Johnson & Johnson (J&J) has reached a settlement agreement to pay $8.9 billion to settle tens of thousands of lawsuits alleging that talc in its iconic Baby Powder and other products caused cancer, according to a statement from the company. The settlement amount is significantly higher than J&J's original offer of $2 billion, reflecting the escalating legal challenges the company has faced.
The agreement comes after a January appeals court ruling invalidated J&J's controversial "Texas two-step" bankruptcy maneuver, in which it sought to transfer the talc liability to a subsidiary that immediately filed for Chapter 11. The subsidiary, LTL Management, has now filed for bankruptcy protection for a second time with the intention of presenting a reorganization plan containing the proposed settlement to a judge as early as May 14, according to a court filing.
J&J stated that approximately 60,000 talc claimants have agreed to the proposed settlement. However, there is still a significant risk that other plaintiffs could continue to oppose the settlement and appeal the case to the same court that has already rejected the subsidiary bankruptcy - the 3rd US Circuit Court of Appeals in Philadelphia.
J&J has maintained that its talc products are safe and do not cause cancer, with company lawyers arguing that talc claims lack scientific merit and accusing plaintiffs' lawyers of seeking large financial sums by advertising for clients. Nevertheless, attorneys representing thousands of plaintiffs have issued a release opposing the settlement, calling it a "sham deal" that does not adequately compensate victims for their medical bills, according to Jason Itkin, founding partner of the Houston-based personal injury law firm Arnold & Itkin LLP.
The proposed settlement would provide payouts from a bankruptcy trust for plaintiffs diagnosed with cancer before April 1 within one year of a judge approving the Chapter 11 plan, with access to funds set aside in the trust for the next 25 years for plaintiffs diagnosed later, according to Mikal Watts, one of the plaintiffs' lawyers who helped negotiate the deal.
The massive settlement comes after the legal failure of J&J's original Texas two-step bankruptcy, which was filed in October 2021. The tactic, seen as an abuse of the bankruptcy system by critics, involved dividing the company being sued into two using a Texas state law and shifting liability to one of the newly created entities. LTL Management, the new subsidiary that absorbed the liability, filed for bankruptcy almost immediately after its creation.
J&J and its subsidiary have argued that the bankruptcy served the greater good for all parties, including plaintiffs, as the restructuring could deliver settlement payouts more fairly, efficiently, and equitably compared to trial courts where awards can vary significantly. However, the appeals court denied the J&J subsidiary's bid to delay the ruling from taking effect while seeking a review from the US Supreme Court, and US Bankruptcy Judge Michael Kaplan in New Jersey has now dismissed the previous LTL bankruptcy, complying with the appeals court ruling that reversed his earlier decision endorsing the maneuver.
Plaintiffs' attorney Mikal Watts believes that enough plaintiffs have agreed to the settlement to convince a bankruptcy judge to approve it, but the high bar of needing 75% of plaintiff-creditors to approve a restructuring plan in asbestos-related bankruptcies adds further complexity to the situation. A 2018 Reuters investigation revealed that J&J knew for decades about tests showing its talc sometimes contained carcinogenic asbestos but kept that information from regulators and the public. J&J announced in 2020 that it would stop selling its talc Baby Powder in the US and Canada due to "misinformation" about the product and later announced its intent to discontinue it worldwide in 2023.