Johnson & Johnson has proposed, for the third time, a simple deal for plaintiffs claiming its cosmetic talcum powder gave them cancer: File a claim in bankruptcy court, and get a check for up to $200,000.
The main opposition to this plan comes from a major plaintiffs firm that says it can get more for its clients in court. But that ignores the reality that tens of thousands of plaintiffs would have to wait decades for the already clogged court system to hear their cases. The alternative of getting their day in court doesn’t exist in the real world, and Johnson & Johnson has won many of the trials that have already happened anyway.
Even academic critics of some bankruptcy tactics agree a court-mandated payout plan like the one J&J has proposed may be superior to trying to resolve thousands of individual claims in litigation.
When lawyers flood the airwaves with advertisements seeking clients for a mass tort, like they’ve done with products like Roundup and talc, they get so many potential claimants that the normal litigation system breaks down.
The prospect of driving a company into liquidation inspires a “race to the courthouse” that “can destroy going concern value and lead to the dismemberment of valuable firms,” wrote University of Chicago Law School Professor Anthony Casey and Joshua Macey of Yale law in a 2023 article.
“When a firm is unable to pay all its tort claims, claimants who file early, or who find themselves before a sympathetic jury, or whose injuries happen to manifest quickly, may receive a large payout,” they wrote in “In Defense of Chapter 11 for Mass Torts.” “Late claimants risk being left with nothing.”
Johnson & Johnson found itself in this situation after plaintiff lawyers hired scientific experts who claimed to find asbestos contamination in cosmetic talc. Johnson & Johnson denies there was any asbestos in its talc products, but enough judges have allowed plaintiff experts to testify in court that juries have delivered unpredictable and sometime huge verdicts, including $4.7 billion – since reduced to $2.1 billion – a Missouri jury ordered J&J to pay to 22 women with ovarian cancer.
Faced with the risk of crippling liability, J&J tried to settle talc litigation by creating a special subsidiary called LTL Management and placing it in bankruptcy in 2021, with a promise from the parent company to pay up to $60 billion to settle claims. The Third Circuit Court of Appeals threw that bankruptcy out, ruling J&J’s rich guarantee meant LTL wasn’t in financial distress.
J&J tried again by reducing its commitment to $30 billion but that was rejected as well. Now the company has proposed a third attempt with the support of lawyers representing more than 75% of ovarian-cancer talc claimants.
The plan would pay $9 billion over 25 years, but it is opposed by Beasley Allen, a Texas law firm that says the proposal doesn’t pay enough.
"For now, we are continuing to fight for our clients and if J&J chooses the bankruptcy route for the third time, we will oppose it and we believe the company will fail," Beasley Allen partner told Reuters when J&J announced the support of other plaintiff firms last month.
The alternative could be worse, wrote Casey and Macey. Assume 10% of the 70,000 or so talc claims produce jury awards averaging $10 million apiece, not unrealistic despite J&J’s winning record in court.
A 10% success rate in court would saddle J&J with $70 billion in liabilities, enough to cripple its otherwise profitable consumer-products business.
With the company spending $1 billion or more a year on legal fees to defend such cases, and plaintiff lawyers taking 40% of the awards, the litigation costs alone would be staggering. The results also would be unfair, “with some victims getting nothing and others getting hundreds of millions,” Casey and Macey wrote.
Bankruptcy also allows a court to require money to be set aside for future claimants, something plaintiff lawyers hungry for fees in the present tend to overlook. Given virtually every adult in America has likely been exposed to cosmetic talc and plaintiff experts claim even tiny exposures can cause cancer, there will be tens of thousands of people with claims that are every bit as deserving – if plaintiff claims are to be taken seriously -- as the ones lawyers are pressing now.
The U.S. Supreme Court delivered a curveball to J&J’s strategy this year in by striking down agreements that previously allowed non-bankrupt parties to buy their way out of mass-tort liability by putting money into a company’s bankruptcy plan. The opinion by Justice Neal Gorsuch ruled Purdue Pharma couldn’t protect the founding Sackler family from opioid lawsuits in exchange for $6 billion in bankruptcy funding, unless all opioid claimants agreed.
This contrasts with the treatment other creditors get in bankruptcy, where a judge can “cram down” a settlement with only majority approval.
Justice Brett Kavanaugh dissented, joined by Chief Justice John Roberts, saying the decision will only make it harder for tort claimants to receive compensation. Chapter 11 bankruptcy law has mechanisms for dealing with holdouts like Beasley Allen who can otherwise derail an orderly process for paying claims, the dissenters said.
“Outside of bankruptcy,” Kavanaugh wrote, victims face “significant administrative costs” of multidistrict litigation, “which has limited coordination mechanisms and no tools for binding future claimants.”
On its third try, J&J hopes to obtain consent from enough ovarian cancer claimants to approve its prepackaged bankruptcy plan. A group of plaintiff firms including the Miller Law Firm and Keller Postman have signed off on the agreement and pledged to put it to their clients for a vote.
As with other mass-tort bankruptcies, they would presumably keep a significant portion of any payouts as fees, but administrative and defense costs would be far lower and payments would be equal among plaintiffs with similar claims.
The deal doesn’t include mesothelioma plaintiffs, whose claims are far fewer but command much higher market values. Johnson & Johnson will have to negotiate those settlements separately.