According to Reuters, Johnson & Johnson (J&J) is mulling the possibility of seeking bankruptcy protection to offload liabilities the company faces because of talc baby powder litigation.
The plan, if pursued, would create a new business within J&J, which would inherit the talc liabilities. The newly-formed entity would then seek bankruptcy protection. Should J&J pursue the bankruptcy plan, it could result in lower payouts for plaintiffs that do not settle their suits before the restructure would fall into place.
Reuters reports that legal representation for J&J discussed this possibility during settlement discussions with plaintiffs’ attorneys. Although plaintiffs’ lawyers would be powerless to stop J&J from pursuing the bankruptcy option, they could challenge it down the road.
But if J&J follows through with the bankruptcy plan, “Plaintiffs who have not settled could find themselves in protracted bankruptcy proceedings with a likely much smaller company,” Reuters reports, adding that under the newly restructured entity, settlement amounts would depend on how J&J funds it new entity that would own the talc liabilities.
As of press time, Reuters could not confirm that J&J has retained restructuring legal representation. Nonetheless, attorneys for plaintiffs argue that J&J’s strategy “skirts potentially expensive settlements or judgments.”
In October 2020, J&J announced it would pay $100 million to resolve some 1,000 talc lawsuits, in which plaintiffs allege that J&J’s baby powder and other products containing talc contained the carcinogenic mineral, asbestos, and caused them to develop cancer. J&J faces at least 25,000 additional talc lawsuits that were not resolved by the settlement. In February, J&J disclosed in a regulatory filing that it had set aside $3.9 billion for litigation expenses.
Four months later, the U.S. Supreme Court declined to review a Missouri Appeals Court decision that awarded 20 women over $2 billion in damages for their injuries caused by asbestos-tainted talc powder.
J&J’s two-step bankruptcy protection plan has been employed by companies before. The restructuring plan can result in years-long delays to resolve settlement plans—and almost never fully repay creditors, Reuters reports.
As an example, Reuters references opioid manufacturing giant, Purdue Pharma, which is finally near resolving thousands of opioid lawsuits after two years of bankruptcy negotiations. But the bankruptcy plan resolves just $10 billion out of trillions of dollars in claims. (J&J reached an agreement in June with the state of New York to pay over $260 million to resolve opioid claims.)