Photo:
Avishek Das/Zuma Press
Asbestos litigation bankrolled a generation of tort lawyers, and the trial bar now sees talcum powder claims as its next payday. What might stand in the way is the federal Third Circuit Court of Appeals, which last week heard argument on whether talc claims against J&J can be handled inside the bankruptcy code, rather than with jackpot lawsuits.
The talc litigation dates to 2013, as women began to say that baby powder had made them sick. By 2017 they were alleging that talc contaminated by asbestos had given them ovarian cancer and mesothelioma. The science didn’t back them up, but that didn’t stop a tsunami of some 40,000 personal injury claims against J&J and its subsidiaries.
Some of the cases settled, and the company has won most of those that have gone to trial. Of 41 cases that received a verdict, the company won 32 either with the jury or on appeal. But the cost of losing a single case can be catastrophic. In 2018 a Missouri jury awarded $2.1 billion to 22 women claiming harm from talc products.
To manage compensation for the rolling wave of claims,
Johnson & Johnson Consumer Inc.
created a subsidiary under Texas law last year called LTL, which then filed under Chapter 11 and created a settlement trust under Section 524 G of the bankruptcy code. The idea was to pay out proliferating claims without putting J&J’s entire consumer business in bankruptcy.
The tort bar went bananas, calling the reorganization the “Texas Two Step” and arguing that it was an evasive maneuver to avoid compensating the injured. In reality, creating a managed fund is more likely to get money to claimants. But no massive jury awards also means no huge fees to be siphoned by tort lawyers, which is why they’re livid.
In February, New Jersey bankruptcy Judge
Michael Kaplan
ruled that handling personal injury liabilities was “unquestionably a proper purpose under the Bankruptcy Code” that also could “accelerate payment to cancer victims and their families.” As for the reorganization by J&J, “merely availing itself of chapter 11 tools does not constitute an improper litigation tactic,” Judge Kaplan wrote.
Representing LTL before the Third Circuit this week, former Acting Solicitor General
Neal Katyal
argued that the fund is a more cost-effective way to dispense money than multidistrict litigation. “Every one of these cases costs us millions to fight even if the claims are meritless,” Mr. Katyal said. “That’s all money that can be going to the claimants, but it’s not going to the claimants because it’s going to attorneys.”
As for the science, research has found little evidence that talc has actually made women sick. A 2021 epidemiological study in the journal Gynecologic Oncology said the association between talcum powder and ovarian cancer is “weak” and that the “increase in absolute risk of ovarian cancer is very small.”
The National Cancer Institute reviewed multiple studies of talc use among women and incidence of ovarian cancer and concluded: “The weight of evidence does not support an association between perineal talc exposure and an increased risk of ovarian cancer.”
Yet the claims keep coming, and J&J has to deal with them. Bankruptcy law is meant to preserve some value for stakeholders in distressed companies. The lawyers may have to look elsewhere for their next payday, but this is another lesson about how the trial bar’s incentive is to spin the roulette wheel for a big jury award, even if that isn’t in the interest of the claimants.
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8