Instead of negotiating individual talcum powder settlements with women diagnosed with ovarian cancer, the manufacturer has repeatedly presented Chapter 11 bankruptcy plans that call for all liability for talcum powder lawsuits to be transferred to a subsidiary created specifically for that purpose. However, two previous attempts at this plan, known as the “Texas Two-Step,” have been rejected by federal bankruptcy judges, who determined that Johnson & Johnson faced no real financial threat, and that the bankruptcies were brought in “bad faith” to limit what the company has to pay out to women facing severe injuries or death.
Last September, after proposing an $8 billion talcum powder settlement offer, which it claimed has the approval of more than 75% of claimants, Johnson & Johnson once again proposed resolving the claims through a bankruptcy filing, to prevent any further litigation being pursued in the future. However, the offer was subsequently increased, and currently sits at about $10 billion.
As part of the “Texas Two-Step” bankruptcy, the manufacturer created a new subsidiary, known as Red River Talc LLC, and transferred all liabilities it faced for failing to warn about the talcum powder cancer risks to this new entity, which then filed for Chapter 11 protection in U.S. Bankruptcy Court for the Southern District of Texas. Observers say the move was designed to capitalize on the willingness for the bankruptcy court in Texas, even though Johnson & Johnson has a market cap of $390 billion and sufficient assets on hand to address the litigation through the civil justice system.
Talcum Powder Bankruptcy Trial
On February 18, a trial over the talcum powder settlement deal began before U.S. Bankruptcy Judge Christopher M. Lopez, who will ultimately determine whether the bankruptcy plan can proceed. The trial is expected to take about two weeks.
Many plaintiffs, and the federal government, have objected to the bankruptcy offer. Both the Department of Health and Human Services, and the Department of Veterans Affairs claim approval of the bankruptcy deal will mean they will not be reimbursed for healthcare provided to plaintiffs through programs such as Medicaid and Medicare. In addition, plaintiffs’ attorneys also called on Judge Lopez to reject the plan, so that they can pursue their own cases separately.
The trial is expected to conclude on February 28, but it is unclear when Judge Lopez is will issue a ruling.