Thursday, November 7, 2024
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A subsidiary of Johnson & Johnson has initiated its third bankruptcy filing in an effort to advance a proposed settlement valued at approximately $10 billion. This settlement aims to resolve tens of thousands of lawsuits that allege the company’s baby powder and other talc products have caused cancer, particularly ovarian cancer. This new bankruptcy petition was submitted in a federal bankruptcy court located in Houston, Texas, as the healthcare giant seeks to navigate its extensive legal challenges.

Currently, Johnson & Johnson is facing legal claims from more than 62,000 individuals who allege that the company’s baby powder and other talc products were contaminated with asbestos, thereby causing serious health issues, including various forms of cancer. In light of these allegations, the subsidiary, known as Red River Talc, has sought bankruptcy protection in an effort to halt ongoing lawsuits and negotiate a comprehensive settlement.

Johnson & Johnson has consistently denied the allegations against it, asserting that its products are safe for consumer use. Erik Haas, the company’s worldwide vice president of litigation, expressed optimism regarding the proposed settlement, stating that it is “fair and equitable to all parties.” He noted that 83% of current talc claimants have voted in favor of the settlement, which signifies a considerable level of support among those directly impacted by the lawsuits.

However, the proposed settlement has sparked significant division among attorneys representing cancer victims. Some attorneys are strongly opposed to the deal and are prepared to ask the court to either dismiss the bankruptcy or transfer the case to New Jersey. Notably, courts in New Jersey have previously rebuffed Johnson & Johnson’s attempts to resolve the litigation through what has been termed a “Texas two-step” bankruptcy maneuver.

Andy Birchfield, an attorney who opposes the settlement, criticized Johnson & Johnson’s strategy, accusing the company of manipulating the bankruptcy system to underpay tens of thousands of cancer victims. “We view this so-called vote as another fraudulent effort by Johnson & Johnson to manipulate the bankruptcy process and minimize the legitimate claims of ovarian cancer victims,” Birchfield remarked.

On the other hand, some attorneys have voiced their support for the settlement, including Allen Smith, a lawyer who has represented a significant number of claimants. Smith indicated that the settlement offers his clients a chance for “reasonable and fair compensation,” emphasizing the urgency of moving forward to secure compensation for those affected.

The strategy employed by Johnson & Johnson, often referred to as the “two-step” process, involves transferring liabilities to a newly formed subsidiary, which then files for Chapter 11 bankruptcy. This method aims to reorganize the company’s assets and debts under court supervision while compelling all plaintiffs to participate in a single settlement process, effectively sidestepping the need for Johnson & Johnson itself to file for bankruptcy.

In bankruptcy proceedings, judges have the authority to enforce global settlements that can permanently halt all related lawsuits and prevent new claims from being filed. If a settlement is reached outside of bankruptcy, there remains a risk that holdout plaintiffs or future claimants could still pursue legal action, exposing Johnson & Johnson to potential multibillion-dollar judgments.

To bolster its chances in this third bankruptcy attempt, Johnson & Johnson proactively sought pre-filing votes from plaintiffs regarding the proposed settlement to ensure adequate support. The company required backing from over 75% of claimants to allow a bankruptcy judge to impose the settlement terms on all plaintiffs involved.

The current bankruptcy filing also differs from previous attempts, as it specifically addresses claims related to ovarian and other gynecological cancers. This focus builds upon Johnson & Johnson’s past settlements with state attorneys general and individuals who have developed mesothelioma, a rare form of cancer associated with asbestos exposure.

The proposed settlement intends to provide approximately $10 billion to talc claimants over a span of 25 years. The present value of the settlement is estimated to be around $8 billion, following Johnson & Johnson’s agreement to contribute an additional $1.1 billion to the settlement fund and cover $650 million in legal fees for attorneys who previously opposed the settlement offer.

As Johnson & Johnson navigates this complex and contentious legal landscape, its bankruptcy strategy continues to encounter significant challenges. Legal hurdles remain, including a recent U.S. Supreme Court decision involving Purdue Pharma’s bankruptcy, prior court orders that dismissed its previous bankruptcy attempts, and proposed federal legislation aimed at preventing financially stable companies like Johnson & Johnson from obtaining bankruptcy protection.

The outcome of this latest bankruptcy filing and the proposed settlement could have profound implications for all parties involved, especially for the many individuals affected by the allegations against the company. As this situation develops, the discussions surrounding the bankruptcy and its ramifications will undoubtedly continue to capture public attention and scrutiny.

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