After another round of hearings in Johnson & Johnson’s effort to use a Texas Two-Step bankruptcy strategy for talc litigation, federal bankruptcy Judge Michael Kaplan has ordered the company and those opposing the move to conduct settlement talks, Bloomberg reports.
With its second bankruptcy attempt for LTL Management—a subsidiary established by J&J to hold the claims—the company offered a settlement of $8.9 billion. While one group of law firms representing plaintiffs supports the offer, another group opposes the move.
Earlier this week, the opposition group, called the Official Committee of Talc Claimants, urged the bankruptcy court to dismiss the case by arguing that LTL can not be considered in financial distress.
"The filing is a desperate and legally deficient attempt by a small number of law firms to try to prevent claimants from voting on the resolution plan—a plan the vast and growing majority of claimants support," J&J's litigation chief Erik Haas, said in a statement. "The law firms behind this filing have financial interests that conflict with, diverge from and contravene those of their clients. We will be submitting a response to the appellate court."
Clay Thompson, a lawyer for MRHFM, which has more than 80 mesothelioma clients who have sued J&J, said that the company's second bankruptcy try will fail.
"J&J issues press releases about how great its plan is while simultaneously demanding that plan details—including what individual sick people would actually receive—be kept secret," Thompson said in a statement. "What does the company have to hide?"
Kaplan has instructed the sides to come up with another reorganization plan, under the oversight of two mediators.
In February 2022, Kaplan affirmed the ability of J&J’s use of Chapter 11 to hasten a settlement that would free the company from the tens of thousands of claims over its talcum products.
But in January of this year, a federal appeals court overturned the verdict, ruling that the company could not be considered in “financial distress.”
When J&J’s attempt to appeal to the U.S. Supreme Court was rejected in April, J&J filed for its second bankruptcy roughly two hours later. In response to that move, Kaplan froze the lawsuits for 60 days to decide whether to allow the second bankruptcy.
With the two Chapter 11 attempts, J&J has bought 19 months during which cases have been on hold. The company wants claimants to vote on accepting their settlement. J&J would need 75% acceptance for the deal to pass.
In addition to the group of talc lawyers who panned the company's bankruptcy play, the U.S. Trustee, an arm of the U.S. Department of Justice, also filed a motion to dismiss LTL's second bankruptcy case.
In a filing this week, U.S. Trustee Andrew R. Vara wrote that the doors of the bankruptcy court are "open to honest but unfortunate debtors." Those doors "are not open to parties that lack a legitimate bankruptcy purpose or that seek to abuse the bankruptcy process to hinder or delay their creditors," Vara continued.
For its part, J&J maintains there is no conclusive evidence that its talc products, including its iconic baby powder, cause cancer. J&J has taken the products of the market—first in North America in 2020—and the rest of the world this year.
J&J wants to avoid the costly business of going to trial. It has won the majority of the cases that have been decided at trial, but some losses have been very punitive.
A high-profile trial in Missouri resulted in a $4.7 billion verdict against the drugmaker, which was later reduced to $2.1 billion after appeals.
Overall, J&J has lost nine talc trials that are either on appeal or have been resolved. Out of 41 trials, 32 have ended in a win by J&J, a mistrial or plaintiff verdicts that were reversed on appeal. Separately, the company in 2020 moved to settle around 1,000 cases for $100 million, Bloomberg reported at the time.
Editor's note: Statements from J&J and the Official Committee of Talc Claimants were added after original publication of this story.