Law professors join fight against J&J's controversial move to spin out talc assets and file for bankruptcy - Endpoints News
With lawsuits piling up alleging its talc-based products caused cancer, J&J controversially spun its related liabilities into a separate company and filed for bankruptcy back in October. Now a committee representing the talc claimants is saying not so fast — and seven bankruptcy law professors are joining the chorus.
A group of professors from universities across the country is looking to submit an amici curiae, or “friend of the court,” brief in support of a motion by the talc claimants’ committee to dismiss J&J’s Chapter 11 case, according to court documents filed on Tuesday.
In their brief, the professors called J&J’s move a “direct attack on the fundamental integrity of the Chapter 11 system,” that would “deprive innocent talc victims of their day in court.” A trial on the committee’s motion to dismiss is expected to begin in just a few weeks, on Feb. 14.
The case stems back to lawsuits — 38,000 of them — claiming J&J’s widely-used baby powder and other talc products contained asbestos and caused mesothelioma and ovarian cancer. J&J said back in October that it had racked up nearly $1 billion in defense costs, and about $3.5 billion in payments for settlements and verdicts.
Though that’s just a drop in the bucket for J&J, which has a market cap of more than $450 billion, the company argued that the costs were untenable and that a Chapter 11 was necessary “to appropriately assess, resolve, and administer these claims in an efficient and equitable manner.”
The pharma giant invoked a Texas law that allows liabilities to be separated from assets into a new entity, a process formally known as a divisional merger but colloquially called a “Texas two-step” bankruptcy. As a result, J&J offloaded its talc-related liabilities into a company called LTL Management, which then filed for bankruptcy.
While several companies facing asbestos-related litigation have used the maneuver in an attempt to shield themselves from Chapter 11 proceedings — including, recently, lumber giant Georgia-Pacific — the professors warned of the kind of precedent J&J’s case would set.
“We all share a belief that this is not a valid reason for accessing the substantial powers that Congress gave to bankruptcy judges,” Jared Ellias, a professor at the University of California’s Hastings College of the Law and one of the brief’s signatories, told Endpoints News. “That creates worry I think for all of us like we said in the brief, the precedent this sets either in terms of other companies emulating this tactic or potentially broad rulings from upper courts that limit the usefulness of the bankruptcy system.”
The other professors named in the court filing are: Kenneth Ayotte of the UC Berkeley School of Law; Susan Block-Lieb of the Fordham University School of Law; Diane Lourdes Dick of the Seattle University School of Law; Bruce Markell of the Pritzker School of Law at Northwestern University; Robert Rasmussen of the USC Gould School of Law; and Yesha Yadav at the Vanderbilt University Law School.
J&J initially filed the case in North Carolina where the company thought the law might be favorable, according to Ellias. However, the case was moved to New Jersey, where J&J is headquartered.
“The fact that that all happened also kind of paints this whole thing in a bad light. Like why were they looking to be in bankruptcy in a court that they had very little connection to?” Ellias said.
J&J has taken talc-related suits to court in the past — and though the company says it has prevailed in a majority of cases, it’s also had its share of losses, including a Missouri case in 2018 when a jury awarded plaintiffs more than $4.7 billion in damages.
The company’s baby powder — advertised for “toilet and nursery” — first hit the market in 1894, and has since been used by hundreds of millions of consumers worldwide. Questions about whether the powder contained asbestos first arose back in the 1970s, although the J&J maintains that it has “never manufactured a product that contained asbestos.”
The pharma giant didn’t stop manufacturing the talc-based powder until May 2020, attributing the decision not to safety concerns, but to declining sales caused by “changes in consumer habits and fueled by misinformation around the safety of the product.”
“If claimants’ allegations were correct that the product causes disease, there should have been long ago an epidemic clearly attributed to the use of the product. That is not the case,” J&J argued in court documents.
This isn’t the first time a pharma company has turned to bankruptcy amid mounting litigation. Purdue Pharma filed for bankruptcy in 2019 as part of a deal that ultimately resulted in the Sackler family agreeing to pay $4.5 billion over the next nine years in exchange for protection. However, that settlement deal was overturned in December.
In a statement to Endpoints, LTL said:
Our overarching objective is to reach a fair and equitable resolution for claimants through a plan of reorganization and create a reasonable framework to address the unprecedented number of existing and future talc-related claims. While we continue to believe that these claims have no valid scientific basis, we anticipate they will continue to grow in number. Courts have uniformly acknowledged that equitably resolving these types of claims through Chapter 11 is a legitimate use of the restructuring process, and we believe that moving forward with this case will prove beneficial to all parties.
Last year, a group of Democrats in Congress — including US Sens. Elizabeth Warren (D-MA), Dick Durbin (D-IL) and Richard Blumenthal (D-CT), and US Reps. Jerrold Nadler (D-NY) and Carolyn Maloney (D-NY) — introduced the Nondebtor Release Prohibition Act of 2021, which would limit the use of such divisional mergers.
A handful of Democrats issued statements back in October blasting J&J’s Chapter 11 filing, including Rep. Raja Krishnamoorthi (D-IL), who said:
My investigation revealed that Johnson & Johnson knew for decades that it was poisoning people with its talc baby powder, and worked to actively cover it up. Many victims were women and babies. Now when it is being held accountable for its actions, it throws crumbs at the problem and tries to walk away. That’s unacceptable and unconscionable.
“The question this raises is really about the ability of pharmaceutical companies to opportunistically use the bankruptcy system to try to deal with legacy liabilities, which will always be an issue in pharma because there’s always mass torts issues in pharma,” Ellias said.
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source: https://endpts.com/law-professors-join-fight-against-jjs-controversial-move-to-spin-out-talc-assets-and-file-for-bankruptcy/
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