In a significant legal development, Johnson & Johnson’s attempt to use bankruptcy to manage thousands of cancer claims linked to its talc-based products has been thwarted.
On July 25th, an appellate court upheld a previous ruling denying the company’s use of a subsidiary, LTL Management, to declare bankruptcy. This decision underscores the ongoing legal battles J&J faces and the legislative efforts aimed at curbing such tactics.
Court Upholds Denial of J&J’s Bankruptcy Plan
The appellate court’s decision to uphold the bankruptcy court’s denial of J&J’s bankruptcy filing marks a pivotal moment in the company’s legal strategy.
J&J had argued that the bankruptcy was necessary due to potential cash-flow issues, but the court rejected this reasoning, stating that the potential for future insolvency does not justify a Chapter 11 filing.
This ruling impacts J&J’s strategy to manage over 50,000 cancer claims, putting pressure on the company to find alternative solutions.
J&J attempted to transfer its talc liability to LTL Management, a subsidiary, which then filed for bankruptcy in Texas—a maneuver known as the “Texas Two-Step.” This tactic was intended to delay lawsuits filed against J&J and manage its financial obligations. However, the court’s decision has now put this plan in jeopardy.
Claimants’ Voting Deadline and Settlement Proposal
In response to the legal challenges, J&J proposed a new “Plan of Reorganization,” offering a $6.48 billion settlement over 25 years to resolve the majority of its U.S.-based talc lawsuits. This settlement plan requires a 75% supermajority approval from the claimants, who had until July 25th to vote. The outcome of this vote could significantly influence J&J’s legal and financial future.
Not everyone agrees that this blanket settlement is in the best interest of claimants or their families. Several prominent law firms have voiced their opposition, arguing that the settlement is insufficient and does not adequately compensate the victims. The proposed settlement is seen by some as another attempt by J&J to avoid full responsibility for the harm caused by its products.
Legislative Efforts to Halt the “Texas Two-Step”
In a related development, a bipartisan group of lawmakers introduced the Ending Corporate Bankruptcy Abuse Act (ECBA) on Capitol Hill. This legislation aims to end the “Texas Two-Step,” a bankruptcy maneuver used by corporations like J&J and Georgia Pacific to shield themselves from asbestos liability.
The ECBA, introduced by Senators Sheldon Whitehouse (D-RI) and Josh Hawley (R-MO), along with Representatives Emilia Sykes (D-OH) and Lance Gooden (R-TX), seeks to prevent corporations from abusing bankruptcy laws to avoid accountability. The bill would instruct courts to presume a corporation filed for bankruptcy in bad faith if it appears to be a “Texas Two-Step.” It would also ban stays of litigation against a debtor’s non-bankrupt affiliates if a debtor engaged in such a bankruptcy within the previous four years.
Reactions and Implications
Lawmakers and legal experts have expressed strong opinions about the ECBA and the court’s ruling against J&J. “The Texas Two-Step has mired tens of thousands of injured Americans in protracted proceedings, while the mega-corporations that harmed them continue making money and avoiding penalties,” stated Senator Whitehouse.
These developments have significant implications for J&J’s legal and financial standing, highlighting the challenges in holding large corporations accountable. The ongoing legal battles and legislative actions underscore the importance of consumer protection and corporate responsibility.
Johnson & Johnson continues to face intense legal scrutiny over its use of bankruptcy tactics to manage cancer claims linked to its talc-based products. The recent court ruling and the introduction of the ECBA highlight the ongoing efforts to hold the company accountable. These actions are crucial in ensuring justice for the victims and preventing similar corporate abuses in the future.
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