Johnson & Johnson wants to outsource baby powder litigation costs
The company plans to load off the liabilities into a new vehicle and then file for bankruptcy.
Johnson & Johnson (NYSE: JNJ) is considering a plan to outsource the liabilities from the widespread baby powder litigation to a newly formed company that would file for bankruptcy protection, according to seven people familiar with the matter. During the settlement talks, one of the health group's attorneys told plaintiffs' attorneys that J&J could pursue the bankruptcy plan, which could result in lower payouts for cases that aren't pre-resolved, some of the people said. The plaintiffs' attorneys would initially not be able to prevent J&J from taking such a step, but could take legal action to challenge him later. J&J has not yet decided whether it will move forward with the bankruptcy plan and may eventually abandon the idea, some of the people said. Reuters has been unable to determine whether J&J has hired restructuring attorneys to help the company review its bankruptcy plan. J&J is being sued by tens of thousands of plaintiffs who claim the baby powder and other talc products contain asbestos and cause cancer. Plaintiffs include women who have ovarian cancer and others struggling with mesothelioma. "Johnson & Johnson Consumer Inc. has chosen no course of action in this litigation other than to continue to defend the safety of Talk and negotiate these cases under the criminal offense system, as the pending lawsuits show," said the J&J subsidiary, which houses the company's talc products, according to a Reuters statement. J&J declined to comment further. Should J&J proceed, the disagreement plaintiffs could find themselves in a lengthy bankruptcy proceeding with what is likely a much smaller company. Future payouts to plaintiffs would depend on how J&J decides to fund the entity that houses its talc liabilities. J&J is now considering applying Texan's Merger Segregation Act, "which allows a company to split into at least two entities. For J&J, that could create a new entity that would house the talc liabilities and then file for bankruptcy to resolve litigation quit so some of the people. The maneuver is known among legal experts as the two-tier Texas bankruptcy, a strategy other companies facing asbestos claims have been using in recent years. J&J could also explore some other mechanism to effect bankruptcy filing alongside Texas law, some of the people said. Reuters research from 2018 https://www.reuters.com/investigates/special-report/johnsonandjohnson-cancer found that J&J had known for decades that asbestos, a known carcinogen, was lurking in its baby powder and other cosmetic talc products . The company stopped selling baby powder in the US and Canada in May 2020, in part due to "misinformation" and "unfounded claims" about the talk-based product. J&J claims that its talc products are safe for consumers and have been tested to be asbestos-free through thousands of tests. The blue-chip company, valued at approximately $ 443 billion, is facing lawsuits from more than 30,000 plaintiffs claiming its talc products are unsafe. In June, the U.S. The Supreme Court declined to try J & J's appeal against a Missouri court ruling that resulted in $ 2 billion in compensation for women who alleged the company's talc caused their ovarian cancer. The plaintiffs' attorneys view the two-tier bankruptcy strategy as one that bypasses potentially costly settlements or judgments. The companies see this as an opportunity to bundle numerous lawsuits in one court in order to conduct efficient negotiations that bankruptcy law prescribes for asbestos liabilities. The out of bankruptcy company may enter into a funding arrangement with the company, which is undergoing a judicial reorganization to cover future settlement payments. In 2017, Brawny paper towel maker Georgia-Pacific used Texas law to transfer asbestos liabilities to a company that later went bankrupt in North Carolina.