By W. Cameron Stephenson, Esq. Levin Papantonio Rafferty
JOHNSON & JOHNSON’S ATTEMPT TO AVOID TALC LIABILITY THROUGH ABUSE OF U.S. BANKRUPTCY CODE DID NOT WORK
Global giant Johnson & Johnson concentrates its business in pharmaceutical, medical device, and consumer packaged goods. In 2021 alone, the company generated approximately $93.7 billion in revenue. As of this article, Johnson & Johnson has a total market capitalization of $424.7 billion. Everyone knows Johnson & Johnson is one of the largest corporations in the world. And, it has long projected an image of prioritizing wholesome, family values as being at the core of all of its business practices and products. For at least the past 100 years, Johnson’s Baby Powder with talc has no doubt been the company’s poster child product for this image. But now, the truth about Johnson’s Baby Powder has been unveiled: it contains multiple carcinogens including asbestos, it causes cancer and it kills.
In 2016, after lawsuits were filed in multiple jurisdictions across the country alleging that Johnson’s Baby Powder caused ovarian cancer, the U.S. Judicial Panel on Multidistrict Litigation consolidated all claims before the Honorable Freda L. Wolfson in the U.S. District Court for the District of New Jersey (MDL No. 2738). On April 27, 2020, following nearly four years of intensive scientific discovery on epidemiologic issues, Judge Wolfson issued her Opinion and Order on Daubert, finding in favor of general causation linking Johnson’s Baby Powder to ovarian cancer and ruling that individual lawsuits could proceed to trial by jury on the issue. As of 2021, more than 38,000 lawsuits had been filed in the MDL alleging Johnson’s Baby Powder caused ovarian cancer. It was anticipated that the first MDL trials would begin sometime in the spring of 2022. Facing the risk of massive verdicts, the company decided that it simply could not allow these cases to move forward to trial…in comes Jones Day and the infamous Texas Two-Step.
In October of 2021, through a series of contractual agreements under the guise of a Texas divisive merger law, Johnson & Johnson spun its subsidiary old Johnson & Johnson Consumer, Inc. into two new companies: new Johnson & Johnson Consumer, Inc. (keeping all of its “good” products) and LTL Management, Inc. (taking its “bad” talcum powder products along with their liability). Then, two days later, Johnson & Johnson filed LTL Management, Inc. for bankruptcy claiming the company was in financial distress. Make no mistake, Johnson & Johnson’s Texas two-step bankruptcy filing of LTL was a pure and simple litigation tactic with but a single, unequivocal purpose — to stay all litigation and get the cases out of the tort system. Why? Because in bankruptcy, Johnson & Johnson knew it would have all the bargaining power which would result in diminished claim values. The company knew the tort system was the only venue that would provide victims a level playing field, and it had to get out.
Now, I ask any reader of this article, how can a half trillion dollar company actually be in financial distress or even pretend to be? It seems laughable right? Well, the United States Court of Appeals for the Third Circuit, in dismissing the bankruptcy on January 30, 2023, seemed to strongly agree:
We start, and stay, with good faith. Good intentions — such as to protect the J&J brand or comprehensively resolve ligation — do no suffice alone. What counts to access the Bankruptcy Code’s safe harbor is to meet its intended purposes. Only a putative debtor in financial distress can do so. LTL was not. Thus we dismiss its petition.
The U.S. Bankruptcy Code is meant for honest companies with true solvency issues. It is meant to allow good faith companies the opportunity to reorganize while using the limited assets available to compensate various classes of creditors in a fair and equitable way. The Code is not meant to be used as a tool for gamesmanship in civil litigation. It is not meant to protect otherwise healthy companies that pay record bonuses to executives and dividends to shareholders from civil liability for defective products.
After the Third Circuit issued its LTL opinion, it should come as no surprise that corporate boardrooms across America immediately began to put their spin on this monumental defeat to bankruptcy filing abuse to avoid mass tort liability. After all, the Texas Two-Step and similar bankruptcy filings had quickly become corporate America’s latest all-out attack on the tort system and a victim’s right to a civil jury trial as guaranteed by the 7th Amendment to the U.S. Constitution. As a specific example of spin, Johnson & Johnson/LTL continues to tell anyone who will listen that, “[t]he United States tort system is not equipped to resolve thousands of cases quickly or efficiently.” What the company doesn’t say is that as of 2021, the tort system has successfully resolved hundreds of thousands of mass tort claims through 1,500 plus now closed MDLs. Moreover, the tort system is successfully handling another 400,000 plus current mass tort claims across 171 active MDL proceedings. Despite these undeniable facts, Johnson & Johnson/LTL continue to maintain that the bankruptcy system is the best venue to, “… efficiently resolve claims in the cosmetic talc litigation in a manner that is equitable to all parties…” Quite candidly, Johnson & Johnson, each and every talc victim that I represent disagrees. My clients never wanted to be in the bankruptcy system; you dragged them there involuntarily. And, it is with a heavy heart that I report here that many of my clients have died while their tort cases were “stayed” because of the filing of this sham bankruptcy. Of one thing I am certain; the surviving family members of my deceased clients don’t feel the LTL bankruptcy treated their lost loved ones fairly and equitably. Just because corporate America does not like it when victims achieve justice in the tort system, that does not mean the tort system is broken or even flawed. The U.S. Bankruptcy Code was never intended to permit corporate America to run afoul of the 7th Amendment. Bad faith bankruptcy filings with no legitimate bankruptcy purpose must not be permitted by companies who are not in financial distress. Other appellate courts must follow the common sense logic of the Third Circuit.
At a minimum it can be said that pharmaceutical drugs provide some medical benefit in the face of an associated health risk. Johnson’s Baby Powder with talc is a cosmetic; it serves no medicinal purpose.
In May of 2020, only after the U.S. Food and Drug Administration independently detected asbestos in Johnson’s Baby Powder with talc, did Johnson & Johnson announce it would discontinue North American sales of the product. In August of 2022, the company announced it will no longer sell talc-based baby powder worldwide beginning in 2023.
Why did it take so long to pull this product from the market? When will Johnson & Johnson provide full compensation to cancer victims and their families?
Does this company really prioritize wholesome, family values as it says it does, or does it put profits over the health and safety of consumers? You be the judge.