Written by Dietrich Knuth
NEW YORK (Reuters) – Johnson & Johnson’s (NYSE:) subsidiary can pursue its third attempt to resolve tens of thousands of lawsuits alleging that its talc products cause cancer in federal bankruptcy court in Texas, a judge ruled on Thursday, allowing the company… To avoid the place that dropped his previous two attempts.
U.S. Bankruptcy Judge Christopher Lopez, at a hearing in Houston, rejected arguments raised by the U.S. Department of Justice’s Office of the U.S. Trustee, its bankruptcy watchdog, and lawyers representing some of the women suing the company who oppose the settlement.
They argued that the case should be sent to the U.S. Bankruptcy Court in New Jersey, which oversaw and dismissed two previous bankruptcies that were intended to resolve the same talc-related lawsuits. But Lopez said the latest effort by Johnson & Johnson should be treated as a new case, in part because Johnson & Johnson had previously collected votes from claimants supporting the settlement.
“I think this bankruptcy case is different,” Lopez said.
Johnson & Johnson, based in New Jersey, faces lawsuits from more than 62,000 plaintiffs alleging that its baby powder and other talcum products were contaminated with asbestos and caused ovarian and other cancers.
The company said that its products do not contain asbestos and do not cause cancer. She says bankruptcy is the best way to fairly compensate plaintiffs, who otherwise would have waited years for their cases to be heard in a “lottery-like” tort system that often results in plaintiffs not recovering.
Eric Haas, vice president of worldwide litigation at Johnson & Johnson, said Lopez’s ruling will help the company’s settlement efforts.
“Today’s decision is another step closer to a complete and final resolution of the talc issue for the benefit of all stakeholders,” Haas said.
J&J’s Red River Talc filed for bankruptcy protection in Houston in September, seeking to take advantage of the ability of bankruptcy courts to enforce global settlements that permanently halt all related litigation and prevent new cases from being filed. It proposed a $9 billion settlement to resolve claims by women who claim they developed gynecologic cancers after using Johnson & Johnson’s talc products.
Beyond bankruptcy, any settlement reached by Johnson & Johnson with some claimants would still leave holdouts or future plaintiffs the right to sue — and leave the company exposed to potential billion-dollar judgments.
Opponents of the deal said Johnson & Johnson could not be allowed to simply choose a new bankruptcy court to get around previous rulings that its subsidiary was not eligible for bankruptcy protection. A federal appeals court ruled that neither its talc subsidiary nor Johnson & Johnson was in the kind of “financial distress” that bankruptcy was supposed to resolve, and reiterated that ruling after Johnson & Johnson and its talc subsidiary filed for bankruptcy for a second time.
If companies can seek new bankruptcy courts to escape a ruling they don’t like, the entire bankruptcy system will be undermined, Linda Reichendfer, an attorney for the U.S. trustee, said at the hearing.
Law firms opposing the settlement noted that J&J’s forum shopping has now resulted in three bankruptcies filed in three courts since 2021.
“If this isn’t abusive forum shopping, I don’t know what is,” attorney Sunny Bevel told Lopez on Thursday.
Bankruptcy reform advocate Cliff White said Lopez’s decision highlights the need for new rules to prevent bankruptcy forum shopping. “There are no rules anymore” after Lopez’s decision, said White, the former head of the American Trustees Program.
The proposed bankruptcy settlement has deeply divided attorneys who represent cancer victims. Some support the deal as the best way to get compensation for their clients, while others argue that the settlement value is too low and that wealthy companies like Johnson & Johnson should not be allowed to use the legal system to obtain bankruptcy protections reserved for people and companies who cannot pay their debts.
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