Johnson & Johnson Secures Majority Support for its Proposed $6.5 Billion Talc Settlement

Johnson & Johnson (J&J) has reportedly secured the necessary support for its proposed $6.5 billion settlement to address tens of thousands of lawsuits alleging that its baby powder and other talc products caused cancer.

Over 75 per cent of claimants have voted in favour of the settlement proposal, meeting a key threshold set by the company. This percentage was established by J&J for its third attempt at placing a subsidiary into bankruptcy protection to resolve the ongoing litigation.

J&J spokesperson Clare Boyle mentioned that the company could not comment further as the final vote tally had yet to be confirmed.

The pharmaceutical giant is currently facing lawsuits from approximately 61,000 claimants, who allege that its talc products, including baby powder, were contaminated with asbestos and caused ovarian and other cancers. J&J has consistently denied these allegations, maintaining that its products are safe.

The company set the 75 per cent vote requirement, in line with a provision in US bankruptcy law, as the benchmark for proceeding with another bankruptcy filing, which is now anticipated in the near future. The deadline for casting votes was July 26.

After being twice rebuffed by federal courts, J&J is once again attempting to end the litigation through a strategy known as the "Texas two-step" bankruptcy.

In 2021, the company created a subsidiary, now known as LLT Management, to shield itself from talc-related lawsuits. However, previous bankruptcy attempts have been blocked by the courts.

The "two-step" manoeuvre involves transferring its talc liabilities to a newly formed subsidiary, which then declares Chapter 11 bankruptcy. The objective is to use the bankruptcy process to consolidate all claims into a single settlement without requiring J&J itself to file for bankruptcy.

However, the company needs 75 per cent of claimants to approve the plan before the subsidiary can ask a bankruptcy judge to impose the deal on all claimants.

Bankruptcy judges have the authority to enforce global settlements that permanently halt all related lawsuits and prevent new ones from being filed.

Outside of bankruptcy, any settlement J&J reaches with some claimants would leave room for holdouts or future plaintiffs to continue suing, exposing the company to potential multibillion-pound verdicts -- one of the key reasons for pursuing the "two-step" strategy.

J&J's bankruptcy strategy still faces significant legal challenges. Recently, the US Supreme Court issued a ruling in Purdue Pharma's bankruptcy case, narrowing the ability of courts to halt lawsuits against individuals and companies, like J&J, that are not themselves bankrupt, without the consent of the claimants.

However, J&J has stated that the Purdue ruling does not impact its settlement proposal, as US bankruptcy law includes specific legal protections for asbestos defendants who have not filed for bankruptcy.

J&J argues that it qualifies for these protections because the lawsuits generally allege that the talc used in its products was mined from deposits that also contained asbestos.

Some legal experts, however, question whether J&J truly qualifies for these protections, which were originally designed to encourage settlement payments by insurers with indirect liability for asbestos-related claims.

Moreover, the company’s strategy continues to face opposition from plaintiffs’ attorneys, who argue that the new settlement proposal should fail for the same reasons as the previous two attempts.

Courts previously rejected J&J’s first two talc bankruptcies because the subsidiary was not deemed to be in "financial distress," a challenge J&J must overcome in this latest bankruptcy effort.

In addition, there is proposed legislation in Congress that seeks to limit the ability of companies to shield themselves from lawsuits by placing shell companies into bankruptcy.

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