she exerted “MAXIMUM EFFORT—at $1,000/hour, paid by the billionaire tortfeasor—trying to limit the recovery of future cancer plaintiffs.” Ellis didn’t respond to a request for comment.
Maune Raichle represents mesothelioma plaintiffs, whose cases often settle for $1 million or more – with lawyers collecting 30% or more of that in fees. Court filings reveal J&J has paid $500 million to settle about 1,100 meso cases so far and has almost 500 more pending. But with mesothelioma diagnoses steady at about 3,300 a year in the U.S., it is reasonable to expect many more of those cancer patients will sue J&J over talc exposure in the future, since practically everyone has been exposed to it.
That makes for tension between the mesothelioma lawyers, who want to keep filing lawsuits in court, and lawyers representing women with ovarian cancer, who have the prospect of winning billions of dollars quickly if the bankruptcy plan is approved.
As part of the bankruptcy reorganization process, the judge will examine the provisions for future claims and both J&J and lawyers for current claimants have a strong incentive to make sure they are adequate. The future claims representative can object to an inadequate plan, said Simon.
“You don’t want the FCR to walk into court and say this plan is great for everybody except for future claimants,” she said. “The court will ask about this.”
While plaintiff lawyers routinely complain about solvent companies that use bankruptcy to try to settle mass-tort litigation against them, they also routinely sign off on such deals when the money is right. As J&J has pointed out in court filings, it would take decades and many billions of dollars to work through the tens of thousands of individual talc lawsuits that have been filed against it in court. Many plaintiffs would die in the meantime, and lawyers would gobble up half or more of the money.
“I actually agree that the bankruptcy system is a really good place to resolve cases like this,” Simon said. “Non-bankruptcy mass aggregated litigation has a lot of problems too.”
Based on early reactions, however, J&J will have a hard time convincing lawyers with the highest-value cancer cases – including law firms that specialize in slow-developing cancers like mesothelioma – to sign away their right to sue right now.
“I suspect the debtor didn’t put enough money in the pot yet to buy peace, knowing they will have to negotiate later in the case,” Simon said. “It’s not a first-day kumbaya moment.”.