On Monday, a lawyer for Johnson and Johnson was asked tough questions about the company’s use of a controversial bankruptcy maneuver that has put tens of thousands of lawsuits related to Johnson’s baby powder on hold.
During the hearing, a three-judge panel from the United States Court of Appeals for the Third Circuit in Philadelphia asked if J&J had used the legal maneuver to get “a litigation advantage” over the roughly 40,000 cancer patients who have sued the company.
Most of the cases were brought by women. They say that the asbestos in Johnson’s well-known iconic talc baby powder caused their mesothelioma or ovarian cancer.
Last month, J&J said it would halt talc baby powder sales worldwide. However, the company has denied doing anything wrong.
Attorney Neal Katyal, representing the company, said that the “Texas two-step” bankruptcy move would help victims by leading to a faster settlement that could be worth as much as $61 billion.
Katyal acknowledged the criticism that “a big company that makes a lot of money is trying to avoid liability in some way.”
But he said that letting the flood of thousands of lawsuits linked to the baby powder play out in civil courts would cause legal chaos in the law and reduce the amount of money available to claimants.
How J&J Took Advantage Of The Texas 2-Step
J&J, based in New Jersey, used a quirk in Texas state law to start a new subsidiary called LTL in October of last year.
The healthcare giant put all its talc baby powder-related liabilities on the new company’s books.
LTL moved from Texas to North Carolina and filed for bankruptcy, stopping the tsunami of baby powder lawsuits.
Ultimately, the U.S. Court of Appeals for the Third Circuit will decide if LTL’s bankruptcy was filed in good faith and if it should protect J&J from cancer lawsuits.
During Monday’s session, lawyers for women who have claims against J&J criticized the legal strategy of the healthcare giant.
Attorney Jeffrey Lamken said, “Talc victims are stuck in bankruptcy as they die.”
He said that while LTL was going through the bankruptcy process, Johnson and Johnson paid out billions of dollars to shareholders and bought back shares of stock, which is not allowed for companies that are actually bankrupt.
Meanwhile, women with claims against the corporation have to wait while their health decines and medical expenses mount.
Lawyers for women with cancer say that the civil court system, not the bankruptcy court, is the proper venue to find out how responsible the company is.
This Case Could Reshape Civil Law In The United States
The U.S. Department of Justice has also taken issue with J&J’s move to file for bankruptcy.
On Monday, a lawyer for the Department of Justice (DOJ) said that if the courts uphold this legal strategy, it will let other wealthy companies that aren’t in bankruptcy and wealthy individuals use similar moves to avoid liability.
“If Johnson and Johnson can get away with this bankruptcy, what’s to stop any other American company from doing the same thing?” asked Sean Janda, a lawyer for the U.S. Trustee, which is a part of the Department of Justice that handles bankruptcy cases.
Some members of Congress have also said bad things about J&J’s strategy, and there has been public outrage against Johnson & Johnson.
Hanna Wilt, sick with mesothelioma and spoke at the end of last year, was angry that her baby powder lawsuit against the company took so long.
Wilt told NPR, “I look at who can play the game the best.” “It’s not new for big companies to try to work the system, so they don’t have to take full responsibility.”
Wilt died at age 27 in February of this year.
It’s unclear how soon the Third Circuit will decide, but judges usually move quickly in bankruptcy cases.
Experts in the law say that no matter the decision, an appeal will likely be made to the U.S. Supreme Court.
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