J&J's third attempt: will $8 billion be enough to end thousands of lawsuits this time?
Johnson & Johnson (J&J) has once again found itself at the centre of legal wrangling over its talc-containing products, such as baby powder, which have been accused of causing cancer. Despite repeated denials of the allegations, J&J is trying for a third time to use a legal strategy involving bankruptcy to end tens of thousands of lawsuits. The move could yield a settlement worth about $8 billion if it can get enough support from plaintiffs and pass legal hurdles.
On 22 September, a J&J subsidiary called Red River Talc filed for bankruptcy in a US court in South Texas. The move is part of a long-term legal strategy to end the litigation. J&J faces more than 62,000 lawsuits from people who claim its baby powder and other talc-containing products were contaminated with asbestos, which allegedly caused ovarian and other cancers.
Johnson & Johnson $JNJ+0.0% has long denied these allegations and stresses that their products are safe. Still, the lawsuits continue, which is why the company has decided for the third time to take advantage of the so-called "Texas two-step," a legal procedure that transfers liability for damages to a newly formed subsidiary, which then declares bankruptcy under Chapter 11 of the U.S. Code. By taking this step, J&J seeks a global settlement of all claims without filing for bankruptcy itself.
One of the key objectives of this strategy is to bring all the plaintiffs into a single settlement, which would prevent further individual litigation and expose the company to the risk of huge damages. Indeed, outside of bankruptcy, even partial settlements with plaintiffs could mean additional lawsuits from those who choose not to accept the settlement or who act as future plaintiffs.
To increase its chances of success, J&J asked the plaintiffs to vote on the proposed settlement in advance. According to the latest information, approximately 83% of the current plaintiffs have received support, which exceeds the minimum required 75% needed for a judge to approve the global settlement and prevent further litigation.
As for J&J's third attempt at bankruptcy, this one focuses only on lawsuits related to ovarian cancer and other gynecological diseases. In doing so, the company is building on previous settlements with state attorneys general and earlier lawsuits related to mesothelioma, a rare type of cancer linked to asbestos exposure.
However, Johnson & Johnson's bankruptcy strategy faces a number of legal hurdles. These include the U.S. Supreme Court's June decision regarding Purdue Pharma's bankruptcy, as well as proposed new federal laws to prevent financially healthy companies like J&J from using bankruptcy protection to deal with similar situations.
Disclaimer: There is a lot of inspiration to be found on Bulios, but stock selection and portfolio construction is up to you, so always do a thorough analysis of your own.
Source: CNN, Reuters.
These problems have been going on for quite a while. Right here, I believe that there just might have been a problem, but I wouldn't say that JNJ is directly to blame.