Johnson & Johnson is using Texas law and bankruptcy court to resolve legal liabilities related to its talc-based products, placing a new subsidiary holding the claims under Chapter 11 protection.
The new unit, LTL Management LLC, filed for bankruptcy in North Carolina on Thursday. In court documents, he listed up to $ 10 billion in assets and up to $ 10 billion in liabilities.
Johnson & Johnson itself has not filed for bankruptcy.
âAs we continue to be a strong advocate for the safety of our talc-based cosmetic products, we believe that resolving this issue as quickly and efficiently as possible is in the best interests of the company and all stakeholders,â Michael Ullmann , executive vice president of Johnson & Johnson, said in a statement.
Prior to filing the Chapter 11 case, J&J used a legal process known as the Texas Divisional Merger. Texas law allows a company to create a new business entity to house its debts while its primary company continues to operate normally. The new company is given a name not associated with its main brand and is then housed in a state with favorable bankruptcy judges, such as North Carolina, so that it can file for bankruptcy and pay victims much less.
The bankruptcy filing shows that in 1979, what J&J calls “the old JJCI” assumed all of the responsibility associated with the Johnson cosmetic baby powder powder litigation (although J&J continued to be cited as a defendant in these cases). After the separative merger, the old JJCI ceased to exist and LTL Management LLC and the new JJCI were formed, with LTL taking over the talc-related responsibilities of the old JJCI and some assets. The new JJCI was allocated the remaining assets and liabilities of the old JJCI.
Once the new company is formed in Texas, it can be moved. J&J has stated that LTL, which he calls “The Debtor”, is now based in New Jersey.
Lawyers estimate that without the benefit of a two-step Texas law, J&J would have had to set aside $ 25 billion for victim payments, given that ovarian cancer treatment costs an average of $ 500,000. However, in its bankruptcy filing, the company said it would establish a $ 2 billion trust to pay the amounts that the bankruptcy court determines its talc claim subsidiary owes and that it will divert payments from. royalties valued at $ 350 million towards the unit.
It’s a disappointing but not unexpected development for the tens of thousands of women who have yet to have their day in court with J&J. In an annual filing, J&J said it set aside around $ 4 billion for litigation, an indicator it did not intend to shell out nearly $ 25 billion.
Last year, J&J reported annual revenue of $ 82 billion.
To help with the merger dividing Texas, J&J retained the Dallas law firm Jones Day, which handled previous two-stage cases in Texas. Texas is the only state where the option of separate amalgamation is possible. Delaware allows divisive mergers, but only for limited liability companies. In Texas, any business is allowed.
The US Bankruptcy Court provides businesses with heavy legal responsibilities a central forum for resolving claimants. Filing for bankruptcy usually puts an end to all pending lawsuits against a company.
Now that J&J has filed for bankruptcy, all litigation has stopped and will be suspended for years.
J&J’s bankruptcy filing on behalf of LTL blamed the trial lawyers.
“The sad reality is that this filing is necessitated by a relentless assault from the Complainant’s Bar, based on false claims that the debtor’s more than 100-year-old talc products contain asbestos and cause cancer, “the file says.
J&J continues to champion the safety of its products and says there is no scientific evidence linking its powder to ovarian cancer. J&J says the timing of the allegations proves the “booming” cosmetic talc litigation industry is a drain on money.
Before the 2010s, only a “small number of isolated cases” had been filed and were “rarely” taken seriously, according to the file. But in the mid-2010s, lawyers were “on the hunt for a new solvent ‘asbestos’ defendant after most exited the tort system” and “revived the decades-old allegations.”
The company said it spent nearly $ 1 billion defending itself in litigation. The settlements and verdicts cost him an additional $ 3.5 billion.
In 2018, Houston attorney Mark Lanier won the biggest jury verdict yet on behalf of J&J victims with a record $ 4.69 billion for 22 women and their families. Earlier this year, J&J, valued at $ 435 billion, lost its bid to overturn the verdict, but the payout was reduced to $ 2.2 billion.
In the bankruptcy filing, the company calls Lanier’s verdict “extraordinary” and “the fifth-largest personal injury verdict in US history.” He said payments like this were “unsustainable” for even a small fraction of the lawsuits and it forced the Chapter 11 filing.
The company said it had about 1,300 ovarian cancer cases and more than 250 mesothelioma cases dismissed without payment.
“In short, the debtor undeniably has more than sufficient funding to pay any legitimate claim for cosmetic talc,” the file indicates.
The case is LTL Management LLC, 21-30589, US Bankruptcy Court for the Western District of North Carolina (Charlotte).